[Title 24 CFR ]
[Code of Federal Regulations (annual edition) - April 1, 2004 Edition]
[From the U.S. Government Printing Office]



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          24


          Parts 700 to 1699

                         Revised as of April 1, 2004


          Housing and Urban Development
          
          


________________________

          Containing a codification of documents of general 
          applicability and future effect

          As of April 1, 2004
          With Ancillaries
                    Published by
                    Office of the Federal Register
                    National Archives and Records
                    Administration
                    A Special Edition of the Federal Register

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                     U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2004



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                            Table of Contents



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

  Title 24:
    Subtitle B--Regulations Relating to Housing and Urban 
      Development (Continued)
          Chapter VII--Office of the Secretary, Department of 
          Housing and Urban Development (Housing Assistance 
          Programs and Public and Indian Housing Programs)           3
          Chapter VIII--Office of the Assistant Secretary for 
          Housing-Federal Housing Commissioner, Department of 
          Housing and Urban Development (Section 8 Housing 
          Assistance Programs, Section 202 Direct Loan 
          Program, Section 202 Supportive Housing for the 
          Elderly Program and Section 811 Supportive Housing 
          for Persons With Disabilities Program)                    35
          Chapter IX--Office of Assistant Secretary for Public 
          and Indian Housing, Department of Housing and Urban 
          Development                                              235
  Finding Aids:
      Table of CFR Titles and Chapters........................     833
      Alphabetical List of Agencies Appearing in the CFR......     851
      List of CFR Sections Affected...........................     861

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

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

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

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                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
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parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

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

    The appropriate revision date is printed on the cover of each 
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LEGAL STATUS

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HOW TO USE THE CODE OF FEDERAL REGULATIONS

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collection request.

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Many agencies have begun publishing numerous OMB control numbers as 
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OBSOLETE PROVISIONS

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the revision dates of the 50 CFR titles.

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                              Raymond A. Mosley,
                                    Director,
                          Office of the Federal Register.

April 1, 2004.

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                               THIS TITLE

    Title 24--Housing and Urban Development is composed of five volumes. 
The first four volumes containing parts 0-199, parts 200-499, parts 500-
699, parts 700-1699, represent the regulations of the Department of 
Housing and Urban Development. The fifth volume, containing part 1700 to 
end continues with regulations of the Department of Housing and Urban 
Development and also includes regulations of the Neighborhood 
Reinvestment Corporation. The contents of these volumes represent all 
current regulations codified under this title of the CFR as of April 1, 
2004.

    For this volume, Bonnie Fritts was Chief Editor. The Code of Federal 
Regulations publication program is under the direction of Frances D. 
McDonald, assisted by Alomha S. Morris.

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[[Page 1]]



                 TITLE 24--HOUSING AND URBAN DEVELOPMENT




                 (This book contains parts 700 to 1699)

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

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

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

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

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

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

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

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




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


  Editorial Note: For nomenclature changes to chapter VII, see 59 FR 
14090, Mar. 25, 1994.
Part                                                                Page
700             Congregate Housing Services Program.........           5
701-760         [Reserved]
761             Drug Elimination Programs...................          15
762-790         [Reserved]
791             Allocations of housing assistance funds.....          28
792             Public housing agency section 8 fraud 
                    recoveries..............................          32
793-798         [Reserved]

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PART 700_CONGREGATE HOUSING SERVICES PROGRAM--Table of Contents




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

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

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



Sec. 700.100  Purpose.

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



Sec. 700.105  Definitions.

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

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

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



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

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



Sec. 700.115  Program costs.

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

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



Sec. 700.120  Eligible supportive services.

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



Sec. 700.125  Eligibility for services.

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

[[Page 9]]



Sec. 700.130  Service coordinator.

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



Sec. 700.135  Professional assessment committee.

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

[[Page 10]]

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

[[Page 11]]

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



Sec. 700.140  Participatory agreement.

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



Sec. 700.145  Cost distribution.

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

[[Page 12]]

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



Sec. 700.150  Program participant fees.

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

[[Page 13]]

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



Sec. 700.155  Grant agreement and administration.

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



Sec. 700.160  Eligibility and priority for 1978 Act recipients.

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



Sec. 700.165  Evaluation of Congregate Housing Services Programs.

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

[[Page 14]]

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



Sec. 700.170  Reserve for supplemental adjustment.

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



Sec. 700.175  Other Federal requirements.

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

                        PARTS 701	760 [RESERVED]

[[Page 15]]



PART 761_DRUG ELIMINATION PROGRAMS--Table of Contents




                            Subpart A_General

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

                         Subpart B_Grant Funding

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

                   Subpart C_Application and Selection

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

                     Subpart D_Grant Administration

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

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

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

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



                            Subpart A_General



Sec. 761.1  Purpose and scope.

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

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



Sec. 761.5  Public housing; encouragement of resident participation.

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

[64 FR 49917, Sept. 14, 1999]



Sec. 761.10  Definitions.

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

[[Page 16]]

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

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

[[Page 17]]



                         Subpart B_Grant Funding



Sec. 761.13  Amount of funding.

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

[64 FR 49918, Sept. 14, 1999]



Sec. 761.15  Qualifying for funding.

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

[[Page 18]]

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

[64 FR 49918, Sept. 14, 1999]



Sec. 761.17  Eligible and ineligible activities for funding.

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

[[Page 19]]

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

[[Page 20]]

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

[[Page 21]]

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

[64 FR 49919, Sept. 14, 1999]



                   Subpart C_Application and Selection



Sec. 761.20  Selection requirements.

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

[64 FR 49920, Sept. 14, 1999]



Sec. 761.21  Plan requirement.

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

[[Page 22]]

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

[64 FR 49920, Sept. 14, 1999]



Sec. 761.23  Grantee performance requirements.

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

[[Page 23]]

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

[64 FR 49921, Sept. 14, 1999]



Sec. 761.25  Resident comments on grant application.

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



                     Subpart D_Grant Administration



Sec. 761.30  Grant administration.

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

[[Page 24]]

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

[[Page 25]]

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



Sec. 761.35  Periodic grantee reports.

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

[[Page 26]]

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



Sec. 761.40  Other Federal requirements.

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

[[Page 27]]

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

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

[[Page 28]]

                        PARTS 762	790 [RESERVED]



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




                      Subpart A_General Provisions

Sec.
791.101 Applicability and scope.
791.102 Definitions.

Subparts B-C [Reserved]



     Subpart D_Allocation of Budget Authority for Housing Assistance

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

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

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



                      Subpart A_General Provisions



Sec. 791.101  Applicability and scope.

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

[64 FR 26639, May 14, 1999]



Sec. 791.102  Definitions.

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

[[Page 29]]

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

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

Subparts B-C [Reserved]



     Subpart D_Allocation of Budget Authority for Housing Assistance



Sec. 791.401  General.

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

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



Sec. 791.402  Determination of low-income housing needs.

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

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

[[Page 30]]



Sec. 791.403  Allocation of housing assistance.

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

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



Sec. 791.404  Field Office allocation planning.

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

[[Page 31]]

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

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



Sec. 791.405  Reallocations of budget authority.

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



Sec. 791.406  Competition.

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



Sec. 791.407  Headquarters Reserve.

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

[[Page 32]]

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



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




                      Subpart A_General Provisions

Sec.
792.101 Purpose.
792.102 Applicability.
792.103 Definitions.

                  Subpart B_Recovery of Section 8 Funds

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

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

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

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



                      Subpart A_General Provisions



Sec. 792.101  Purpose.

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

[64 FR 26640, May 14, 1999]



Sec. 792.102  Applicability.

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

[[Page 33]]

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

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



Sec. 792.103  Definitions.

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

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



                  Subpart B_Recovery of Section 8 Funds



Sec. 792.201  Conduct of litigation.

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



Sec. 792.202  PHA retention of proceeds.

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

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



Sec. 792.203  Application of amounts recovered.

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

[[Page 34]]

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



Sec. 792.204  Recordkeeping and reporting.

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

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

                        PARTS 793	798 [RESERVED]

[[Page 35]]



  CHAPTER VIII--OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL
 
   HOUSING COMMISSIONER, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 
(SECTION 8 HOUSING ASSISTANCE PROGRAMS, SECTION 202 DIRECT LOAN PROGRAM, 
 SECTION 202 SUPPORTIVE HOUSING FOR THE ELDERLY PROGRAM AND SECTION 811 
        SUPPORTIVE HOUSING FOR PERSONS WITH DISABILITIES PROGRAM)




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


  Editorial Note: For nomenclature changes to chapter VIII, see 59 FR 
14090, Mar. 25, 1994.
Part                                                                Page
800-810         [Reserved]
811             Tax exemption of obligations of public 
                    housing agencies and related amendments.          37
850             Housing development grants..................          43
880             Section 8 housing assistance payments 
                    program for new construction............          46
881             Section 8 housing assistance payments 
                    program for substantial rehabilitation..          67
882             Section 8 moderate rehabilitation programs..          73
883             Section 8 housing assistance payments 
                    program--State housing agencies.........         100
884             Section 8 housing assistance payments 
                    program, new construction set-aside for 
                    Section 515 rural rental housing 
                    projects................................         111
886             Section 8 housing assistance payments 
                    program--special allocations............         130

[[Page 36]]

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

[[Page 37]]

                        PARTS 800	810 [RESERVED]



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




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

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

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



Sec. 811.101  Purpose and scope.

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

[61 FR 14460, Apr. 1, 1996]



Sec. 811.102  Definitions.

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

[[Page 38]]

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

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



Sec. 811.103  General.

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



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

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

[[Page 39]]

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



Sec. 811.105  Approval of agency or instrumentality PHA.

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

[[Page 40]]

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

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



Sec. 811.106  Default under the contract.

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

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



Sec. 811.107  Financing documents and data.

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

[61 FR 14461, Apr. 1, 1996]



Sec. 811.108  Debt service reserve.

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

[[Page 41]]

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

[61 FR 14461, Apr. 1, 1996]



Sec. 811.109  Trust indenture provisions.

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

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



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

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

[[Page 42]]

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

[[Page 43]]

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

[61 FR 14461, Apr. 1, 1996]



PART 850_HOUSING DEVELOPMENT GRANTS--Table of Contents




                      Subpart A_General Provisions

Sec.
850.1 Applicability and savings clause.

Subparts B-E [Reserved]

                      Subpart F_Project Management

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

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

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



                      Subpart A_General Provisions



Sec. 850.1  Applicability and savings clause.

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

[[Page 44]]

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

[61 FR 7944, Feb. 29, 1996]

Subparts B-E [Reserved]



                      Subpart F_Project Management



Sec. 850.151  Project restrictions.

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

[[Page 45]]

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

[[Page 46]]

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

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



Sec. 850.153  Rent control.

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



Sec. 850.155  Securing owner's responsibilities.

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



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




                   Subpart A_Summary and Applicability

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

              Subpart B_Definitions and Other Requirements

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

Subparts C-D [Reserved]

             Subpart E_Housing Assistance Payments Contract

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

                          Subpart F_Management

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

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

[[Page 47]]


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



                   Subpart A_Summary and Applicability



Sec. 880.101  General.

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

[61 FR 13587, Mar. 27, 1996]



Sec. 880.104  Applicability of part 880.

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

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



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

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



              Subpart B_Definitions and Other Requirements



Sec. 880.201  Definitions.

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

[[Page 48]]

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

[[Page 49]]

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

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



Sec. 880.205  Limitation on distributions.

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

[[Page 50]]

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

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



Sec. 880.207  Property standards.

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

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



Sec. 880.208  Financing.

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

[[Page 51]]

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

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



Sec. 880.211  Audit.

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

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

Subparts C-D [Reserved]



             Subpart E_Housing Assistance Payments Contract



Sec. 880.501  The contract.

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

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

[[Page 52]]

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

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



Sec. 880.502  Term of contract.

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

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



Sec. 880.503  Maximum annual commitment and project account.

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

[[Page 53]]



Sec. 880.504  Leasing to eligible families.

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

[[Page 54]]

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

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



Sec. 880.505  Contract administration and conversions.

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



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

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



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

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

[[Page 55]]

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



Sec. 880.508  Notice upon contract expiration.

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

[49 FR 31283, Aug. 6, 1984]



                          Subpart F_Management



Sec. 880.601  Responsibilities of owner.

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

[[Page 56]]

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

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

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



Sec. 880.602  Replacement reserve.

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

[[Page 57]]

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

[61 FR 13588, Mar. 27, 1996]



Sec. 880.603  Selection and admission of assisted tenants.

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

[[Page 58]]

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

[[Page 59]]

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

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

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



Sec. 880.604  Tenant rent.

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

[49 FR 19943, May 10, 1984]



Sec. 880.605  Overcrowded and underoccupied units.

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



Sec. 880.606  Lease requirements.

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

                            Addendum to Lease

    The following additional Lease provisions are incorporated in full 
in the Lease between

[[Page 60]]

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

Landlord________________________________________________________________

By______________________________________________________________________

Date____________________________________________________________________

Tenant__________________________________________________________________

Date____________________________________________________________________

[End of addendum]

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

                              Lease Clauses

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

[End of clauses]

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



Sec. 880.607  Termination of tenancy and modification of lease.

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

[[Page 61]]

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

[[Page 62]]

by Sec. 880.609 and other applicable HUD regulations.

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

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



Sec. 880.608  Security deposits.

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

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



Sec. 880.609  Adjustment of contract rents.

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

[[Page 63]]

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

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



Sec. 880.610  Adjustment of utility allowances.

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

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

[50 FR 39097, Sept. 27, 1985]



Sec. 880.611  Conditions for receipt of vacancy payments.

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

[[Page 64]]

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

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



Sec. 880.612  Reviews during management period.

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

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



Sec. 880.612a  Preference for occupancy by elderly families.

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

[[Page 65]]

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

[[Page 66]]

    (i) The number of units equivalent to the higher of--
    (A) The percentage of units assisted under this part in the elderly 
project that were occupied by non-elderly disabled families on October 
28, 1992; and
    (B) The percentage of units assisted under this part in the elderly 
project that were occupied by non-elderly disabled families upon January 
1, 1992; or
    (ii) 10 percent of the number of units assisted under this part in 
the eligible project.
    (2) Option to reserve greater number of units for non-elderly 
disabled families. The owner, at the owner's option, and at any time, 
may reserve a greater number of units for non-elderly disabled families 
than that provided for in paragraph (c)(1) of this section. The option 
to provide a greater number of units to non-elderly disabled families 
will not obligate the owner to always provide that greater number to 
non-elderly disabled families. The number of units required to be 
provided to non-elderly disabled families at any time in an elderly 
project is that number determined under paragraph (c)(1) of this 
section.
    (d) Secondary preferences. An owner of an elderly project also may 
elect to establish secondary preferences in accordance with the 
provisions of paragraph (d) of this section.
    (1) Preference for near-elderly disabled families in units reserved 
for elderly families. If the owner of an elderly project determines, in 
accordance with paragraph (f) of this section, that there are an 
insufficient number of elderly families who have applied for occupancy 
to fill all the vacant units in the elderly project reserved for elderly 
families (that is, all units except those reserved for the non-elderly 
disabled families as provided in paragraph (c) of this section), the 
owner may give preference for occupancy of such units to disabled 
families who are near-elderly families.
    (2) Preference for near-elderly disabled families in units reserved 
for non-elderly disabled families. If the owner of an elderly project 
determines, in accordance with paragraph (f) of this section, that there 
are an insufficient number of non-elderly disabled families to fill all 
the vacant units in the elderly project reserved for non-elderly 
disabled families as provided in paragraph (c) of this section, the 
owner may give preference for occupancy of these units to disabled 
families who are near-elderly families.
    (e) Availability of units to families without regard to preference. 
An owner shall make vacant units in an elderly project generally 
available to otherwise eligible families who apply for housing, without 
regard to the preferences and reservation of units provided in this 
section if either:
    (1) The owner has adopted the secondary preferences and there are an 
insufficient number of families for whom elderly preference, reserve 
preference, and secondary preference has been given, to fill all the 
vacant units; or
    (2) The owner has not adopted the secondary preferences and there 
are an insufficient number of families for whom elderly preference, and 
reserve preference has been given to fill all the vacant units.
    (f) Determination of insufficient number of applicants qualifying 
for preference. To make a determination that there are an insufficient 
number of applicants who qualify for the preferences, including 
secondary preferences, provided by this section, the owner must:
    (1) Conduct marketing in accordance with Sec. 880.601(a) to attract 
applicants qualifying for the preferences and reservation of units set 
forth in this section; and
    (2) Make a good faith effort to lease to applicants who qualify for 
the preferences provided in this section, including taking all feasible 
actions to fill vacancies by renting to such families.
    (g) Prohibition of evictions. An owner may not evict a tenant 
without good cause, or require that a tenant vacate a unit, in whole or 
in part because of any reservation or preference provided in this 
section, or because of any action taken by the Secretary pursuant to 
subtitle D (sections 651 through 661) of title VI of the Housing and 
Community Development Act of 1992 (42 U.S.C. 13611 through 13620).

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

[[Page 67]]



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




                   Subpart A_Summary and Applicability

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

              Subpart B_Definitions and Other Requirements

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

Subparts C-D [Reserved]

             Subpart E_Housing Assistance Payments Contract

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

                          Subpart F_Management

881.601 Cross-reference.

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

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



                   Subpart A_Summary and Applicability



Sec. 881.101  General.

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

[61 FR 13591, Mar. 27, 1996]



Sec. 881.104  Applicability of part 881.

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

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



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

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

[[Page 68]]



              Subpart B_Definitions and Other Requirements



Sec. 881.201  Definitions.

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

[[Page 69]]

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

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



Sec. 881.205  Limitation on distributions.

    (a) Non-profit owners are not entitled to distributions of project 
funds.
    (b) For the life of the Contract, proj ect funds may only be 
distributed to profit-motivated owners at the end of each fiscal year of 
project operation following the effective date of the Contract after all 
project expenses have been paid, or funds have been set aside for 
payment, and all reserve requirements have been met. The first year's 
distribution may not be made until cost certification, where applicable, 
is completed. Distributions may not exceed the following maximum 
returns:
    (1) For projects for elderly families, the first year's distribution 
will be limited to 6 percent on equity. The Assistant Secretary may 
provide for increases in subsequent years' distributions on an annual or 
other basis so that the permitted return reflects a 6

[[Page 70]]

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

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



Sec. 881.207  Property standards.

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

[[Page 71]]

alarm system connected to the smoke detector installed in the hallway.

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



Sec. 881.208  Financing.

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

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



Sec. 881.211  Audit.

    (a) Where a State or local government is the eligible owner of a 
project or a contract administrator under Sec. 881.505 receiving 
financial assistance under this part, the audit requirements in 24 CFR 
part 44 shall apply.
    (b) Where a nonprofit organization is the eligible owner of a 
project, receiving financial assistance under this part, the audit 
requirements in 24 CFR part 45 shall apply.

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

[[Page 72]]

Subparts C-D [Reserved]



             Subpart E_Housing Assistance Payments Contract



Sec. 881.501  The contract.

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

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

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



Sec. 881.502  Term of contract.

    (a) Term (except for Manufactured Home Parks). The term of the 
Contract will be as follows:
    (1) Where the estimated cost of the rehabilitation is less than 25 
percent of the estimated value of the project after completion of the 
rehabilitation, the contract will be for a term of 20 years for any 
dwelling unit.
    (2) Where the estimated cost of rehabilitation is 25 percent or more 
of the estimated value of the project after completion of 
rehabilitation, the contract may be for a term which:
    (i) Will cover the longest term, but not less than 20 years, of a 
single credit instrument covering:
    (A) The cost of rehabilitation, or
    (B) The existing indebtedness, or
    (C) The cost of rehabilitation and the refinancing of the existing 
indebtedness, or
    (D) The cost of rehabilitation and the acquisition of the property; 
and
    (ii) For assisted units in a project financed with the aid of a loan 
insured or co-insured by the Federal government or a loan made, 
guaranteed or intended for purchase by the Federal government, will be 
20 years for any dwelling unit; or
    (iii) For units in a project financed other than as described in 
paragraph (a)(2)(ii) of this section will not exceed 30 years for any 
dwelling unit except

[[Page 73]]

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

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



Sec. 881.503  Cross-reference.

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

[61 FR 13592, Mar. 27, 1996]



                          Subpart F_Management



Sec. 881.601  Cross-reference.

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

[61 FR 13592, Mar. 27, 1996]



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




            Subpart A_Applicability, Scope and Basic Policies

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

Subparts B-C [Reserved]

 Subpart D_Special Procedures for Moderate Rehabilitation_Basic Policies

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

    Subpart E_Special Procedures for Moderate Rehabilitation_Program 
                        Development and Operation

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

Subparts F-G [Reserved]

   Subpart H_Section 8 Moderate Rehabilitation Single Room Occupancy 
                    Program for Homeless Individuals

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


[[Page 74]]


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

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



            Subpart A_Applicability, Scope and Basic Policies



Sec. 882.101  Applicability.

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

[63 FR 23853, Apr. 30, 1998]



Sec. 882.102  Definitions.

    (a) Terms found elsewhere. The following terms are defined in part 
5, subpart A of this title: 1937 Act, covered person, drug, drug-related 
criminal activity, federally assisted housing, guest, household, HUD, 
MSA, other person under the tenant's control, public housing agency 
(PHA), Section 8, and violent criminal activity.
    (b) In addition, the following definitions apply to this part:
    ACC reserve account (or ``project account''). The account 
established and maintained in accordance with Sec. 882.403(b).
    Agreement to enter into Housing Assistance Payments Contract 
(``Agreement''). A written agreement between the Owner and the PHA that, 
upon satisfactory completion of the rehabilitation in accordance with 
requirements specified in the Agreement, the PHA will enter into a 
Housing Assistance Payments Contract with the Owner.
    Annual Contributions Contract (``ACC''). The written agreement 
between HUD and a PHA to provide annual contributions to the PHA to 
cover housing assistance payments and other expenses pursuant to the 
1937 Act.
    Assisted lease (or ``lease''). A written agreement between an Owner 
and a Family for the leasing of a unit by the Owner to the Family with 
housing assistance payments under a Housing Assistance Payments Contract 
between the Owner and the PHA.
    Congregate housing. Housing for elderly persons or persons with 
disabilities that meets the HQS for congregate housing.
    Contract. See definition of Housing Assistance Payments Contract.
    Contract rent. The total amount of rent specified in the Housing 
Assistance Payments Contract as payable to the Owner by the Family and 
by the PHA to the Owner on the Family's behalf.
    Decent, safe, and sanitary. Housing is decent, safe, and sanitary if 
it meets the physical condition standards in 24 CFR part 5, subpart G.
    Gross rent. The total monthly cost of housing an eligible Family, 
which is the sum of the Contract Rent and any utility allowance.
    Group home. A dwelling unit that is licensed by a State as a group 
home for the exclusive residential use of two to twelve persons who are 
elderly or persons with disabilities (including any live-in aide).
    Housing Assistance Payment. The payment made by the PHA to the Owner 
of a unit under lease by an eligible Family, as provided under the 
Contract. The payment is the difference between the Contract Rent and 
the tenant rent. An additional payment (the ``utility reimbursement'') 
is made by the PHA when the utility allowance is greater than the total 
tenant payment.
    Housing Assistance Payments Contract (``Contract''). A written 
contract between a PHA and an Owner for the purpose of providing housing 
assistance payments to the Owner on behalf of an eligible Family.
    Moderate rehabilitation. Rehabilitation involving a minimum 
expenditure of $1000 for a unit, including its prorated share of work to 
be accomplished on common areas or systems, to:
    (1) Upgrade to decent, safe and sanitary condition to comply with 
the Housing Quality Standards or other standards approved by HUD, from a 
condition below these standards (improvements being of a modest nature 
and other than routine maintenance); or

[[Page 75]]

    (2) Repair or replace major building systems or components in danger 
of failure.
    Owner. Any person or entity, including a cooperative, having the 
legal right to lease or sublease existing housing.
    Single room occupancy housing (SRO). A unit that contains no 
sanitary facilities or food preparation facilities, or contains either, 
but not both, types of facilities.
    Statement of Family responsibility. An agreement in the form 
prescribed by HUD, between the PHA and a Family to be assisted under the 
Program, stating the obligations and responsibilities of the Family.

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



Sec. Sec. 882.103-882.122  [Reserved]



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

    (a)-(d) [Reserved]
    (e) Section 23 policies for units planned for conversion on or 
before September 30, 1981. (1) PHAs shall not enter into new leases with 
owners for additional units nor shall they renew or extend leases with 
owners except consistent with the conversion schedules.
    (2) Subject to the rights of families under existing leases, PHAs 
may continue to lease units to families under Section 23 only on a 
month-to-month basis.
    (3) PHAs shall conduct annual inspections of all units to determine 
whether the units are decent, safe and sanitary.
    (4) PHAs shall certify with their requisitions to HUD for payments 
under the ACC that the units are decent, safe and sanitary, or the PHA 
shall furnish HUD with a report of the nature of the deficiencies of the 
units which are not so certified. If an owner's units are not decent, 
safe and sanitary.
    (i) Where the owner is responsible under the terms of the lease for 
correcting the deficiencies, the PHA shall send the owner written 
notification requiring the owner to take specified corrective action 
within a specified time. The notification shall also state that, if the 
owner fails to comply, rent payments will be suspended. If the owner 
fails to comply with the first notification, he shall be notified by the 
PHA of the noncompliance and rent payments shall be suspended 
immediately. In the event of such suspension of rent payments, the PHA 
shall requisition a correspondingly lower ACC payment.
    (ii) Where the PHA is responsible under the terms of the lease for 
correcting the deficiencies, the Field Office shall send written 
notification requiring the PHA to take specified corrective action 
within a specified time. The notification shall also state that, if the 
PHA fails to comply, HUD will make reduced payments to the PHA only in 
the amount of the rent due the owner. If the PHA fails to comply with 
the first notification, the PHA shall be notified of the noncompliance, 
and the PHA shall not receive any fees for performing management 
functions until the PHA has complied with the Field Office request and 
has corrected the noted deficiencies.
    (f) [Reserved]
    (g) Section 23 policies for units not planned to be converted. (1) 
PHAs shall not enter into new leases with owners for additional units 
nor shall they renew or extend leases with owners for more than one 
year.
    (2) The provisions contained in paragraphs (e) (3) and (4) of this 
section shall apply.
    (h) Request for rent increases. An owner may submit to the PHA a 
request for rent increase because of increases in operating cost, when 
the rents to the owner, after adjustments based on provisions in the 
lease, are insufficient to provide decent, safe and sanitary housing. 
Such a request shall be supported by an audited financial statement, and 
the data shall clearly show that failure to obtain additional revenue 
will result in deterioriation of units and loss of decent, safe and 
sanitary housing for low-income families. The PHA shall inspect the 
units to determine whether the units are decent, safe and sanitary. 
Where the need for an adjustment under this paragraph is shown:
    (1) Subject to available contract authority and prior approval by 
the HUD Field Office, the PHA may grant an adjustment to the extent 
documented and

[[Page 76]]

justified for those items of expenses (excluding debt service) for which 
the owner is responsible under the lease.
    (2) The amount of the adjustment must be reasonable when compared 
with similar items under the Section 8 Existing Housing program.
    (3) The adjusted amount for expenses shall not exceed the result of 
applying the appropriate Section 8 Existing Housing Annual Adjustment 
Factor (24 CFR part 888) most recently published by HUD in the Federal 
Register to the appropriate expense base in effect under the lease prior 
to this adjustment.
    (4) The adjustment shall not be retroactive to pay for costs that 
the owner had previously incurred.
    (5) The adjustment shall be effective for a period not to exceed one 
year.

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



Sec. 882.124  Audit.

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

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

Subparts B-C [Reserved]



 Subpart D_Special Procedures for Moderate Rehabilitation_Basic Policies

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



Sec. 882.401  Eligible properties.

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

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



Sec. 882.402  [Reserved]



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

    (a) Maximum Total ACC Commitments. The maximum total annual 
contribution that may be contracted for is the total of the Moderate 
Rehabilitation Fair Market Rents for all the units. The fee for the 
costs of PHA administration is payable out of the annual contribution.
    (b) Project account. (1) A project account will be established and 
maintained by HUD as a specifically identified and segregated account 
for each project. The account will contain the sum of the amounts by 
which the maximum annual commitment exceeds the amount actually paid out 
for the project under the ACC each year. Payments will be made from this 
account when needed to cover increases in Contract Rents or decreases in 
Gross Family Contributions for (i) housing assistance (including 
vacancy) payments, (ii)

[[Page 77]]

the amount of the fee for PHA costs of administration, and (iii) other 
costs specifically approved by the Secretary.
    (2) When a HUD-approved estimate of required payments under the ACC 
for a fiscal year exceeds the maximum annual commitment, and would cause 
the amount in the project account to be less than 40 percent of the 
maximum, HUD will, within a reasonable period of time, take such 
additional steps authorized by Section 8(c)(6) of the U.S. Housing Act 
of 1937, as may be necessary, to assure that payments under the ACC will 
be adequate to cover increases in Contract Rents and decreases in Gross 
Family Contributions.
    (c) Term of Housing Assistance Payments Contract. The Contract for 
any unit rehabilitated in accordance with the Program must be for a term 
of 15 years.
    (d) Term of Lease. (1) The initial lease between the family and the 
Owner must be for at least one year or the term of the HAP contract, 
whichever is shorter. In cases where there is less than one year 
remaining on the HAP contract, the owner and the PHA may mutually agree 
to terminate the unit from the HAP contract instead of leasing the unit 
to an eligible family.
    (2) Any renewal or extension of the lease term for any unit must in 
no case extend beyond the remaining term of the HAP contract.

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



Sec. 882.404  Physical condition standards; physical inspection requirements.

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

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



Sec. 882.405  Financing.

    (a) Types. Any type of public or private financing may be utilized 
with the exception of the rehabilitation loan program under Section 312 
of the Housing Act of 1964.
    (b) Use of Contract as security for financing. An Owner may pledge, 
or offer as security for any loan or obligation, an Agreement or 
Contract entered into pursuant to this Program, Provided That (1) such 
security is in connection with a unit(s) rehabilitated pursuant to this 
Program and (2) the terms of the financing or any refinancing must be 
approved by the PHA in accordance with standards provided by HUD. Any 
pledge of the Agreement or Contract, or payments thereunder, will be 
limited to the amounts payable under the Contract in accordance with its 
terms.



Sec. 882.406  [Reserved]



Sec. 882.407  Other Federal requirements.

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

[63 FR 23855, Apr. 30, 1998]



Sec. 882.408  Initial contract rents.

    (a) Fair Market Rent limitation. The Fair Market Rent Schedule for 
Moderate Rehabilitation is 120 percent of the Existing Housing Fair 
Market Rent Schedule, except that the Fair Market

[[Page 78]]

Rent limitation applicable to single room occupancy housing is 75 
percent of the Moderate Rehabilitation Fair Market Rent for a 0-bedroom 
unit. The initial Gross Rent for any Moderate Rehabilitation unit must 
not exceed the Moderate Rehabilitation Fair Market Rent applicable to 
the unit on the date that the Agreement is executed except by up to 10 
percent as provided in paragraph (b) of this section. Additionally, to 
the extent provided in paragraph (d) of this section, the PHA may 
approve changes in the Contract Rent subsequent to execution of the 
Agreement which result in an initial Gross Rent which exceeds the 
Moderate Rehabilitation Fair Market Rent applicable to the unit by up to 
20 percent.
    (b) Exception rents. With HUD Field Office approval, the PHA may 
approve initial Gross Rents which exceed the applicable Moderate 
Rehabilitation Fair Market Rents by up to 10 percent for all units of a 
given size in specified areas where HUD has determined that the rents 
for standard units suitable for the Existing Housing Program are more 
than 10 percent higher than the Existing Housing Fair Market Rents. The 
PHA must submit documentation demonstrating the necessity for such 
exception rents in the area to the HUD Field Office. In areas where HUD 
has approved the use of exception rents for 0-bedroom units, the single 
room occupancy housing exception rent will be 75 percent of the 
exception rent applicable to Moderate Rehabilitation 0-bedroom units.
    (c) Determination Initial Contract Rents. (1) The initial Contract 
Rent and base rent for each unit must be computed in accordance with HUD 
requirements. These amounts may be determined in accordance with 
paragraph (c)(2), or in accordance with an alternative method prescribed 
by HUD. However, the initial Contract Rent may in no event be more 
than--
    (i) The Moderate Rehabilitation Fair Market Rent or exception rent 
applicable to the unit on the date that the Agreement is executed, minus
    (ii) Any applicable allowance for utilities and other services 
attributable to the unit.
    (2) When the initial Contract Rent is computed under this paragraph, 
the rent will be equal to the base rent plus the monthly cost of a 
rehabilitation loan (but not more than the maximum stated in paragraph 
(c)(1)). The base rent must be calculated using the rent charged for the 
unit or the estimated costs to the Owner of owning, managing and 
maintaining the rehabilitated unit. The monthly cost of a rehabilitation 
loan must be calculated using:
    (i) The actual interest rate on the portion of the rehabilitation 
costs borrowed by the Owner,
    (ii) The HUD-FHA maximum interest rate for multifamily housing (or 
another rate prescribed by HUD) for rehabilitation costs paid by the 
Owner out of nonborrowed funds, and
    (iii) At least a 15 year loan term, except that if the total amount 
of rehabilitation is less than $15,000, the actual loan term will be 
used for the portion of the rehabilitation costs borrowed by the Owner. 
(HUD Field Offices may authorize loan terms which differ from the above 
in accordance with HUD requirements.)
    (d) Changes in Initial Contract Rents during rehabilitation. (1) The 
initial Contract Rents established pursuant to paragraph (c) of this 
section will be the Contract Rents on the effective date of the Contract 
except under the following circumstances:
    (i) When, during rehabilitation, work items (including substantial 
and necessary design changes) which (A) could not reasonably have been 
anticipated or are necessitated by a change in local codes or 
ordinances, and (B) were not listed in the work write-up prepared or 
approved by the PHA, are subsequently required and approved by the PHA.
    (ii) When the actual cost of the rehabilitation performed is less 
than that estimated in the calculation of Contract Rents for the 
Agreement or the actual, certified costs are more than estimated due to 
unforeseen factors beyond the owner's control (e.g., strikes, weather 
delays or unexpected delays caused by local governments).
    (iii) When the PHA (or HUD) approves changes in financing.
    (iv) When the actual relocation payments made by the Owner to 
temporarily relocated Families varies from

[[Page 79]]

the cost estimated in the calculation of Contract Rents for the 
Agreement.
    (v) When necessary to correct errors in computation of the base and 
Contract Rents to comply with the HUD requirements.
    (2) Should changes occur as specified in paragraph (d)(1) (either an 
increase or decrease), the PHA will approve any necessary change in work 
and amendment of the work write-up and cost estimate, recalculate the 
initial Contract Rents in accordance with paragraph (d)(3) of this 
section, and amend the Contract or Agreement, as appropriate, to reflect 
the revised rents.
    (3) In establishing the revised Contract Rents, the PHA must 
determine that the resulting Gross Rents do not exceed the Moderate 
Rehabilitation Fair Market Rent or the exception rent in effect at the 
time of execution of the Agreement. The Fair Market Rent or exception 
rent, as appropriate, may only be exceeded when the PHA determines in 
accordance with paragraph (d)(1) of this section that it will be 
necessary for the revised Gross Rent to exceed the Moderate 
Rehabilitation Fair Market Rent or exception rent. Should this 
determination be made, the PHA may not execute a revised Agreement or 
Contract for Gross Rents exceeding the Fair Market Rents by more than 10 
percent until it receives HUD Field Office approval. The HUD Field 
Office may approve revised Gross Rents which exceed the Fair Market 
Rents by up to 20 percent for reasons specified in paragraph (d)(1) of 
this section upon proper justification by the PHA of the necessity for 
the increase.

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



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

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



Sec. 882.410  Rent adjustments.

    (a) Annual and special adjustments. Contract Rents will be adjusted 
as provided in paragraphs (a) (1) and (2) of this section upon submittal 
to the PHA by the Owner of a revised schedule of Contract Rents, 
provided that the unit is in decent, safe, and sanitary condition and 
that the Owner is otherwise in compliance with the terms of the Lease 
and Contract. Subject to the foregoing, adjustments of Contract Rents 
will be as follows:
    (1) The Annual Adjustment Factors which are published annually by 
HUD (see Schedule C, 24 CFR part 888) will be utilized. On or after each 
annual anniversary date of the Contract, the Contract Rents may be 
adjusted in accordance with HUD procedures, effective for the month 
following the submittal by the Owner of a revised schedule of Contract 
Rents. The changes in rent as a result of the adjustment cannot exceed 
the amount established by multiplying the Annual Adjustment Factor by 
the base rents. However, if the amounts borrowed to finance the 
rehabilitation costs or to finance purchase of the property are subject 
to a variable rate or are otherwise renegotiable, Contract Rents may be 
adjusted in accordance with other procedures as prescribed by HUD, and 
specified in the Contract, provided that the adjusted Contract Rents 
cannot exceed the rents established by multiplying the Annual Adjustment 
Factor by the Contract Rents. Adjusted Contract Rents must then be 
examined in accordance with paragraph (b) of this section and may be 
adjusted accordingly. Contract Rents may be adjusted upward or downward, 
as may be appropriate.
    (2) Special Adjustments. (i) A special adjustment, to the extent 
determined by HUD to reflect increases in the actual and necessary 
expenses of owning and maintaining the unit which have resulted from 
substantial general increases in real property taxes, assessments, 
utility rates and utilities not covered by regulated rates, may be 
recommended by the PHA for approval by

[[Page 80]]

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

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

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



Sec. 882.411  Payments for vacancies.

    (a) Vacancies from execution of Contract to initial occupancy. If a 
Contract unit which has been rehabilitated in accordance with this 
Program is not leased within 15 days of the effective date of the 
Contract, the Owner will be entitled to housing assistance payments in 
the amount of 80 percent of the Contract Rent for the unit for a vacancy 
period not exceeding 60 days from the effective date of the Contract, 
provided that the Owner (1) has complied with Sec. Sec. 882.506(d) and 
882.508(c); (2) has taken and continues to take all feasible actions to 
fill the vacancy; and (3) has not rejected any eligible applicant except 
for good cause acceptable to the PHA.
    (b) Vacancies after initial occupancy. (1) If an Eligible Family 
vacates its unit (other than as a result of action by the Owner which is 
in violation of the Lease or the Contract or any applicable law), the 
Owner may receive the housing assistance payments due under the Contract 
for so much of the month in which the Family vacates the unit as the 
unit remains vacant. Should the unit continue to remain vacant, the 
Owner may receive from the PHA a housing assistance payment in the 
amount of 80 percent of the Contract Rent for a vacancy period not 
exceeding an additional month. However, if the Owner collects any of the 
Family's share of the rent for this period, the payment must be reduced 
to an amount which, when added to the Family's payment, does not exceed 
80 percent of the Contract Rent. Any such excess must be reimbursed by 
the Owner to the PHA. The Owner will not be entitled to any payment 
under this paragraph (b)(1) of this section unless the Owner:
    (i) Immediately upon learning of the vacancy, has notified the PHA 
of the vacancy or prospective vacancy, and

[[Page 81]]

    (ii) has taken and continues to take all feasible actions specified 
in paragraphs (a) (2) and (3) of this section.
    (2) If the Owner evicts an Eligible Family, the Owner will not be 
entitled to any payment under paragraph (b)(1) of this section unless 
the PHA determines that the Owner complied with all requirements of the 
Contract.
    (c) Prohibition of double compensation for vacancies. The Owner will 
not be entitled to housing assistance payments with respect to vacant 
units under this section if the Owner is entitled to payments from other 
sources (for example, payments for losses of rental income incurred for 
holding units vacant for relocatees pursuant to Title I of the HCD Act 
of 1974 or payments for unpaid rent under Sec. 882.414 (Security and 
Utility Deposits)).

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



Sec. 882.412  Subcontracting of owner services.

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



Sec. 882.413  Responsibility of the Family.

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

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



Sec. 882.414  Security and utility deposits.

    (a) If at the time of the initial execution of the Lease the Owner 
wishes to collect a security deposit, the maximum amount shall be the 
greater of one month's Total Tenant Payment or $50. However, this amount 
shall not exceed the maximum amount allowable under State or local law. 
For units leased in place, security deposits collected prior to the 
execution of a Contract which are in excess of this maximum amount do 
not have to be refunded until the Family vacates the unit subject to the 
lease terms. The Family is expected to pay security deposits and utility 
deposits from its resources and/or other public or private sources.
    (b) If a Family vacates the unit, the Owner, subject to State and 
local law, may use the security deposit as reimbursement for any unpaid 
Tenant Rent or other amount which the Family owes under the Lease. If a 
Family vacates the unit owing no rent or other amount under the Lease 
consistent with State or local law or if such amount is less than the 
amount of the security deposit, the Owner shall refund the full amount 
or the unused balance to the Family.
    (c) In those jurisdictions where interest is payable by the Owner on 
security deposits, the refunded amount shall include the amount of 
interest payable. The Owner shall comply with all State

[[Page 82]]

and local laws regarding interest payments on security deposits.
    (d) If the security deposit is insufficient to reimburse the Owner 
for the unpaid Tenant Rent or other amounts which the Family owes under 
the Lease, or if the Owner did not collect a security deposit, the Owner 
may claim reimbursement from the PHA for an amount not to exceed the 
lesser of:
    (1) The amount owed the Owner, or
    (2) Two month's Contract Rent; minus, in either case, the greater of 
the security deposit actually collected or the amount of security 
deposit the Owner could have collected under the program (pursuant to 
paragraph (a) of this section). Any reimbursement under this section 
must be applied first toward any unpaid Tenant Rent due under the Lease 
and then to any other amounts owed. No reimbursement may be claimed for 
unpaid rent for the period after the Family vacates.

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



    Subpart E_Special Procedures for Moderate Rehabilitation_Program 
                        Development and Operation

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



Sec. 882.501-882.506  [Reserved]



Sec. 882.507  Completion of rehabilitation.

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

The PHA must review for completeness and accuracy and accept these 
certifications subject to the right of post audit. The PHA must then 
establish the Contract Rents as provided in Sec. 882.408 which will be 
subject to reduction based on a post audit.
    (d) Review and inspections. The PHA must review the evidence of 
completion for compliance with paragraph (b) of this section. The PHA 
also must inspect the unit(s) to be assisted to determine that the 
unit(s) has been completed in accordance with the Agreement and meets 
the Housing Quality Standards or other standards approved by HUD for the 
Program. If the inspection discloses defects or deficiencies, the 
inspector must report these in detail.
    (e) Acceptance. (1) If the PHA determines from the review and 
inspection that the unit(s) has been completed in

[[Page 83]]

accordance with the Agreement, the unit(s) will be accepted.
    (2) If there are any items of delayed completion which are minor 
items or which are incomplete because of weather conditions, and in any 
case which do not preclude or affect occupancy, and all other 
requirements of the Agreement have been met, the unit(s) must be 
accepted. An escrow fund determined by the PHA to be sufficient to 
assure completion for items of delayed completion must be required, as 
well as a written agreement between the PHA and the Owner, to be 
included as an exhibit to the Contract, specifying the schedule for 
completion. If the items are not completed within the agreed time 
period, the PHA may terminate the Contract or exercise other rights 
under the Contract.
    (3) If other deficiencies exist, the PHA must determine whether and 
to what extent the deficiencies are correctable, and whether the 
Contract Rents should be reduced. The Owner must be notified of the 
PHA's decision. If the corrections required by the PHA are possible, the 
PHA and the Owner must enter into an agreement for the correction of the 
deficiencies within a specified time. If the deficiencies are corrected 
within the agreed period of time, the PHA must accept the unit(s).
    (4) Otherwise, the unit(s) may not be accepted, and the Owner must 
be notified with a statement of the reasons for nonacceptance.

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



Sec. 882.508  [Reserved]



Sec. 882.509  Overcrowded and under occupied units.

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



Sec. 882.510  Adjustment of utility allowance.

    The PHA must determine, at least annually, whether an adjustment is 
required in the Utility Allowance applicable to the dwelling units in 
the Program, on grounds of changes in utility rates or other change of 
general applicability to all units in the Program. The PHA may also 
establish a separate schedule of allowances for each building of 20 or 
more assisted units, based upon at least one year's actual utility 
consumption data following rehabilitation under the Program. If the PHA 
determines that an adjustment should be made in its Schedule of 
Allowances or if it establishes a separate schedule for a building which 
will change the allowance, the PHA must then determine the amounts of 
adjustments to be made in the amount of rent to be paid by affected 
Families and the amount of housing assistance payments and must notify 
the Owners and Families accordingly. Any adjustment to the Allowance 
must be implemented no later than at the Family's next reexamination or 
at lease renewal, whichever is earlier.

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



Sec. 882.511  Lease and termination of tenancy.

    (a) Lease. (1) The lease must include all provisions required by 
HUD, and must not include any provisions prohibited by HUD.
    (2) The lease must provide that drug-related criminal activity 
engaged in on or near the premises by any tenant, household member, or 
guest, and any such activity engaged in on the premises by any other 
person under the tenant's control is grounds for the owner to terminate 
tenancy. In addition, the lease must provide that the owner may

[[Page 84]]

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

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



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

    (a) Limitation on leasing to ineligible Families. Owners must lease 
all assisted units under Contract to Eligible Families. Leasing of 
vacant, assisted units to ineligible tenants is a violation of the 
Contract and grounds for all available legal remedies, including 
suspension or debarment from HUD programs and reduction of the number of 
units under the Contract, as set forth in paragraph (b) of this section. 
Once the PHA has determined that a violation exists, the PHA must notify 
HUD of its determination and the suggested remedies. At the direction of 
HUD, the PHA must take the appropriate action.
    (b) Reduction for failure to lease to Eligible Families. If, at any 
time beginning six months after the effective date of the Contract, the 
Owner fails for a period of six continuous months to have at least 90 
percent of the assisted units leased or available for leasing by 
Eligible Families (because families initially eligible have become 
ineligible), the PHA may, on at least 30 days' notice, reduce the number 
of units covered by the Contract. The PHA may reduce the number of units 
to the number of units actually leased or available for leasing by 
Eligible Families plus 10 percent (rounded up). If the Owner has only 
one unit under Contract and if one year has

[[Page 85]]

elapsed since the date of the last housing assistance payment, the 
Contract may be terminated with the consent of the Owner.
    (c) Restoration. The PHA will agree to an amendment of the Contract, 
to provide for subsequent restoration of any reduction made pursuant to 
paragraph (b) if:
    (1) The PHA determines that the restoration is justified by demand,
    (2) The Owner otherwise has a record of compliance with obligations 
under the Contract, and
    (3) Contract authority is available.



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

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



Sec. 882.514  Family participation.

    (a) Initial determination of family eligibility. (1) The PHA is 
responsible for receipt and review of applications, and determination of 
family eligibility for participation in accordance with HUD regulations 
(see 24 CFR parts 5, 750 and 760). The PHA is responsible for verifying 
the sources and amount of the family's income and other information 
necessary for determining income eligibility and the amount of the 
assistance payments.
    (2) PHA records on applicants and Families selected to participate 
must be maintained so as to provide HUD with racial, gender, and ethnic 
data.
    (b) Selection of Families for participation. When vacancies occur, 
the PHA will refer to the Owner one or more appropriate size Families on 
its waiting list. The PHA must select Families for participation in 
accordance with the provisions of the Program and in accordance with the 
PHA's application, including any PHA requirement or preferences as 
approved by HUD. The PHA must select Families eligible for housing 
assistance payments currently residing in units that are designated for 
rehabilitation under the Program without requiring that these Families 
be placed on the waiting list. Notwithstanding the fact that the PHA may 
not be accepting additional applications for participation because of 
the length of the waiting list, the PHA may not refuse to place an 
applicant on the waiting list if the applicant is otherwise eligible for 
partcipation and claims that he or she qualifies for a Federal 
preference as provided in 24 CFR part 5, unless the PHA determines, on 
the basis of the number of applicants who are already on the waiting 
list and who claim a Federal preference, and the anticipated number of 
admissions under this part, that--
    (1) There is an adequate pool of applicants who are likely to 
qualify for a Federal preference and
    (2) It is unlikely that, on the basis of the PHA's system for 
applying the Federal preferences, the preference or preferences that the 
applicant claims, and the preferences claimed by applicants on the 
waiting list, the applicant would qualify for assistance before other 
applicants on the waiting list.
    (c) Owner selection of Families. All vacant units under Contract 
must be rented to Eligible Families referred by the PHA from its waiting 
list. However, if the PHA is unable to refer a sufficient number of 
interested applicants on the waiting list to the Owner within 30 days of 
the Owner's notification to the PHA of a vacancy, the Owner may 
advertise or solicit applications from Low-Income Families and refer 
such Families to the PHA to determine eligibility. Since the Owner is 
responsible for tenant selection, the Owner may refuse any Family 
provided

[[Page 86]]

that the Owner does not unlawfully discriminate. Should the Owner reject 
a Family, and should the Family believe that the Owner's rejection was 
the result of unlawful discrimination, the Family may request the 
assistance of the PHA in resolving the issue. If the issue cannot be 
resolved promptly, the Family may file a complaint with HUD, and the PHA 
may refer the Family to the next available Moderate Rehabilitation unit.
    (d) Briefing of Families. (1) When a Family is initially determined 
to be eligible for housing assistance payments or is selected for 
participation in accordance with this section, the PHA must provide the 
Family with information as to the Tenant Rent and the PHA's schedule of 
Utility Allowances. Each Family must also, either in group or individual 
sessions, be provided with a full explanation of the following:
    (i) Family and Owner responsibilities under the Lease and Contract;
    (ii) Significant aspects of the applicable State and local laws;
    (iii) Significant aspects of Federal, State and local fair housing 
laws;
    (iv) The fact that the subsidy is tied to the unit and the Family 
must occupy a unit rehabilitated under the Program;
    (v) The Family's options under the Program should the Family be 
required to move due to an increase or decrease in Family size; and
    (vi) The advisability and availability of blood lead level screening 
for children under 6 years of age and HUD's lead-based paint 
requirements in part 35, subparts A, B, H, and R of this title.
    (2) For all Families to be temporarily relocated, the briefing must 
include a discussion of the relocation policies.
    (e) Continued participation of Family when Contract is terminated. 
If an Owner evicts an assisted family in violation of the Contract or 
otherwise breaches the Contract, and the Contract for the unit is 
terminated, and if the Family was not at fault and is eligible for 
continued assistance, the Family may continue to receive housing 
assistance through the conversion of the Moderate Rehabilitation 
assistance to tenant-based assistance under the Section 8 certificate or 
voucher program. The Family must then be issued a certificate or 
voucher, and treated as any participant in the tenant-based programs 
under 24 CFR part 982, and must be assisted by the PHA in finding a 
suitable unit. All requirements of 24 CFR part 982 will be applicable 
except that the term of any housing assistance payments contract may not 
extend beyond the term of the initial ModerateRehabilitation Contract. 
If the Family is determined ineligible for continued assistance, the 
certificate or voucher may be offered to the next Family on the PHA's 
waiting list. The unit will remain under the Moderate Rehabilitation ACC 
which provides for such a conversion of the units; therefore no 
amendment to the ACC will be necessary to convert to the Section 8 
tenant-based assistance programs.
    (f) Families determined by the PHA to be ineligible. If a Family is 
determined to be ineligible in accordance with the PHA's HUD-approved 
application, either at the application stage or after assistance has 
been provided on behalf of the Family, the PHA shall promptly notify the 
Family by letter of the determination and the reasons for it and the 
letter shall state that the Family has the right within a reasonable 
time (specified in the letter) to request an informal hearing. If, after 
conducting such an informal hearing, the PHA determines, based on a 
preponderance of the evidence, that the Family is ineligible, it shall 
notify the Family in writing. The procedures of this paragraph do not 
preclude the Family from exercising its other rights if it believes it 
is being discriminated against on the basis of race, color, religion, 
sex, age, handicap, familial status, or national origin. The informal 
review provisions for the denial of a Federal selection preference under 
Sec. 882.517 are contained in paragraph (k) of that section. The 
informal hearing requirements for denial and termination of assistance 
on

[[Page 87]]

the basis of ineligible immigration status are contained in 24 CFR part 
5.

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

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



Sec. 882.515  Reexamination of family income and composition.

    (a) Regular reexaminations. The PHA must reexamine the income and 
composition of all families at least once every 12 months. After 
consultation with the family and upon verification of the information, 
the PHA must make appropriate adjustments in the Total Tenant Payment in 
accordance with part 813 of this chapter and determine whether the 
family's unit size is still appropriate (see Sec. 882.213). The PHA 
must adjust Tenant Rent and the Housing Assistance Payment to reflect 
any change in Total Tenant Payment. At the time of the annual 
reexamination of family income and composition, the PHA must require the 
family to disclose and verify Social Security Numbers. For requirements 
regarding the signing and submitting of consent forms by families for 
the obtaining of wage and claim information from State Wage Information 
Collection Agencies, see part 5, subpart B, of this title. At the first 
regular reexamination after June 19, 1995, the PHA shall follow the 
requirements of 24 CFR part 5 concerning obtaining and processing 
evidence of citizenship or eligible immigration status of all family 
members. Thereafter, at each regular reexamination, the PHA shall follow 
the requirements of 24 CFR part 5 concerning verification of immigration 
status of any new family member.
    (b) Interim reexaminations. If the PHA receives information 
concerning a change in the family's income or other circumstances 
between regularly scheduled reexaminations, the PHA must consult with 
the family and make any adjustments determined to be appropriate. Any 
change in the family's income or other circumstances that results in an 
adjustment in the Total Tenant Payment, Tenant Rent, and Housing 
Assistance Payment must be verified. See part 5, subpart B, of this 
title for the requirements for the disclosure and verification of Social 
Security Numbers at interim reexaminations involving new family members. 
For requirements regarding the signing and submitting of consent forms 
by families for the obtaining of wage and claim information from State 
Wage Information Collection Agencies, see part 5, subpart B, of this 
title. At any interim reexamination after June 19, 1995 when there is a 
new family member, the PHA shall follow the requirements of 24 CFR part 
5 concerning obtaining and processing evidence of citizenship or 
eligible immigration status of the new family member.
    (c) Obligation to supply information. The family must supply such 
certification, release, information or documentation as the PHA or HUD 
determine to be necessary, including submission of required evidence of 
citizenship or eligible immigration status, submission of social 
security numbers and verifying documentation, submission of signed 
consent forms for the obtaining of wage and claim information from State 
Wage Information Collection Agencies, and submissions required for an 
annual or interim reexamination of family income and composition. See 24 
CFR part 5.
    (d) Continuation of housing assistance payments. A family's 
eligibility for Housing Assistance Payments shall continue until the 
Total Tenant Payment equals the Gross Rent. The termination of 
eligibility at such point will not affect the family's other rights 
under its lease, nor will such termination preclude the resumption of 
payments as a result of later changes in income, rents or other relevant 
circumstances during the term of the Contract. However, eligibility also 
may be terminated in accordance with HUD requirements for such reasons 
as failure to submit requested verification information, including 
failure to meet the disclosure and verification requirements for Social 
Security Numbers, as provided by part 5, subpart B, of this

[[Page 88]]

title, or failure to sign and submit consent forms for the obtaining of 
wage and claim information from State Wage Information Collection 
Agencies, as provided by part 5, subpart B, of this title. For 
provisions requiring termination of assistance when the PHA determines 
that a family member is not a U.S. citizen or does not have eligible 
immigration status, see 24 CFR parts 5 and 982 for provisions concerning 
certain assistance for mixed families (families whose members include 
those with eligible immigration status, and those without eligible 
immigration status) in lieu of termination of assistance, and for 
provisions concerning deferral of termination of assistance.

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



Sec. 882.516  Maintenance, operation and inspections.

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

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



Sec. 882.517  HUD review of contract compliance.

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

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



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

    (a) Requirement to deny admission.--(1) Prohibiting admission of 
drug criminals. (i) The PHA must prohibit admission to the program of an 
applicant for three years from the date of termination of tenancy if any 
household member's federally assisted housing tenancy has been 
terminated for drug-related criminal activity. However, the

[[Page 89]]

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

[[Page 90]]

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

[66 FR 28797, May 24, 2001]

Subparts F-G [Reserved]



   Subpart H_Section 8 Moderate Rehabilitation Single Room Occupancy 
                    Program for Homeless Individuals

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



Sec. 882.801  Purpose.

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



Sec. 882.802  Definitions.

    In addition to the definitions set forth in 24 CFR part 5 and Sec. 
882.102 (except for the definition of ``Single Room Occupancy (SRO) 
Housing'' therein) the following will apply:
    Agreement to enter into housing assistance payments contract 
(Agreement). A written agreement between the owner and the HA that, upon 
satisfactory completion of the rehabilitation in accordance with 
requirements specified in the Agreement, the HA will enter into a 
housing assistance payments contract with the owner.
    Applicant. A public housing agency or Indian housing authority 
(collectively

[[Page 91]]

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

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



Sec. 882.803  Project eligibility and other requirements.

    (a) Eligible and ineligible properties. (1) Except as otherwise 
provided in paragraph (a) of this section, housing suitable for moderate 
rehabilitation is eligible for inclusion under this program. Existing 
structures of various types may be appropriate for this program, 
including single family houses and multifamily structures.
    (2) Housing is not eligible for assistance under this program if it 
is receiving Federal funding for rental assistance or operating costs 
under other HUD programs.
    (3) Nursing homes and related facilities such as intermediate care 
or board and care homes; units within the grounds of penal, reformatory, 
medical, mental, and similar public or private institutions; and 
facilities providing continual psychiatric, medical, or nursing services 
are not eligible for assistance under this program.
    (4) No Section 8 assistance may be provided with respect to any unit 
occupied by an owner.
    (5) Housing located in the Coastal Barrier Resources System 
designated under the Coastal Barriers Resources Act is not eligible.
    (6) Single-sex facilities are allowable under this program, provided 
that the HA determines that because of the physical limitations or 
configuration of the facility, considerations of personal privacy 
require that the facility (or parts of the facility) be available only 
to members of a single sex.
    (b)(1) Physical condition standards. Section 882.404 applies to this 
program.
    (2) Site standards. (i) The site must be adequate in size, exposure, 
and contour to accommodate the number and type of units proposed; 
adequate utilities and streets must be available to service the site. 
(The existence of a private disposal system and private sanitary water 
supply for the site, approved in accordance with local law, may be 
considered adequate utilities.)
    (ii) The site must be suitable from the standpoint of facilitating 
and furthering full compliance with the applicable provisions of title 
VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d-2000d-4), title VIII 
of the Civil Rights Act of 1968 (42 U.S.C. 3601-19), E.O. 11063

[[Page 92]]

(as amended by E.O. 12259; 3 CFR, 1959-1963 Comp., p. 652 and 3 CFR, 
1980 Comp., p. 307), and HUD regulations issued pursuant thereto.
    (iii) The site must be accessible to social, recreational, 
educational, commercial, and health facilities, and other appropriate 
municipal facilities and services.
    (c) Financing. Section 882.405 applies to this program.
    (d) Relocation. Section 882.406 applies to a project assisted under 
this program.
    (e) HA-owned housing. (1) A unit that is owned by the HA that 
administers the assistance under the ACC (including a unit owned by an 
entity substantially controlled by the HA) may only be assisted if:
    (i) The unit is not ineligible under Sec. 882.803(a); and
    (ii) HUD approves the base and contract rent calculations prior to 
execution of the Agreement and prior to execution of the HAP contract.
    (2) The HA as owner is subject to the same program requirements that 
apply to other owners in the program.

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



Sec. 882.804  Other Federal requirements.

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



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

    (a) Review. When funds are made available for assistance, HUD will 
publish a notice of funding availability (NOFA) in the Federal Register 
in accordance with the requirements of 24 CFR part 4. HUD will review 
and screen applications in accordance with the guidelines, rating 
criteria, and procedures published in the NOFA.
    (b) ACC Execution. (1) Before execution of the annual contributions 
contract (ACC), the HA must submit to the appropriate HUD field office 
the following:
    (i) Estimates of Required Annual Contributions, Forms HUD-52672 and 
HUD-52673;
    (ii) Administrative Plan, which should include:
    (A) Procedures for tenant outreach;
    (B) A policy governing temporary relocation; and
    (C) A mechanism to monitor the provision of supportive services.
    (iii) Proposed Schedule of Allowances for Tenant-Furnished Utilities 
and Other Services, Form HUD-52667, with a justification of the amounts 
proposed;
    (iv) If applicable, proposed variations to the acceptability 
criteria of the Housing Quality Standards (see Sec. 882.803(b)); and
    (v) The fire and building code applicable to each structure.
    (2) After HUD has approved the HA's application, the review and 
comment requirements of 24 CFR part 791 have been complied with, and the 
HA has submitted (and HUD has approved) the items required by paragraph 
(b)(1) of this section, HUD and the HA must execute the ACC in the form 
prescribed by HUD. The initial term of the ACC must be 11 years. This 
term allows one year to rehabilitate the units and place them under a 
10-year HAP contract. The ACC must give HUD the option to

[[Page 93]]

renew the ACC for an additional 10 years.
    (3) Section 882.403(a) (Maximum Total ACC Commitments) applies to 
this program.
    (4) Section 882.403(b) (Project account) applies to this program.
    (c)(1) If an owner is proposing to accomplish at least $3000 per 
unit of rehabilitation by including work to make the unit(s) accessible 
to a person with disabilities occupying the unit(s) or expected to 
occupy the unit(s), the PHA may approve such units not to exceed 5 
percent of the units under its Program, provided that accessible units 
are necessary to meet the requirements of 24 CFR part 8, which 
implements section 504 of the Rehabilitation Act of 1973. The 
rehabilitation must make the unit(s), and access and egress to the 
unit(s), barrier-free with respect to the disability of the individual 
in residence or expected to be in residence.
    (2) The PHA must take the applications and determine the eligibility 
of all tenants residing in the approved units who wish to apply for the 
Program. After eligibility of all the tenants has been determined, the 
Owner must be informed of any adjustment in the number of units to be 
assisted. In order to make the most efficient use of housing assistance 
funds, an Agreement may not be entered into covering any unit occupied 
by a family which is not eligible to receive housing assistance 
payments. Therefore, the number of units approved by the PHA for a 
particular proposal must be adjusted to exclude any unit(s) determined 
by the PHA to be occupied by a family not eligible to receive housing 
assistance payments. Eligible Families must also be briefed at this 
stage as to their rights and responsibilities under the Program.
    (3) Should the Owner agree with the assessment of the PHA as to the 
work that must be accomplished, the preliminary feasibility of the 
proposal, and the number of units to be assisted, the Owner, with the 
assistance of the PHA where necessary, must prepare detailed work write-
ups including specifications and plans (where necessary) so that a cost 
estimate may be prepared. The work write-up will describe how the 
deficiencies eligible for amortization through the Contract Rents are to 
be corrected including minimum acceptable levels of workmanship and 
materials. From this work write-up, the Owner, with the assistance of 
the PHA, must prepare a cost estimate for the accomplishment of all 
specified items.
    (4) The owner is responsible for selecting a competent contractor to 
undertake the rehabilitation. The PHA must propose opportunities for 
minority contractors to participate in the program.
    (5) The PHA must discuss with the Owner the various financing 
options available. The terms of the financing must be approved by the 
PHA in accordance with standards prescribed by HUD.
    (6) Before execution of the Agreement, the HA must:
    (i)(A) Inspect the structure to determine the specific work items 
that need to be accomplished to bring the units to be assisted up to the 
Housing Quality Standards (see Sec. 882.803(b)) or other standards 
approved by HUD;
    (B) Conduct a feasibility analysis, and determine whether cost-
effective energy conserving improvements can be added;
    (C) Ensure that the owner prepares the work write-ups and cost 
estimates required by paragraph (c)(3) of this section;
    (D) Determine initial base rents and contract rents;
    (ii) Assure that the owner has selected a contractor in accordance 
with paragraph (c)(4) of this section;
    (iii) After the financing and a contractor are obtained, determine 
whether the costs can be covered by initial contract rents, computed in 
accordance with paragraph (d) of this section; and, if a structure 
contains more than 50 units to be assisted, submit the base rent and 
contract rent calculations to the appropriate HUD field office for 
review and approval in sufficient time for execution of the Agreement in 
a timely manner;
    (iv) Obtain firm commitments to provide necessary supportive 
services;
    (v) Obtain firm commitments for other resources to be provided;
    (vi) Determine that the $3,000 minimum amount of work requirement 
and

[[Page 94]]

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

[[Page 95]]

    (4) Contract rents must not include the costs of providing 
supportive services, transportation, furniture, or other nonhousing 
costs, as determined by HUD. SRO program assistance may be used for 
efficiency units selected for rehabilitation under this program, but the 
gross rent (contract rent plus any Utility Allowance) for these units 
will be no higher than for SRO units (i.e., 75 percent of the 0-bedroom 
Moderate Rehabilitation Fair Market Rent).

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

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



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

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

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

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



Sec. 882.807  Housing assistance payments contract.

    (a) Time of execution. Upon PHA acceptance of the unit(s) and 
certifications pursuant to Sec. 882.507, the Contract will be executed 
by the Owner and the PHA. The effective date must be no earlier than the 
PHA inspection which provides the basis for acceptance as specified in 
Sec. 882.507(e).
    (b) Term of contract. The contract for any unit rehabilitated in 
accordance with this program must be for a term of 10 years. The 
contract must give the HA the option to renew the contract for an 
additional 10 years.
    (c) Changes in contract rents from agreement. The contract rents may 
be higher or lower than those specified in the Agreement, in accordance 
with Sec. 882.805(d).
    (d) Unleased unit(s). At the time of execution of the Contract, the 
Owner will be required to submit a list of

[[Page 96]]

dwelling unit(s) leased and not leased as of the effective date of the 
Contract.
    (e) Contract rents at end of rehabilitation loan term. For a 
contract in which the initial contract rent was based upon a loan term 
shorter than 10 years, the contract must provide for reduction of the 
contract rent effective with the rent for the month following the end of 
the term of the rehabilitation loan. The amount of the reduction will be 
the monthly cost of amortization of the rehabilitation loan. This 
reduction should result in a new contract rent equal to the base rent 
plus all subsequent adjustments.

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

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



Sec. 882.808  Management.

    (a) Outreach to homeless individuals and appropriate organizations. 
(1) The HA or the owner must undertake outreach efforts to homeless 
individuals so that they may be brought into the program. The outreach 
effort should include notification to emergency shelter providers and 
other organizations that could provide referrals of homeless 
individuals. If the owner conducts the outreach effort, the owner must 
notify the HA so that it may provide referrals of homeless individuals.
    (2) Additional outreach concerns. If the procedures that the HA or 
owner intends to use to publicize the availability of this program are 
unlikely to reach persons of any particular race, color, religion, sex, 
age, national origin, or mental or physical disability who may qualify 
for admission to the program, the HA or owner must establish additional 
procedures that will ensure that such persons are made aware of the 
availability of the program. The HA or owner must also adopt and 
implement procedures to ensure that interested persons can obtain 
information concerning the existence and location of services and 
facilities that are accessible to persons with disabilities.
    (3) First priority for homeless individuals. Homeless individuals 
must have the first priority for occupancy of housing rehabilitated 
under this program.
    (b) Individual participation. (1) Initial determination of 
individual eligibility. Section 882.514(a) applies to this program.
    (2) Owner selection of individuals. The owner must rent all vacant 
units under contract to homeless individuals located through HA or owner 
outreach efforts and determined by the HA to be eligible. The owner is 
responsible for tenant selection and may refuse any individual, provided 
the owner does not unlawfully discriminate. If the owner rejects an 
individual, and the individual believes that the owner's rejection was 
the result of unlawful discrimination, the individual may request the 
assistance of the HA in resolving the issue and may also file a 
complaint with HUD's Office of Fair Housing and Equal Opportunity in 
accordance with 24 CFR 103.25. If the individual requests the assistance 
of the HA, and if the HA cannot resolve the complaint promptly, the HA 
should advise the individual that he or she may file a complaint with 
HUD, and provide the individual with the address of the nearest HUD 
Office of Fair Housing and Equal Opportunity.
    (3) Briefing of individuals. Section 882.514(d) applies to this 
program, except that Sec. 882.514(d)(1)(vi) does not apply.
    (4) Continued participation of individual when contract is 
terminated. Section 882.514(e) applies to this program.
    (5) Individuals determined by the HA to be ineligible. Section 
882.514(f) applies to this program. In addition, individuals are not 
precluded from exercising other rights if they believe they have been 
discriminated against on the basis of age.
    (c) Lease. Sections 882.403(d) and 882.511(a) apply to this program. 
In addition, the lease must limit occupancy to one eligible individual.
    (d) Security and utility deposits. Section 882.414 applies to this 
program.
    (e) Rent adjustments. Section 882.410 applies to this program.
    (f) Payments for vacancies. Section 882.411 applies to this program.
    (g) Subcontracting of owner services. Section 882.412 applies to 
this program.
    (h) Responsibility of the individual. Section 882.413 applies to 
this program.

[[Page 97]]

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

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

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



Sec. 882.809  Waivers.

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



Sec. 882.810  Displacement, relocation, and acquisition.

    (a) Minimizing displacement. (1) Consistent with the other goals and 
objectives of this part, owners must assure that they have taken all 
reasonable steps to minimize the displacement of persons (households, 
businesses, nonprofit organizations, and farms) as a result of a project 
assisted under this

[[Page 98]]

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

[[Page 99]]

    (i) A person who moves permanently from the real property after 
receiving notice requiring such move, if the move occurs on or after the 
date the owner submits to the HA the owner proposal that is later 
approved;
    (ii) A person, including a person who moves from the property before 
the date the owner submits the proposal to the HA, if the HA or HUD 
determines that the displacement resulted directly from acquisition, 
rehabilitation, or demolition for the assisted project; or
    (iii) A tenant-occupant of a dwelling unit who moves from the 
building/complex permanently after the execution of the Agreement 
between the owner and the HA (or, for projects assisted under subpart H 
of this part, after the ``initiation of negotiations'' (see paragraph 
(h) of this section)), if the move occurs before the tenant is provided 
a written notice offering him or her the opportunity to lease and occupy 
a suitable, decent, safe, and sanitary dwelling in the same building/
complex, under reasonable terms and conditions, upon its completion. 
Such reasonable terms and conditions must include a monthly rent and 
estimated average monthly utility costs that do not exceed the greater 
of:
    (A) The tenant's monthly rent before the execution of the agreement 
and estimated average monthly utility costs; or
    (B) Thirty percent of gross household income.
    (C) For projects assisted under subpart H of this part, the amount 
cannot exceed the greater of the tenant's monthly rent before the 
``initiation of negotiations'' and estimated average monthly utility 
costs; or (if the tenant is low-income) the total tenant payment, as 
determined under 24 CFR 5.613, or (if the tenant is not low-income) 30 
percent of gross household income; or
    (iv) A tenant-occupant of a dwelling, who is required to relocate 
temporarily, but does not return to the building/complex, if either:
    (A) The tenant is not offered payment for all reasonable out-of-
pocket expenses incurred in connection with the temporary relocation; or
    (B) Other conditions of the temporary relocation are not reasonable; 
or
    (v) A tenant-occupant of a dwelling who moves from the building/
complex permanently after he or she has been required to move to another 
dwelling unit in the building/complex, if either:
    (A) The tenant is not offered reimbursement for all reasonable out-
of-pocket expenses incurred in connection with the move; or
    (B) Other conditions of the move are not reasonable.
    (2) Notwithstanding the provisions of paragraph (g)(1) of this 
section, a person does not qualify as a displaced person (and is not 
eligible for relocation assistance under the URA or this section), if:
    (i) The person has been evicted for serious or repeated violation of 
the terms and conditions of the lease or occupancy agreement, violation 
of applicable Federal, State, or local law, or other good cause, and the 
HA determines that the eviction was not undertaken for the purpose of 
evading the obligation to provide relocation assistance;
    (ii) The person moved into the property after the submission of the 
preliminary proposal (or application, if there is no preliminary 
proposal), and before signing a lease and commencing occupancy, received 
written notice of the project and its possible impact on the person 
(e.g., the person may be displaced, temporarily relocated, or suffer a 
rent increase) and the fact that the person would not qualify as a 
displaced person (or for any assistance provided under this section) as 
a result of the project;
    (iii) The person is ineligible under 49 CFR 24.2(g)(2); or
    (iv) HUD determines that the person was not displaced as a direct 
result of acquisition, rehabilitation, or demolition for the project.
    (3) The HA may request, at any time, HUD's determination of whether 
a displacement is or would be covered by this section.
    (h) Definition of initiation of negotiations. For purposes of 
determining the formula for computing the replacement housing assistance 
to be provided to a residential tenant displaced as a direct

[[Page 100]]

result of private-owner rehabilitation or demolition of the real 
property, the term initiation of negotiations means the execution of the 
Agreement between the owner and the HA.

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

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



PART 883_SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM_STATE HOUSING 
AGENCIES--Table of Contents




                       Subpart A_Summary and Guide

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

Subpart B [Reserved]

              Subpart C_Definitions and Other Requirements

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

Subparts D-E [Reserved]

             Subpart F_Housing Assistance Payments Contract

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

                          Subpart G_Management

883.701 Cross-reference.

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

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



                       Subpart A_Summary and Guide



Sec. 883.101  General.

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

[61 FR 13592, Mar. 27, 1996]



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

    (a) Part 883, in effect as of February 29, 1980, applies to projects 
for which the initial application was submitted on or after the February 
29, 1980, effective date. (See 24 CFR part 883, revised as of April 1, 
1980.) Projects for which applications or proposals were submitted 
before the February 29, 1980, effective date of part 883 have been 
processed under the part 883 regulations and procedures in effect at the 
date of submission. If, however, the agency notified HUD within 60 
calendar days of the February 29, 1980, effective date of the part 883 
regulations that they chose to have the provisions of part 883, in 
effect as of February 29, 1980, apply to a specific case, it must have 
promptly modified the application(s) and proposal(s) to comply.
    (b) Subpart F of this part, dealing with the HAP contract and 
subpart G of this part, dealing with management, apply to all projects 
for which an Agreement was not executed before the February 29, 1980, 
effective date of part 883. In cases where an Agreement has been 
executed:
    (1) The Agency, owner and HUD may agree to make the revised subpart 
F of this part applicable and execute appropriate amendments to the 
Agreement or Contract;
    (2) The Agency, Owner and HUD may agree to make the revised subpart 
G of this part applicable (with or without the limitation on 
distributions) and execute appropriate amendments to the Agreement or 
Contract.

[[Page 101]]

    (c) Section 883.708, Termination of Tenancy and Modifications of 
Leases, applies to new families who begin occupancy or execute a lease 
on or after 30 days following the February 29, 1980, effective date of 
part 883. This section also applies to families not covered by the 
preceding sentence, including families currently under lease, who have a 
lease in which a renewal becomes effective on or after the 60th day 
following the February 29, 1980 effective date of part 883. A lease is 
considered renewed when both the landlord and the family fail to 
terminate a tenancy under a lease permitting either to terminate.
    (d) Notwithstanding the provisions of paragraph (b) of this section, 
the provisions of 24 CFR part 5 (concerning preferences for selection of 
applicants) apply to all projects, regardless of when am Agreement was 
executed.

[61 FR 13592, Mar. 27, 1996]



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

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

[61 FR 13592, Mar. 27, 1996]

Subpart B [Reserved]



              Subpart C_Definitions and Other Requirements



Sec. 883.301  Applicability.

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



Sec. 883.302  Definitions.

    The terms Fair Market Rent (FMR), HUD, and Public Housing Agency 
(PHA) are defined in 24 CFR part 5.
    ACC (Annual Contributions Contract). The contract between the State 
Agency and HUD under which HUD commits to provide the Agency with the 
funds needed to make housing assistance payments to the Owner and to pay 
the Agency for administrative fees in cases where it is eligible for 
them.
    Agency. See State Agency.
    Agreement--(Agreement to enter into Housing Assistance Payments 
Contract). The agreement between the owner and the State Agency on new 
construction and substantial rehabilitation projects which provides 
that, upon satisfactory completion of the project in accordance with the 
HUD-approved proposal or final proposal, the Agency will enter into a 
Housing Assistance Payments Contract with the owner.
    Annual income. As defined in part 813 of this chapter.
    Assisted unit. A dwelling unit eligible for assistance under a 
Contract.
    Application. A request, submitted by a State Agency, to assign a 
portion of its set-aside to a specific jurisdiction or project.

[[Page 102]]

    Contract--(Housing Assistance Payments Contract). The Contract 
entered into by the owner and the State Agency upon satisfactory 
completion of a new construction or substantial rehabilitation project 
which sets forth the rights and duties of the parties with respect to 
the project and the payments under the Contract.
    Contract Rent. The total amount of rent specified in the Contract as 
payable by the Agency and the tenant to the owner for an assisted unit. 
In the case of the rental of only a manufactured home space, ``contract 
rent'' is the total rent specified in the Contract as payable by the 
Agency and the tenant to the owner for rental of the space, including 
fees or charges for management and maintenance services with respect to 
the space, but excluding utility charges for the manufactured home.
    Decent, safe, and sanitary. Housing is decent, safe, and sanitary if 
it meets the physical condition requirements in 24 CFR part 5, subpart 
G.
    Existing Housing. Housing assisted under a contract entered into 
pursuant to 24 CFR part 882. (See subpart E of this part.)
    Family (Eligible Family). As defined in part 812 of this chapter.
    Fast Track procedures. The procedures contained in subpart D for 
processing and construction of new construction and substantial 
rehabilitation projects. In order to be eligible for these procedures, a 
State Agency must provide permanent financing without Federal mortgage 
insurance or a Federal guarantee except coinsurance under Section 244 of 
the National Housing Act.
    Financing Cost Contingency (FCC). The maximum amount of contract 
authority which may be used to amend the Annual Contributions Contract 
(ACC) and Housing Assistance Payments Contract (HAP Contract) to provide 
increased contract rents to cover higher than anticipated debt service 
on the loan for a new construction or substantial rehabilitation proj 
ect.
    Gross Rent. As defined in part 813 of this chapter.
    Household type. The three household types are (1) elderly and 
handicapped, (2) family, and (3) large family.
    Housing Assistance Payment. The payment made to the Owner of an 
assisted unit by the State Agency as provided in the Contract. Where the 
unit is leased to an eligible Family, the payment is the difference 
between the Contract Rent and the Tenant Rent. An additional payment is 
made to the Family when the Utility Allowance is greater than Total 
Tenant Payment. In the case of a Family renting only a manufactured home 
space as provided in Sec. 883.303(i), the Housing Assistance Payment is 
the difference between Gross Rent and the Total Tenant Payment, but such 
payment may not exceed the Contract Rent for the space, and no 
additional payment is made to the Family. A Housing Assistance Payment, 
known as a ``vacancy payment'', may be made to the Owner when an 
assisted unit is vacant, as provided in Sec. 883.712.
    Housing Assistance Plan (HAP). A housing plan submitted by a unit of 
general local or State government and approved by HUD as being 
acceptable under the standards of 24 CFR part 570.
    Housing type. The three housing types are new construction, 
substantial rehabilitation, and existing housing/moderate 
rehabilitation.
    HFA (Housing Finance Agency). A State Agency which provides 
permanent financing for newly constructed or substantially rehabilitated 
housing processed under subpart D and financed without Federal mortgage 
insurance or a Federal guarantee except coinsurance under Section 244 of 
the National Housing Act.
    Independent Public Accountant. Certified Public Accountant or a 
licensed or registered public accountant, none of which has a business 
relationship with the owner or State Agency except for the performance 
of audit, systems work and tax preparation. If not certified, the 
Independent Public Accountant must have been licensed or registered by a 
regulatory authority of a State or other political subdivision of the 
United States on or before December 31, 1970. In States that do not 
regulate the use of the title ``public accountant,'' only Certified 
Public Accountants may be used.
    Low-Income Family. As defined in part 813 of this chapter.

[[Page 103]]

    Moderate rehabilitation. The improvement of dwelling units in 
accordance with HUD requirements, under 24 CFR part 882.
    New construction. Housing for which construction starts after 
execution of an Agreement, or housing which is already under 
construction when the Agreement is executed provided that:
    (a) At the date an application is submitted to HUD, a substantial 
amount of construction (generally at least 25 percent) remains to be 
completed;
    (b) At the date of application to HUD, the project cannot be 
completed and occupied by eligible families without assistance under 
this part; and
    (c) At the time construction was initiated, all of the parties 
reasonably expected that the project would be completed without 
assistance under this part.
    Override. The difference between an HFA's cost of borrowing on 
obligations issued to finance a new construction or substantial 
rehabilitation project and the lending rate at which they provide 
permanent financing for the project.
    Owner. Any private person or entity (including a cooperative) or a 
public entity, having the legal right to lease or sublease dwelling 
units assisted under this part. The term Owner also includes the person 
or entity submitting a proposal to a State Agency under this part.
    Partially-assisted Project. A project for non-elderly families under 
this part which includes more than 50 units, of which the number of 
assisted units does not exceed the greater of (a) 20 percent of the 
units in the project, rounded to the next highest whole number of units, 
or (b) the minimum percentage required by State law as a condition of 
HFA permanent financing, if the Assistant Secretary approves such 
minimum percentage for purposes of applicability of this definition.
    Permanent financing. An Agency is determined to provide permanent 
financing if HUD determines that (a) the Agency permanently finances a 
project from its own funds, including the sale of its obligations; or 
(b) permanent financing for projects developed or administered by the 
Agency is provided by the State government or by an agency or 
instrumentality thereof other than the Agency; or (c) the permanent 
financing (by a public or private entity other than the Agency) is 
backed by the commitment of the Agency to assume the risks of loss on 
default or foreclosure of the loan.
    Project Account. A specifically identified and segregated account 
for each project which is established in accordance with Sec. 
883.604(b) out of the amounts by which the maximum Annual Contributions 
Contract commitment exceeds the amount actually paid out under the ACC 
each year.
    Proposal. A proposal for a project that is submitted by an HFA to 
HUD for Section 8 assistance under this part.
    Rent. In the case of an assisted unit in a cooperative project, rent 
means the carrying charges payable to the cooperative with respect to 
occupancy of the unit.
    Replacement cost--(a) New construction. The estimated construction 
cost of the project when the proposed improvements are completed. The 
replacement cost may include the land, the physical improvements, 
utilities within the boundaries of the land, architect's fees, 
miscellaneous charges incident to construction as approved by the 
Assistant Secretary.
    (b) Substantial rehabilitation. The sum of the ``as is'' value 
before rehabilitation of the property as determined by the Agency and 
the estimated cost of rehabilitation, including carrying and finance 
charges.
    Single Room Occupancy (SRO) Housing. A unit for occupancy by a 
single eligible individual capable of independent living, which does not 
contain food preparation and/or sanitary facilities and is located 
within a multifamily structure consisting of more than 12 units.
    Secretary. The Secretary of Housing and Urban Development (or 
designee).
    Small Project. A project for non-elderly families under this part 
which includes a total of 50 or fewer units (assisted and unassisted).
    State Agency (Agency). An agency which has been notified by HUD in 
accordance with Sec. 883.203 that it is authorized to apply for a set-
aside and/or to use the Fast Track Procedures of this part.

[[Page 104]]

    Substantial rehabilitation. (a) The improvement of a property to 
decent, safe and sanitary condition in accordance with the standards of 
this part from a condition below these standards. Substantial 
Rehabilitation may vary in degree from gutting and extensive 
reconstruction to the cure of substantial accumulation of deferred 
maintenance. Cosmetic improvements alone do not qualify as Substantial 
Rehabilitation under this definition.
    (b) Substantial Rehabilitation may also include renovation, 
alteration or remodeling for the conversion or adaptation of 
structurally sound property to the design and condition required for use 
under this part, or the repair or replacement of major building systems 
or components in danger of failure.
    (c) Housing on which rehabilitation work has already started when 
the Agreement is executed is eligible for assistance as a Substantial 
Rehabilitation project under this part provided:
    (1) At the date of application to HUD, a substantial amount of 
construction (generally at least 25 percent) remains to be completed;
    (2) At the date of application to HUD, the project cannot be 
completed and occupied by eligible families without assistance under 
this part; and
    (3) At the time construction was initiated, all of the parties 
reasonably expected that the project would be completed without 
assistance under this part.
    Tenant Rent. The monthly amount defined in, and determined in 
accordance with part 813 of this chapter.
    Total Tenant Payment. The monthly amount defined in, and determined 
in accordance with part 813 of this chapter.
    Utility Allowance. As defined in part 813 of this chapter, made or 
approved by HUD.
    Utility reimbursement. As defined in part 813 of this chapter.
    Vacancy payments. The housing assistance payment made to the owner 
by the State Agency for a vacant, assisted unit if certain conditions 
are fulfilled as provided in the Contract. The amount of vacancy payment 
varies with the length of the vacancy period and is less after the first 
60 days of any vacancy.
    Very Low-Income Family. As defined in part 813 of this chapter.

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



Sec. 883.306  Limitation on distributions.

    (a) Non-profit owners are not entitled to distributions of project 
funds.
    (b) For the life of the Contract, proj ect funds may only be 
distributed to profit-motivated owners at the end of each fiscal year of 
project operation following the effective date of the Contract and after 
all project expenses have been paid, or funds have been set aside for 
payment, and all reserve requirements have been met. The first year's 
distribution may not be made until the HFA certification of project 
costs, (See Sec. 883.411), where applicable, has been submitted to HUD. 
The HFA must certify that distributions will not exceed the following 
maximum returns:
    (1) For projects for elderly families, the first year's distribution 
will be limited to 6 percent on equity. The Assistant Secretary may 
provide for increases in subsequent years' distributions on an annual or 
other basis so that the permitted return reflects a 6 percent return on 
the value, in subsequent years, as determined in accordance with HUD 
guidelines, of the approved initial equity. Any such adjustments will be 
made in accordance with a Notice in the Federal Register. The HFA may 
approve a lesser increase or no increase in subsequent years' 
distributions.
    (2) For projects for non-elderly families the first year's 
distribution will be limited to 10 percent on equity. The Assistant 
Secretary may provide for increases in subsequent years' distributions 
on an annual or other basis so that the permitted return reflects a 10 
percent return on the value, in subsequent years, as determined in 
accordance with HUD guidelines, of the approved initial equity. Any such 
adjustments will be made in accordance with a Notice in the Federal 
Register. The HFA may approve a lesser increase or no increase in 
subsequent years' distributions.

[[Page 105]]

    (c) For the purpose of determining the allowable distribution, an 
owner's equity investment in a project is deemed to be 10 percent of the 
replacement cost of the part of the proj ect attributable to dwelling 
use accepted by the HFA at cost certification (See Sec. 883.411), or as 
specified in the Proposal where cost certification is not required, 
unless the owner justifies a higher equity contribution through cost 
certification documentation accepted by the HFA.
    (d) Any short-fall in return may be made up from surplus project 
funds in future years.
    (e) If the HFA determines at any time that surplus project funds are 
more than the amount needed for proj ect operations, reserve 
requirements and permitted distributions, the HFA may require the excess 
to be placed in a separate account to be used to reduce housing 
assistance payments or for other project purposes. Upon termination of 
the Contract, any excess project funds must be remitted to HUD.
    (f) Owners of small projects or partially assisted projects are 
exempt from the limitation on distributions contained in paragraphs (b) 
through (d) of this section.
    (g) HUD may permit increased distributions of surplus, in excess of 
the amounts otherwise permitted, to profit-motivated owners who 
participate in a HUD-approved initiative or program to preserve below-
market housing stock. The increased distributions will be limited to a 
maximum amount based on market rents and calculated according to HUD 
instructions. Funds that the owner is authorized to retain under section 
236(g)(2) of the National Housing Act are not considered distributions 
to the owner.
    (h) Any State or local law or regulation that restricts 
distributions to an amount lower than permitted by this section or 
permitted by the Commissioner under this paragraph (h) is preempted as 
provided by section 524(f) of the Multifamily Assisted Housing Reform 
and Affordability Act of 1997.

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



Sec. 883.307  Financing.

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

[[Page 106]]

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

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



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

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

[[Page 107]]

the permanent financing is lower than the anticipated debt service on 
which the Contract Rents were based, the initial Contract Rents, or the 
Contract Rents currently in effect, must be reduced commensurately, and 
the amount of the savings credited to the project account.
    (e) Increase of Contract Rents. This paragraph (e) applies only if 
the HFA is using its set-aside for the project and it is processed under 
subpart D. If the actual debt service to the owner under the permanent 
financing is higher than the anticipated debt service on which the 
Contract Rents are based, the initial Contract Rents or the Contract 
Rents currently in effect may, if sufficient contract and budget 
authority is available, be increased commensurately based on the 
certification submitted under paragraph (c) of this section. The amount 
of this increase may not exceed the amount of the Financing Cost 
Contingency (FCC) authorized but not reserved for the project at the 
time the proposal is approved. The adjustment must not exceed the amount 
necessary to reflect an increase in debt service (based on the 
difference between the projected and actual terms of the permanent 
financing) resulting from an increase over the projected interest rate 
of not more than:
    (1) One and one-half percent if the projected override was three-
fourths of one percent or less, or
    (2) One percent if such projected override was more than three-
fourths of one percent but not more than one percent, or
    (3) One-half of one percent if such projected override was more than 
one percent.
    (f) Recoupment of savings in financing costs. In the event that 
interim financing is continued after the first year of the term of the 
Contract and the debt service of the interim financing for any period of 
three months after such first year is less than the anticipated debt 
service under the permanent financing on which the Contract Rents were 
based, an appropriate amount reflecting the savings in financing cost 
will be credited by HUD to the Project Account and withheld from housing 
assistance payments payable to the owner. If during the course of the 
same year there is any period of three months in which the debt service 
is greater than the anticipated debt service under the projected 
permanent financing, an adjustment will be made so that only the net 
amount of savings in debt service for the year is credited by HUD to the 
Project Account and withheld from housing assistance payments to the 
owner. No increased payments will be made to the owner on account of any 
net excess for the year of actual interim debt service over the 
anticipated debt service under the permanent financing. Nothing in this 
paragraph will be construed as requiring a permanent reduction in the 
Contract Rents or precluding adjustments of Contract Rents in accordance 
with paragraphs (d) or (e) of this section.
    (g) Compliance with other regulations. The HFA must also submit a 
certification specifying:
    (1) That the terms of financing, the amount of the obligations 
issued with respect to the project and the use of the funds will be in 
compliance with any regulation governing the issuance of the 
obligations, e.g., Department of the Treasury regulations regarding 
arbitrage or HUD regulations regarding Tax Exemption of Obligations of 
Public Housing Agencies (24 CFR part 811), and
    (2) That the override, if any, on the permanent financing for the 
project will not be greater than the projected override nor greater than 
the override allowed for the borrowing as a whole under applicable 
regulations, e.g., the Department of Treasury regulations regarding 
arbitrage. The certifications required under 24 CFR 811.107(a)(2) will 
be sufficient to meet the certification requirements of this paragraph 
(g).



Sec. 883.310  Property standards.

    (a) New Construction. Projects must comply with:
    (1) [Reserved]
    (2) In the case of manufactured homes, the Federal Manufactured Home 
Construction and Safety Standards, pursuant to Title VI of the Housing 
and Community Development Act of 1974, and 24 CFR part 3280;
    (3) In the case of congregate or single room occupant housing, the 
appropriate HUD guidelines and standards,

[[Page 108]]

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

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



Sec. 883.313  Audit.

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

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

Subparts D-E [Reserved]



             Subpart F_Housing Assistance Payments Contract



Sec. 883.601  Applicability.

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



Sec. 883.602  The contract.

    (a) Contract. The Housing Assistance Payments Contract sets forth 
rights and duties of the owner and State Agency with respect to the proj 
ect and the Housing Assistance payments.
    (b) Housing Assistance Payments to Owners under the Contract. The 
Housing Assistance Payments made under the Contract are:
    (1) Payments to the owner to assist eligible families leasing 
assisted units, and
    (2) Payments to the owner for vacant assisted units (``vacancy 
payments'') if the conditions specified in Sec. 880.611 of this chapter 
are satisfied.

The housing assistance payments are made monthly by the State Agency 
upon proper requisition by the owner, except payments for vacancies of 
more than 60 days, which are made semi-annually by the Agency upon 
proper requisition by the owner.
    (c) Amount of Housing Assistance Payments to the Owner. (1) The 
amount of the housing assistance payments made to the owner of a unit 
being leased by an eligible family is the difference between the 
contract rent for the unit and the tenant rent payable by the family.

[[Page 109]]

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

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



Sec. 883.603  Term of contract.

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

[[Page 110]]

for additional terms of not more than 5 years each. The total of initial 
and renewal terms will not exceed the lesser of (i) 40 years for any 
dwelling unit, or (ii) the term of the permanent financing (but not less 
than 20 years); or
    (4) For assisted units in projects financed other than as described 
in paragraph (b) (2) or (3) of this section, the Contract will be for an 
initial term of 20 years for any dwelling unit. There will be a 
provision for renewal for additional terms of not more than 5 years 
each. The total of initial and renewal terms will not exceed the lesser 
of (i) 30 years for any dwelling unit, or (ii) the term of the permanent 
financing (but not less than 20 years).
    (c) Staged Projects. If a project is completed in stages, the term 
of the Contract must relate separately to the units in each stage unless 
the Agency and the owner agree that only the units in the first stage 
will be assisted for the maximum term of the Contract. The total 
Contract term, for the units in all stages, beginning with the effective 
date of the Contract for the first stage, may not exceed the overall 
maximum term allowable for any one unit under this section, plus two 
years.

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



Sec. 883.604  Maximum annual commitment and project account.

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

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



Sec. 883.605  Leasing to eligible families.

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

[61 FR 13593, Mar. 27, 1996]



Sec. 883.606  Administration fee.

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



Sec. 883.607  Default by owner and/or agency.

    (a) Rights of Owner if Agency defaults under Agreement or Contract. 
The ACC, the Agreement and the Contract will provide that, in the event 
of failure of the Agency to comply with the Agreement or Contract with 
the owner, the owner will have the right, if he/she is not in default, 
to demand that HUD investigate. HUD will first give the Agency a 
reasonable opportunity to take corrective action. If HUD determines that 
a substantial default exists, HUD will assume the Agency's rights and 
obligations under the Agreement or Contract and meet the obligations of 
the Agency under the Agreement or

[[Page 111]]

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



Sec. 883.608  Notice upon contract expiration.

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

[61 FR 13593, Mar. 27, 1996]



                          Subpart G_Management



Sec. 883.701  Cross-reference.

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

[61 FR 13593, Mar. 27, 1996]



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




            Subpart A_Applicability, Scope and Basic Policies

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

[[Page 112]]

               Subpart B_Project Development and Operation

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

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

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



            Subpart A_Applicability, Scope and Basic Policies



Sec. 884.101  Applicability and scope.

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

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



Sec. 884.102  Definitions.

    The terms Fair Market Rent (FMR), HUD, Public housing agency (PHA), 
and Secretary are defined in 24 CFR part 5.
    Agreement to enter into housing assistance payments contract 
(``agreement''). (a) In the case of a Private-Owner Proj ect or a PHA-
Owner Project, a written agreement between the Owner and HUD that, upon 
satisfactory completion of the housing in accordance with the HUD-
approved Proposal and submission by RHCDS of the required 
certifications, HUD will enter into a Housing Assistance Payments 
Contract with the Owner.
    (b) In the case of a Private-Owner/PHA Project, a written agreement 
between the private owner and the PHA, approved by HUD, that, upon 
satisfactory completion of the housing in accordance with the HUD-
approved Proposal and submission by RHCDS of the required 
certifications, the PHA will enter into a Housing Assistance Payments 
Contract with the Private Owner.
    Annual contributions contract (``ACC''). In the case of a Private-
Owner/PHA Project, a written agreement between HUD and the PHA to 
provide annual contributions to the PHA with respect to the project.
    Annual income. As defined in part 5 of this title.
    Contract. See definition of Housing Assistance Payments Contract.
    Contract rent. The rent payable to the Owner under his Contract 
including the portion of the rent payable by the Family. In the case of 
a cooperative, the term ``Contract Rent'' means charges under the 
occupancy agreements between the members and the cooperative.
    Decent, safe, and sanitary. Housing is decent, safe, and sanitary if 
it meets the physical condition requirements in 24 CFR part 5, subpart 
G.
    Drug-related criminal activity. The illegal manufacture, sale, 
distribution, use or possession with the intent to manufacture, sell, 
distribute, or use, of a

[[Page 113]]

controlled substance as defined in section 102 of the Controlled 
Substances Act, 21 U.S.C. 802.
    Family. As defined in part 5 of this title.
    HCD Act. The Housing and Community Development Act of 1974.
    Housing Assistance Payment. The payment made by the contract 
administrator to the Owner of an assisted unit as provided in the 
Contract. Where the unit is leased to an eligible Family, the payment is 
the difference between the Contract Rent and Tenant Rent. An additional 
Housing Assistance Payment is made to the Family when the Utility 
Allowance is greater than the Total Tenant Payment. A Housing Assistance 
Payment may be made to the Owner when a unit becomes vacant, in 
accordance with the terms of the Contract.
    Housing assistance payments contract (``Contract''). (a) In the case 
of a Private-Owner Project or a PHA-Owner Project, a written contract 
between the Owner and HUD for the purpose of providing housing 
assistance payments to the Owner on behalf of Eligible Families.
    (b) In the case of a Private-Owner/PHA Project, a written contract 
between the private Owner, and the PHA, approved by HUD, for the purpose 
of providing housing assistance payments to the Owner on behalf of 
Eligible Families.
    Income. Income from all sources of each member of the household as 
determined in accordance with criteria established by HUD.
    Lease. A written agreement between an Owner and an Eligible Family 
for the leasing of a Decent, Safe, and Sanitary dwelling unit in 
accordance with the applicable Contract, which agreement is in 
compliance with the provisions of this part.
    Local housing assistance plan. A housing assistance plan submitted 
by a unit of general local government and approved by HUD under Section 
104 of the HCD Act or, in the case of a unit of general local government 
not participating under Title I of the HCD Act, a housing plan which 
contains the elements set forth in Section 104(a)(4) of the HCD Act and 
which is approved by the Secretary as meeting the requirements of 
Section 213 of that Act.
    Low-income family. As defined in part 5 of this title.
    Owner. Any private person or entity, including a cooperative or a 
PHA, having the legal right to lease or sublease newly constructed 
dwelling units.
    PHA-owner proposal and PHA-owner project. A proposal for a project 
under this part (and the resulting project) to be owned by a PHA 
throughout the term of the Agreement and Contract where such Agreement 
and Contract are to be entered into between the PHA and HUD.
    Private-owner/PHA proposal and private-owner/PHA project. A proposal 
for a project under this part (and the resulting project) to be owned by 
a private Owner throughout the term of the Agreement and Contract where 
such Agreement and Contract are to be entered into between the private 
Owner and the PHA pursuant to an ACC between the PHA and HUD. The term 
also covers the situation where the ACC is with one PHA and the Owner is 
another PHA.
    Private-owner proposal and private-owner project. A proposal for a 
project under this part (and the resulting proj ect) to be owned by a 
private Owner throughout the term of the Agreement and Contract where 
such Agreement and Contract are to be entered into between the private 
Owner and HUD.
    Project account. The account established and maintained in 
accordance with Sec. 884.104 or Sec. 884.105.
    Proposal. A proposal for a Private-Owner or PHA-Owner/PHA Project to 
provide newly constructed housing submitted to HUD by RHCDS on the 
prescribed RHCDS form.
    RHCDS. The Rural Housing and Community Development Service.
    Tenant rent. As defined in part 5 of this title.
    Total tenant payment. As defined in part 5 of this title.
    Utility allowance. As defined in part 5 of this title.
    Utility reimbursement. As defined in part 5 of this title.

[[Page 114]]

    Very low-income family. As defined in part 5 of this title.

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



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

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



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

    (a) Maximum total ACC commitment. The maximum total annual 
contribution that may be contracted for in the ACC for a project shall 
be the total of the Contract Rents plus any utility allowances for all 
the Contract units in the project, plus a fee for the regular costs of 
PHA administration. HUD-approved preliminary costs for administration 
(including administrative costs in connection with PHA activities 
related to relocation of occupants) shall be payable out of this total.
    (b) Project account. In order to assure that housing assistance 
payments will be increased on a timely basis to cover increases in 
Contract Rents or decreases in Family Incomes:
    (1) A Project Account shall be established and maintained, in an 
amount as determined by the Secretary consistent with his 
responsibilities under Section 8(c)(6) of the 1937 Act, out of amounts 
by which the maximum ACC commitment per year exceeds amounts paid under 
the ACC for any year. This account shall be established and maintained 
by HUD as a specifically identified and segregated account, and payment 
shall be made therefrom only for the purposes of (i) housing assistance 
payments and (ii) other costs specifically authorized or approved by the 
Secretary.
    (2) Whenever a HUD-approved estimate of required Annual Contribution 
exceeds the maximum ACC commitment then in effect, and would cause the 
amount in the Project Account to be less than an amount equal to 40 
percent of such maximum ACC commitment, HUD shall, within a reasonable 
period of time, take such additional steps authorized by Section 8(c)(6) 
of the 1937 Act as may be necessary to carry out this assurance, 
including (as provided in that section of the Act) ``the reservation of 
annual contributions authority for the purpose of amending housing 
assistance contracts or the allocation of a portion of new 
authorizations for the purpose of

[[Page 115]]

amending housing assistance contracts.''

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



Sec. 884.106  Housing assistance payments to owners.

    (a) General. Housing Assistance Payments shall be paid to Owners for 
units under lease by eligible families, in accordance with the Contract 
and as provided in this section. These Housing Assistance Payments will 
cover the difference between the Contract Rent and the Tenant Rent. 
Where applicable, the Utility Reimbursement will be paid to the Family 
as an additional Housing Assistance Payment. The Contract will provide 
that the Owner will make this payment on behalf of the contract 
administrator. Funds will be paid to the Owner in trust solely for the 
purpose of making this additional payment. If the Family and the utility 
company consent, the Owner may pay the utility reimbursement jointly to 
the Family and the utility company or directly to the utility company. 
No Section 8 assistance may be provided for any unit occupied by an 
Owner; however, cooperatives are considered rental housing, rather than 
Owner-occupied housing, for this purpose.
    (b) Vacancies during rent-up. If a Contract Unit is not leased as of 
the effective date of the Contract, the Owner shall be entitled to 
housing assistance payments in the amount of 80 percent of the Contract 
Rent for the unit for a vacancy period not exceeding 60 days from the 
effective date of the Contract, in accordance with the procedure set 
forth in Sec. 884.213(b): Provided, That the Owner: (1) Commenced 
marketing and otherwise complied with Sec. 884.211(e), (2) has taken 
and continues to take all feasible actions to fill the vacancy, 
including, but not limited to, contacting applicants on his waiting 
list, if any, requesting the PHA and other appropriate sources to refer 
eligible applicants, and advertising the availability of the unit, and 
(3) has not rejected any eligible applicant, except for good cause 
acceptable to HUD or the PHA, as the case may be.
    (c) Vacancies after rent-up. (1) If an Eligible Family vacates its 
unit (other than as a result of action by the Owner which is in 
violation of the Lease or the Contract or any applicable law), the Owner 
shall receive housing assistance payments in the amount of 80 percent of 
the Contract Rent for a vacancy period not exceeding 60 days; provided, 
however, That if the Owner collects any of the Family's share of the 
rent for this period in an amount which, when added to the 80 percent 
payments, results in more than the Contract Rent, such excess shall be 
payable to HUD or as HUD may direct. (See also Sec. 884.115). The Owner 
shall not be entitled to any payment under this paragraph (c)(1) unless 
he: (i) Immediately upon learning of the vacancy, has notified HUD or 
the PHA, as the case may be, of the vacancy or prospective vacancy and 
the reasons for the vacancy, and (ii) has taken and continues to take 
the actions specified in paragraphs (b) (2) and (3) of this section.
    (2) If the Owner evicts an Eligible Family, he shall not be entitled 
to any payment under paragraph (c)(1) of this section unless the request 
for such payment is supported by a certification that: (i) He gave such 
Family a written notice of the proposed eviction, stating the grounds 
and advising the Family that it had 10 days within which to present its 
objections to the Owner in writing or in person and (ii) the proposed 
eviction was not in violation of the Lease or the Contract or any 
applicable law.
    (d) Debt-service vacancy payments. (1) If a unit continues to be 
vacant after the 60-day period specified in paragraph (b) or (c) of this 
section, the owner may submit a claim to receive additional housing 
assistance payments on a semiannual basis with respect to the vacant 
unit in an amount equal to the principal and interest payments required 
to amortize the portion of the debt attributable to that unit for the 
period of the vacancy, whether the vacancy commenced during rent-up or 
after rent-up.
    (2) Additional payments under this paragraph (d) for any unit shall 
not be for more than 12 months for any vacancy period, and shall be made 
only if:

[[Page 116]]

    (i) The unit was in decent, safe and sanitary condition during the 
vacancy period for which payments are claimed.
    (ii) The Owner has taken and is continuing to take the actions 
specified in paragraphs (b) (1), (2) and (3) or paragraphs (c)(1) (i) 
and (ii) and (c)(2) of this section, as appropriate.
    (iii) The owner has demonstrated, in connection with the semiannual 
claim on a form and in accordance wih the standards prescribed by HUD 
with respect to the period of the vacancy, that the project is not 
providing the owner with revenues at least equal to the project costs 
incurred by the owner and that the amount of the payments requested is 
not in excess of the amount needed to make up the deficiency.
    (iv) The owner has submitted to HUD or the PHA, as appropriate, in 
connection with the semiannual claim, a statement with relevant 
supporting evidence that there is a reasonable prospect that the project 
can achieve financial soundness within a reasonable time. The statement 
shall indicate the causes of the deficiency; the corrective steps that 
have been and will be taken; and the time by which it is expected that 
the project revenues will at least equal project costs without the 
additional payments provided under this paragraph.
    (3) HUD or the PHA, as appropriate, may deny any claim for 
additional payments or suspend or terminate payments if it determines 
that, based on the owner's statement and other evidence, there is not a 
reasonable prospect that the project can achieve financial soundness 
within a reasonable time.
    (e) Prohibition of double compensation for vacancies. The Owner 
shall not be entitled to housing assistance payments with respect to 
vacant units under this section to the extent he is entitled to payments 
from other sources (for example, payments for losses of rental income 
incurred for holding units vacant for relocatees pursuant to Title I of 
the HCD Act or payments under Sec. 884.115).

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



Sec. 884.108  Term of housing assistance payments contract.

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

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



Sec. 884.108a  Notice upon contract expiration.

    (a) The Contract will provide that the owner will notify each 
assisted family, at least 90 days before the end of the Contract term, 
of any increase in the amount the family will be required to pay as rent 
which may occur as a result of its expiration. If the Contract is to be 
renewed but with a reduction in the number of units covered by it, this 
notice shall be given to each family who will no longer be assisted 
under the Contract.
    (b) The notice provided for in paragraph (a) of this section shall 
be accomplished by: (1) Sending a letter by first class mail, properly 
stamped and addressed, to the family at its address at the project, with 
a proper return address, and (2) serving a copy of the notice on any 
adult person answering the door at the leased dwelling unit, or if

[[Page 117]]

no adult responds, by placing the notice under or through the door, if 
possible, or else by afffixing the notice to the door. Service shall not 
be considered to be effective until both required notices have been 
accomplished. The date on which the notice shall be considered to be 
received by the family shall be the date on which the owner mails the 
first class letter provided for in this paragraph, or the date on which 
the notice provided for in this paragraph is properly given, whichever 
is later.
    (c) The notice shall advise each affected family that, after the 
expiration date of the Contract, the family will be required to bear the 
entire cost of the rent and that the owner will be free (to the extent 
the project is not otherwise regulated by HUD) to alter the rent without 
HUD approval, but subject to any applicable requirements or restrictions 
under the lease or under State or local law. The notice shall also 
state: (1) The actual (if known) or the estimated rent which will be 
charged following the expiration of the Contract; (2) the difference 
between the rent and the Total Tenant Payment toward rent under the 
Contract; and (3) the date the Contract will expire.
    (d) The owner shall give HUD a certification that families have been 
notified in accordance with this section with an example of the text of 
the notice attached.
    (e) This section applies to all Contracts entered into pursuant to 
an Agreement executed on or after October 1, 1981, or entered into 
pursuant to an Agreement executed before October 1, 1981, but renewed or 
amended on or after October 1, 1984.

[49 FR 31284, Aug. 6, 1984]



Sec. 884.109  Rent adjustments.

    (a) Funding of adjustments. Housing assistance payments will be made 
in increased amounts commensurate with Contract Rent adjustments under 
this paragraph, up to the maximum amount authorized under the Contract. 
(See Sec. Sec. 884.104 and 884.105).
    (b) Automatic annual adjustments. (1) Automatic Annual Adjustment 
Factors will be determined by HUD at least annually; interim revisions 
may be made as market conditions warrant. Such Factors and the basis for 
their determination will be published in the Federal Register. These 
published Factors will be reduced appropriately by HUD where utilities 
are paid directly by Families.
    (2) On each anniversary date of the Contract, the Contract Rents 
shall be adjusted by applying the applicable Automatic Annual Adjustment 
Factor most recently published by HUD. Contract Rents may be adjusted 
upward or downward, as may be appropriate; however, in no case shall the 
adjusted rents be less than the Contract Rents on the effective date of 
the Contract.
    (c) Special additional adjustments. Special additional adjustments 
shall be granted, when approved by HUD, to reflect increases in the 
actual and necessary expenses of owning and maintaining the Contract 
Units which have resulted from substantial general increases in real 
property taxes, utility rates, or similar costs (i.e., assessments, and 
utilities not covered by regulated rates), but only if and to the extent 
that the Owner clearly demonstrates that such general increases have 
caused increases in the Owner's operating costs which are not adequately 
compensated for by automatic annual adjustments. The Owner shall submit 
to HUD financial statements which clearly support the increase.
    (d) Overall limitation. Notwithstanding any other provisions of this 
part, adjustments as provided in this section shall not result in 
material differences between the rents charged for assisted and 
comparable unassisted units, as determined by HUD: Provided, however, 
That this limitation shall not be construed to prohibit differences in 
rents between assisted and comparable unassisted units to the extent 
that such differences may have existed with respect to the initial 
Contract Rents.



Sec. 884.110  Types of housing and property standards.

    (a) Newly constructed single-family houses and multifamily 
structures may be utilized in this program. Congregate housing may be 
developed for elderly, disabled, or handicapped Families and 
individuals. Except in the case of housing predominantly for the 
elderly, high-rise elevator projects for Families

[[Page 118]]

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

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



Sec. 884.114  Financing.

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



Sec. 884.115  Security and utility deposits.

    (a) An Owner may require Families to pay a security deposit in an 
amount equal to one month's Gross Family Contribution. If a Family 
vacates its unit, the Owner, subject to State and local laws, may 
utilize the deposit as reimbursement for any unpaid rent or other amount 
owed under the Lease. If the Family has provided a security deposit, and 
it is insufficient for such reimbursement, the Owner may claim 
reimbursement from HUD or the PHA, as appropriate, not to exceed an 
amount equal to the remainder of one month's Contract Rent. Any 
reimbursement under this section shall be applied first toward any 
unpaid rent. If a Family vacates the unit owing no rent or other amount 
under the Lease or if such amount is less than the amount of the 
security deposit, the Owner shall refund the full amount or the unused 
balance, as the case may be, to the Family.
    (b) In those jurisdictions where interest is payable by the Owner on 
security deposits, the refunded amount shall include the amount of 
interest payable. All security deposit funds shall be deposited by the 
Owner in a segregated

[[Page 119]]

bank account, and the balance of this account, at all times, shall be 
equal to the total amount collected from tenants then in occupancy, plus 
any accrued interest. The Owner shall comply with all State and local 
laws regarding interest payments on security deposits.
    (c) Families shall be expected to obtain the funds to pay security 
and utility deposits, if required, from their own resources and/or other 
private or public sources.



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

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

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



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

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

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

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



Sec. 884.118  Responsibilities of the owner.

    (a) The Owner shall be responsible (subject to post-review or audit 
by HUD or the PHA, as the case may be) for management and maintenance of 
the project. These responsibilities shall include but not be limited to:
    (1) Payment for utilities and services (unless paid directly by the 
Family), insurance and taxes;
    (2) Performance of all ordinary and extraordinary maintenance;
    (3) Performance of all management functions, including the taking of 
applications; determining eligibility of applicants in accordance with 
part 5 of this title; selection of families, including verification of 
income, provision of Federal selection preferences in accordance with 24 
CFR part 5, obtaining and verifying Social Security Numbers submitted by 
applicants (as provided by 24 CFR part 5), obtaining signed consent 
forms from applicants for the obtaining of wage and claim information 
from State Wage Information Collection Agencies (as provided in 24 CFR 
part 5), and other pertinent requirements; and determination of the 
amount of tenant rent in accordance with HUD established schedules and 
criteria;
    (4) Collection of Tenant Rents;
    (5) Termination of tenancies, including evictions;
    (6) Preparation and furnishing of information required under the 
Contract;
    (7) Reexamination of family income and composition; redetermination, 
as appropriate, of the amount of Tenant Rent and the amount of housing 
assistance payment in accordance with part 5 of this title; obtaining 
and verifying Social Security Numbers submitted by participants, as 
provided by 24 CFR part 5; and obtaining signed consent forms from 
participants for the obtaining of wage and claim information from State 
Wage Information Collection Agencies, as provided by 24 CFR part 5;
    (8) Redetermination of amount of Tenant Rent and amount of housing 
assistance payment in accordance with part 5 of this title as a result 
of an adjustment by the PHA or HUD, as appropriate, of any applicable 
Utility Allowance; and
    (9) Compliance with equal opportunity requirements issued by RHCDS 
and HUD with respect to project operation.
    (b) Subject to HUD approval, any Owner may contract with any private 
or public entity to perform for a fee the services required by paragraph 
(a) of this section: Provided, That such contract shall not relieve the 
Owner of his responsibilities or obligations. However, no entity which 
is responsible for administration of the Contract (for example, a PHA in 
the case of a Private-Owner/PHA Project) may contract to perform 
management and maintenance

[[Page 120]]

of the project: Provided, however, That this prohibition shall not 
preclude management by the PHA in the event it takes possession as the 
result of foreclosure or assignment in lieu of foreclosure. (See, 
however, Sec. 884.123(b), which permits conversion of a Private-Owner/
PHA Project to a Private-Owner Project.)

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

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



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

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

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



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

    (a) Contract administration. The PHA is primarily responsible for 
administration of the Contract, subject to review and audit by HUD.
    (b) Defaults by PHA and/or owner. (1) The ACC and the Contract shall 
contain a provision to the effect that in the event of failure of the 
PHA to comply with the Contract with the Owner, the Owner shall have the 
right, if he is not in default, to demand that HUD determine, after 
notice to the PHA giving it a reasonable opportunity to take corrective 
action, whether a substantial default exists, and if HUD determines that 
such a default exists, that HUD assure that the obligations of the PHA 
to the Owner are carried out.
    (2) The ACC shall contain a provision to the effect that if the PHA 
fails to comply with any of its obligations (including specifically 
failure to enforce its rights under the Contract, in the event of any 
default by the Owner, to achieve compliance to the satisfaction of HUD 
or to terminate the Contract in whole or in part, as directed by HUD), 
HUD may, after notice to the PHA giving it a reasonable opportunity to 
take corrective action, determine that there is a substantial default 
and require the PHA to assign to HUD all of the PHA's rights and 
interests under the Contract. In such case, HUD will continue to pay 
annual contributions in accordance with the terms of the ACC and the 
Contract.
    (3) The Contract shall contain a provision to the effect (i) that if 
the PHA determines that the Owner is in default under the Contract, the 
PHA shall notify the Owner, with a copy to HUD and RHCDS, of the actions 
required to be taken to cure the default and of the remedies to be 
applied by the PHA including abatement of housing assistance payments 
and recovery of overpayments, where appropriate; and (ii) that if he 
fails to cure the default, the PHA has the right to terminate the 
Contract or to take other corrective action, in its discretion or as 
directed by HUD.

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



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

    The ACC and the Agreement shall contain a provision to the effect 
that in the event of failure of the PHA to comply with the Agreement 
with the Owner, the Owner shall have the right, if he is not in default, 
to demand that HUD determine, after notice to the PHA giving it a 
reasonable opportunity

[[Page 121]]

to take corrective action, whether a substantial default exists, and if 
HUD determines that such a default exists, that HUD assume the PHA's 
rights and obligations under the Agreement, and carry out the 
obligations of the PHA under the Agreement, including the obligation to 
enter into the Contract.



Sec. 884.122  Separate project requirement.

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



Sec. 884.123  Conversions.

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



Sec. 884.124  Audit.

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

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



               Subpart B_Project Development and Operation



Sec. 884.212  Project completion.

    (a) FmHA certifications upon completion. Upon completion of the 
project, FmHA shall inspect the project and, if determined to be 
acceptable, submit to the HUD field office the following certifications:
    (1) The project has been completed in accordance with the 
requirements of the Agreement;
    (2) The project is in good and tenantable condition;
    (3) There are no defects or deficiencies in the project other than 
punchlist items, or incomplete work awaiting seasonal opportunity;
    (4) There has been no change in management capability.
    (b) HUD review. HUD shall promptly review the certifications 
submitted pursuant to paragraphs (a) and (b) of this section (see Sec. 
884.203(b)).
    (c) HUD acceptance. If HUD determines from the review that the 
certifications are acceptable in accordance with these subparts, the 
project shall be accepted.
    (d) Acceptance where defects or deficiencies reported. If the only 
defects or deficiencies are punchlist items or incomplete items awaiting 
seasonal opportunity, the project may be accepted and the Contract 
executed. If the Owner fails to complete the items within a reasonable 
time to the satisfaction of HUD (and the PHA, if applicable), HUD may, 
after consultation with FmHA, upon 30 days notice to the Owner (and the 
PHA, if applicable), terminate the Contract and/or exercise its other 
rights thereunder or, if the Contract is with a PHA, cancel its approval 
of the Contract and require its

[[Page 122]]

termination and/or exercise its other rights under the Contract and the 
ACC.
    (e) Arbitration. In the event the Owner disputes HUD determinations, 
he may submit the controversy to third-party arbitration at his expense, 
provided that the arbitration is advisory only.
    (f) Completion in stages. If the project is to be completed in 
stages, the procedures of this section shall apply to each stage.



Sec. 884.213  Execution of housing assistance payments contract.

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



Sec. 884.214  Marketing.

    (a) Compliance with equal opportunity requirements. Marketing of 
units and selection of Families by the Owner shall be in accordance with 
the Owner's FmHA-approved Affirmative Fair Housing Marketing Plan, if 
required, and with all regulations relating to fair housing advertising 
including use of the equal opportunity logotype statement and slogan in 
all advertising. Projects shall be managed and operated without regard 
to race, color, creed, religion, sex, or national origin.
    (b) Eligibility, selection and admission of families. (1) The owner 
is responsible for determination of eligibility of applicants in 
accordance with the procedure of 24 CFR part part 5, selection of 
families from among those determined to be eligible (including provision 
of Federal selection preferences in accordance with 24 CFR part 5), and 
computation of the amount of housing assistance payments on behalf of 
each selected family, in accordance with schedules and criteria 
established by HUD.
    (2) For every family that applies for admission, the owner and the 
applicant will complete and sign the form of application prescribed by 
HUD. However, if there are no vacant units and the owner's waiting list 
is such that there would be an unreasonable length of time before the 
applicant could be admitted, the owner may advise the applicant that the 
owner is not accepting applications for that reason.

The owner must retain copies of all completed applications together with 
any related correspondence for three years. For each family selected for 
admission, the owner must submit one copy of the completed and signed 
application to the HUD field office (in the case of private-owner/PHA 
projects, the owner simultaneously must send a copy of the form to the 
PHA). Housing assistance payments will not be made on behalf of an 
admitted family unit after this copy has been received by the HUD field 
office (or, in the case of private-owner/PHA projects, until the copy 
has been received by the PHA with a certification by the owner that the 
owner has sent a copy to HUD).
    (3) If the Owner determines that the applicant is eligible on the 
basis of Income and family composition and is otherwise acceptable but 
the Owner does not have a suitable unit to offer, the Owner shall place 
such Family on his waiting list and so advise the Family.
    (4) If the Owner determines that the applicant is eligible on the 
basis of Income and family composition and is otherwise acceptable and 
if the Owner has a suitable unit, the Owner and the Family shall enter 
into a Lease. Such

[[Page 123]]

Lease shall be on the form of Lease included in the Owner's approved 
Final Proposal and shall otherwise be in conformity with the provisions 
of this part.
    (5) Records on applicant families and approved Families shall be 
maintained by the Owner so as to provide HUD with racial, ethnic and 
gender data and shall be retained by the Owner for three years.
    (6) In the case of a PHA-Owner proj ect, (i) if the PHA places a 
Family on its waiting list, it shall notify the Family of the 
approximate date of availability of a suitable unit insofar as such date 
can be reasonably determined, and (ii) if the PHA determines that an 
applicant is ineligible on the basis of income or family composition, or 
that the PHA is not selecting the applicant for other reasons, the PHA 
shall promptly send the applicant a letter notifying him of the 
determination and the reasons and that the applicant has the right 
within a reasonable time (specified in the letter) to request an 
informal hearing. If, after conducting such an informal hearing, the PHA 
determines that the applicant shall not be admitted, the PHA shall so 
notify the applicant in writing and such notice shall inform the 
applicant that he has the right to request a review by HUD of the PHA's 
determination. The procedures of this subparagraph do not preclude the 
applicant from exercising his other rights if he believes he is being 
discriminated against on the basis of race, color, creed, religion, sex, 
or national origin. The PHA shall retain for three years a copy of the 
application, the letter, the applicant's response if any, the record of 
any informal hearing, and a statement of final disposition.
    (7) See 24 CFR part 5 for the informal review provisions for the 
denial of a Federal selection preference.
    (8) For the informal hearing provisions related to denial of 
assistance based upon failure to establish citizenship or eligible 
immigration status, see part 5 of this title for provisions concerning 
certain assistance for mixed families (families whose members include 
those with eligible immigration status, and those without eligible 
immigration status) in lieu of denial of assistance.

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



Sec. 884.215  Lease requirements.

    The Lease shall contain all required provisions specified in 
paragraph (b) of this section and none of the prohibited provisions 
listed in paragraph (c) of this section.
    (a) Term of lease. The term of the Lease shall be for not less than 
one year. The Lease may (or, in the case of a Lease for a term of more 
than one year, shall) contain a provision permitting termination upon 30 
days advance written notice by either party.
    (b) Required provisions. The Lease between the Owner (Lessor) and 
the Family (Lessee) shall contain the following provisions:

                            Addendum to Lease

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

Lessor__________________________________________________________________
By______________________________________________________________________

[[Page 124]]

Date____________________________________________________________________
Lessee__________________________________________________________________
Date____________________________________________________________________

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



Sec. 884.216  Termination of tenancy.

    (a) The owner is responsible for termination of tenancies, including 
evictions. However, conditions for payment of housing assistance 
payments for any resulting vacancies must be as set forth in Sec. 
884.106(c)(1). Failure of the family to sign and submit consent forms 
for the obtaining of wage and claim information from State Wage 
Information Collection Agencies, as provided by 24 CFR part 5, shall be 
grounds for termination of tenancy. For provisions requiring termination 
of assistance for failure to establish citizenship or eligible 
immigration status, including the applicable informal requirements, see 
24 CFR part 5 and also for provisions concerning assistance for mixed 
families (families whose members include those with eligible immigration 
status, and those without eligible immigration status) in lieu of 
termination of assistance, and for provisions concerning deferral of 
termination of assistance.
    (b) Termination of tenancy for criminal activity by a covered person 
is subject to 24 CFR 5.858 and 5.859, and termination of tenancy for 
alcohol abuse by a covered person is subject to 24 CFR 5.860.

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



Sec. 884.217  Maintenance, operation and inspections.

    (a) Maintenance and operation. The Owner shall maintain and operate 
the project so as to provide Decent, Safe, and Sanitary housing and he 
shall provide all the services, maintenance and utilities which he 
agrees to provide under the Contract, subject to abatement of housing 
assistance payments or other applicable remedies if he fails to meet 
these obligations.
    (b) Inspection prior to occupancy. Prior to occupancy of any unit by 
a Family, the Owner and the Family shall inspect the unit and both shall 
certify, on forms prescribed by HUD, that they

[[Page 125]]

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



Sec. 884.218  Reexamination of family income and composition.

    (a) Regular reexaminations. The owner must reexamine the income and 
composition of all families at least once each year. Upon verification 
of the information, the owner must make appropriate adjustments in the 
Total Tenant Payment in accordance with part 5 of this title and 
determine whether the family's unit size is still appropriate. The owner 
must adjust Tenant Rent and the Housing Assistance Payment to reflect 
any change in Total Tenant Payment and carry out any unit transfer 
required by HUD. At the time of the annual reexamination of family 
income and composition, the owner must require the family to disclose 
and verify Social Security Numbers, as provided by 24 CFR part 5. For 
requirements regarding the signing and submitting of consent forms by 
families for the obtaining of wage and claim information from State Wage 
Information Collection Agencies, see 24 CFR part 5. At the first regular 
reexamination after June 19, 1995, the owner shall follow the 
requirements of 24 CFR part 5 concerning obtaining and processing 
evidence of citizenship or eligible immigration status of all family 
members. Thereafter, at each regular reexamination, the owner shall 
follow the requirements of 24 CFR part 5 concerning verification of the 
immigration status of any new family member.
    (b) Interim reexaminations. The family must comply with provisions 
of its lease regarding interim reporting of changes in income. If the 
owner receives information concerning a change in the family's income or 
other circumstances between regularly scheduled reexaminations, the 
owner must consult with the family and make any adjustments determined 
to be appropriate. Any change in the family's income or other 
circumstances that results in an adjustment in the Total Tenant Payment, 
Tenant Rent and Housing Assistance Payment must be verified. See 24 CFR 
750.10(d)(2)(i) for the requirements for the disclosure and verification 
of Social Security Numbers at interim reexaminations involving new 
family members. For requirements regarding the signing and submitting of 
consent forms by families

[[Page 126]]

for the obtaining of wage and claim information from State Wage 
Information Collection Agencies, see 24 CFR part 5. At any interim 
reexamination after June 19, 1995 when there is a new family member, the 
owner shall follow the requirements of 24 CFR part 5 concerning 
obtaining and processing evidence of citizenship or eligible immigration 
status of the new family member.
    (c) Continuation of housing assistance payments. A family's 
eligibility for Housing Assistance Payments continues until the Total 
Tenant Payment equals the Contract Rent plus any utility allowance, or 
until the family loses eligibility for continued occupancy under 
Farmer's Home Administration regulations. However, eligibility also may 
be terminated in accordance with HUD requirements, for such reasons as 
failure to submit requested verification information, including failure 
to meet the disclosure and verification requirements for Social Security 
Numbers, as provided by 24 CFR part 5, or failure to sign and submit 
consent forms for the obtaining of wage and claim information from State 
Wage Information Collection Agencies, as provided by 24 CFR part 5. For 
provisions requiring termination of assistance for failure to establish 
citizenship or eligible immigration status, see 24 CFR part 5 and also 
for provisions concerning certain assistance for mixed families 
(families whose members include those with eligible immigration status, 
and those without eligible immigration status) in lieu of termination of 
assistance, and for provisions concerning deferral of termination of 
assistance.

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



Sec. 884.219  Overcrowded and underoccupied units.

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



Sec. 884.220  Adjustment of utility allowances.

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

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

[50 FR 39098, Sept. 27, 1985]



Sec. 884.221  Continued family participation.

    A Family must continue to occupy its approved unit to remain 
eligible for participation in the Housing Assistance Payments Program 
except that if the Family (a) wishes to vacate its unit at the end of 
the Lease term (or prior thereto but in accordance with the provisions 
of the Lease), or (b) is required to move for reasons other than 
violation of the Lease on the part of the Family, and if the Family 
wishes to receive the benefit of housing assistance payments in another 
approvable unit,

[[Page 127]]

the Family should give reasonable notice of the circumstances to HUD or 
to the PHA, as appropriate, so that HUD or the PHA may have the 
opportunity to consider the Family's request.



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

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



Sec. 884.223  Leasing to eligible families.

    (a) Availability of units for occupancy by Eligible Families. During 
the term of the Contract, an owner shall make available for occupancy by 
eligible families the total number of units for which assistance is 
committed under the Contract. For purposes of this section, making units 
available for occupancy by eligible families means that the owner: (1) 
Is conducting marketing in accordance with Sec. 884.214; (2) has leased 
or is making good faith efforts to lease the units to eligible and 
otherwise acceptable families, including taking all feasible actions to 
fill vacancies by renting to such families; and (3) has not rejected any 
such applicant family except for reasons acceptable to HUD (or the PHA 
in accordance with HUD guidelines and at the direction of HUD, as 
appropriate). If the owner is temporarily unable to lease all units for 
which assistance is committed under the Contract to eligible families, 
one or more units may be leased to ineligible families with the prior 
approval of HUD (or the PHA in accordance with HUD guidelines and at the 
direction of HUD, as appropriate). Failure on the part of the owner to 
comply with these requirements is a violation of the Contract and 
grounds for all available legal remedies, including specific performance 
of the Contract, suspension or debarment from HUD programs, and 
reduction of the number of units under the Contract as set forth in 
paragraph (b) of this section.
    (b) Reduction of number of units covered by Contract. HUD (or the 
PHA at the direction of HUD, as appropriate), after consultation with 
the Farmers Home Administration, may reduce the number of units covered 
by the Contract to the number of units available for occupancy by 
eligible families if:
    (1) The owner fails to comply with the requirements of paragraph (a) 
of this section; or
    (2) Notwithstanding any prior approval by HUD (or the PHA at the 
direction of HUD, as appropriate) to lease such units to ineligible 
families, HUD (or the PHA at the direction of HUD, as appropriate) 
determines that the inability to lease units to eligible families is not 
a temporary problem.
    (c) Restoration. HUD will agree to an amendment of the ACC or the 
Contract, as appropriate, to provide for subsequent restoration of any 
reduction made pursuant to paragraph (b) of this section if:
    (1) HUD determines that the restoration is justified by demand;
    (2) The owner otherwise has a record of compliance with his or her 
obligations under the Contract; and
    (3) Contract and budget authority are available.
    (d) Applicability. In accordance with section 555 of the Cranston-
Gonzalez National Affordable Housing Act of 1990, paragraphs (a) and (b) 
of this section apply to all contracts. An owner who had leased an 
assisted unit to an ineligible family consistent with the regulations in 
effect at the time will continue to lease the unit to that family. 
However, the owner must make the unit available for occupancy by an 
eligible family when the ineligible family vacates the unit.
    (e) Termination of assistance for failure to establish citizenship 
or eligible immigration status. If an owner subject to paragraphs (a) 
and (b) of this section is required to terminate housing assistance 
payments for the family in accordance with 24 CFR part 5 because the 
owner determines that the entire family does not have U.S. citizenship 
or eligible immigration status, the owner may allow continued occupancy 
of the unit by the family without Section 8 assistance following the 
termination of assistance, or if the family constitutes a mixed family, 
as defined in 24 CFR part 5, the owner shall comply with the provisions 
of 24 CFR part

[[Page 128]]

5 concerning assistance to mixed families, and deferral of termination 
of assistance.

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



Sec. 884.223a  Preference for occupancy by elderly families.

    (a) Election of preference for occupancy by elderly families--(1) 
Election by owners of eligible projects. (i) An owner of a project 
assisted under this part (including a partially assisted project) that 
was originally designed primarily for occupancy by elderly families (an 
``eligible project'') may, at any time, elect to give preference to 
elderly families in selecting tenants for assisted, vacant units in the 
project, subject to the requirements of this section.
    (ii) For purposes of this section, a project eligible for the 
preference provided by this section, and for which the owner makes an 
election to give preference in occupancy to elderly families is referred 
to as an ``elderly project.'' ``Elderly families'' refers to families 
whose heads of household, their spouses or sole members are 62 years or 
older.
    (iii) An owner who elects to provide a preference to elderly 
families in accordance with this section is required to notify families 
on the waiting list who are not elderly that the election has been made 
and how the election may affect them if:
    (A) The percentage of disabled families currently residing in the 
project who are neither elderly nor near-elderly (hereafter, 
collectively referred to as ``non-elderly disabled families'') is equal 
to or exceeds the minimum required percentage of units established for 
the elderly project in accordance with paragraph (c)(1) of this section, 
and therefore non-elderly families on the waiting list (including non-
elderly disabled families) may be passed over for covered section 8 
units; or
    (B) The project, after making the calculation set forth in paragraph 
(c)(1) of this section, will have no units set aside for non-elderly 
disabled families.
    (iv) An owner who elects to give a preference for elderly families 
in accordance with this section shall not remove an applicant from the 
project's waiting list solely on the basis of having made the election.
    (2) HUD approval of election not required. (i) An owner is not 
required to solicit or obtain the approval of HUD before exercising the 
election of preference for occupancy provided in paragraph (a)(1) of 
this section. The owner, however, if challenged on the issue of 
eligibility of the project for the election provided in paragraph (a)(1) 
of this section must be able to support the project's eligibility 
through the production of all relevant documentation in the possession 
of the owner that pertains to the original design of the project.
    (ii) The Department reserves the right at any time to review and 
make determinations regarding the accuracy of the identification of the 
project as an elderly project. The Department can make such 
determinations as a result of ongoing monitoring activities, or the 
conduct of complaint investigations under the Fair Housing Act (42 
U.S.C. 3601 through 3619), or compliance reviews and complaint 
investigations under section 504 of the Rehabilitation Act of 1973 (29 
U.S.C. 794) and other applicable statutes.
    (b) Determining projects eligible for preference for occupancy by 
elderly families--(1) Evidence supporting project eligibility. Evidence 
that a project assisted under this part (or portion of a project) was 
originally designed primarily for occupancy by elderly families, and is 
therefore eligible for the election of occupancy preference provided by 
this section, shall consist of at least one item from the sources 
(``primary'' sources) listed in paragraph (b)(1)(i) of this section, or 
at least two items from the sources (``secondary'' sources) listed in 
paragraph (b)(1)(ii) of this section:
    (i) Primary sources. Identification of the project (or portion of a 
project) as serving elderly (seniors) families in at least one primary 
source such as: the application in response to the notice of funding 
availability; the terms of the notice of funding availability under 
which the application was solicited; the regulatory agreement; the loan 
commitment; the bid invitation; the

[[Page 129]]

owner's management plan, or any underwriting or financial document 
collected at or before loan closing; or
    (ii) Secondary sources. Two or more sources of evidence such as: 
lease records from the earliest two years of occupancy for which records 
are available showing that occupancy has been restricted primarily to 
households where the head, spouse or sole member is 62 years of age or 
older; evidence that services for elderly persons have been provided, 
such as services funded by the Older Americans Act, transportation to 
senior citizen centers, or programs coordinated with the Area Agency on 
Aging; project unit mix with more than fifty percent of efficiency and 
one-bedroom units [a secondary source particularly relevant to 
distinguishing elderly projects under the previous section 3(b) 
definition (in which disabled families were included in the definition 
of ``elderly families'') from non-elderly projects and which in 
combination with other factors (such as the number of accessible units) 
may be useful in distinguishing projects for seniors from those serving 
the broader definition of ``elderly families'' which includes disabled 
families]; or any other relevant type of historical data, unless clearly 
contradicted by other comparable evidence.
    (2) Sources in conflict. If a primary source establishes a design 
contrary to that established by the primary source upon which the owner 
would base support that the project is an eligible project (as defined 
in this section), the owner cannot make the election of preferences for 
elderly families as provided by this section based upon primary sources 
alone. In any case where primary sources do not provide clear evidence 
of original design of the project for occupancy primarily by elderly 
families, including those cases where sources documents conflict, 
secondary sources may be used to establish the use for which the project 
was originally designed.
    (c) Reservation of units in elderly projects for non-elderly 
disabled families. The owner of an elderly project is required to 
reserve, at a minimum, the number of units specified in paragraph (c)(1) 
of this section for occupancy by non-elderly disabled families.
    (1) Minimum number of units to be reserved for non-elderly disabled 
families. The number of units in an elderly project required to be 
reserved for occupancy by non-elderly disabled families, shall be, at a 
minimum, the lesser of:
    (i) The number of units equivalent to the higher of--
    (A) The percentage of units assisted under this part in the elderly 
project that were occupied by non-elderly disabled families on October 
28, 1992; and
    (B) The percentage of units assisted under this part in the elderly 
project that were occupied by non-elderly disabled families upon January 
1, 1992; or
    (ii) 10 percent of the number of units assisted under this part in 
the eligible project.
    (2) Option to reserve greater number of units for non-elderly 
disabled families. The owner, at the owner's option, and at any time, 
may reserve a greater number of units for non-elderly disabled families 
than that provided for in paragraph (c)(1) of this section. The option 
to provide a greater number of units to non-elderly disabled families 
will not obligate the owner to always provide that greater number to 
non-elderly disabled families. The number of units required to be 
provided to non-elderly disabled families at any time in an elderly 
project is that number determined under paragraph (c)(1) of this 
section.
    (d) Secondary preferences. An owner of an elderly project also may 
elect to establish secondary preferences in accordance with the 
provisions of this paragraph (d) of this section.
    (1) Preference for near-elderly disabled families in units reserved 
for elderly families. If the owner of an elderly project determines, in 
accordance with paragraph (f) of this section, that there are an 
insufficient number of elderly families who have applied for occupancy 
to fill all the vacant units in the elderly project reserved for elderly 
families (that is, all units except those reserved for the non-elderly 
disabled families as provided in paragraph (c) of this section), the 
owner may give preference for occupancy of such units to disabled 
families who are near-elderly families.
    (2) Preference for near-elderly disabled families in units reserved 
for non-elderly

[[Page 130]]

disabled families. If the owner of an elderly project determines, in 
accordance with paragraph (f) of this section, that there are an 
insufficient number of non-elderly disabled families to fill all the 
vacant units in the elderly project reserved for non-elderly disabled 
families as provided in paragraph (c) of this section, the owner may 
give preference for occupancy of these units to disabled families who 
are near-elderly families.
    (e) Availability of units to families without regard to preference. 
An owner shall make vacant units in an elderly project generally 
available to otherwise eligible families who apply for housing, without 
regard to the preferences and reservation of units provided in this 
section if either:
    (1) The owner has adopted the secondary preferences and there are an 
insufficient number of families for whom elderly preference, reserve 
preference, and secondary preference has been given, to fill all the 
vacant units; or
    (2) The owner has not adopted the secondary preferences and there 
are an insufficient number of families for whom elderly preference, and 
reserve preference has been given to fill all the vacant units.
    (f) Determination of insufficient number of applicants qualifying 
for preference. To make a determination that there are an insufficient 
number of applicants who qualify for the preferences, including 
secondary preferences, provided by this section, the owner must:
    (1) Conduct marketing in accordance with Sec. 884.214(a) to attract 
applicants qualifying for the preferences and reservation of units set 
forth in this section; and
    (2) Make a good faith effort to lease to applicants who qualify for 
the preferences provided in this section, including taking all feasible 
actions to fill vacancies by renting to such families.
    (g) Prohibition of evictions. An owner may not evict a tenant 
without good cause, or require that a tenant vacate a unit, in whole or 
in part because of any reservation or preference provided in this 
section, or because of any action taken by the Secretary pursuant to 
subtitle D (sections 651 through 661) of title VI of the Housing and 
Community Development Act of 1992 (42 U.S.C. 13611 through 13620).

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



Sec. 884.224  HUD review of contract compliance.

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



Sec. 884.225  PHA reporting requirements. [Reserved]



PART 886_SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM_SPECIAL 
ALLOCATIONS--Table of Contents




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

Sec.
886.101 Applicability.
886.102 Definitions.
886.103 Allocation of Section 8 contract authority.
886.104 Invitations to participate.
886.105 Content of application; Disclosure.
886.106 Notices.
886.107 Approval of applications.
886.108 Maximum annual contract commitment.
886.109 Housing assistance payments to owners.
886.110 Contract rents.
886.111 Term of contract.
886.111a Notice upon contract expiration.
886.112 Rent adjustments.
886.113 Physical condition standard; physical inspection requirements.
886.114 Equal opportunity requirements.
886.115 [Reserved]
886.116 Security and utility deposits.
886.117 [Reserved]
886.118 Amount of housing assistance payments in projects receiving 
          other HUD assistance.
886.119 Responsibilities of the owner.
886.120 Responsibility for contract administration.
886.121 Marketing.
886.122 [Reserved]
886.123 Maintenance, operation and inspections.
886.124 Reexamination of family income and composition.

[[Page 131]]

886.125 Overcrowded and underoccupied units.
886.126 Adjustment of utility allowances.
886.127 Lease requirements.
886.128 Termination of tenancy.
886.129 Leasing to eligible families.
886.130 HUD review of contract compliance.
886.131 Audit.
886.132 Tenant selection..
886.138 Displacement, relocation, and acquisition.

Subpart B [Reserved]

 Subpart C_Section 8 Housing Assistance Program for the Disposition of 
                           HUD	Owned Projects

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

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



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

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



Sec. 886.101  Applicability.

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

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



Sec. 886.102  Definitions.

    The terms Fair Market Rent (FMR), HUD, Public Housing Agency (PHA), 
and Secretary are defined in 24 CFR part 5.
    Act. The United States Housing Act of 1937.
    Annual income. As defined in part 5 of this title.
    Contract (See Section 8 Contract).
    Contract Rent. The rent payable to the Owner as required by HUD in 
connection with its mortgage insurance

[[Page 132]]

and/or lending functions, including the portion of the rent payable by 
the Family, not to exceed the amount stated in the Section 8 Contract as 
such amount may be adjusted in accordance with Sec. 886.112. In the 
case of a cooperative, the term ``Contract Rent'' means charges under 
the occupancy agreements between the members and the cooperative.
    Decent, Safe, and Sanitary. Housing is decent, safe, and sanitary if 
it meets the physical condition requirements in 24 CFR part 5, subpart 
G.
    Eligible Project. Any existing subsidized or unsubsidized 
multifamily residential project that is subject to a mortgage insured or 
any section of the National Housing Act; any such project subject to a 
mortgage that has been assigned to the Secretary; any such project 
acquired by the Secretary and thereafter sold under a Secretary-held 
purchase money mortgage; or a project for the elderly financed under 
section 202 of the Housing Act of 1959 (except projects receiving 
assistance under 24 CFR part 885).
    Family. As defined in part 5 of this title.
    HCD Act. The Housing and Community Development Act of 1974.
    Housing Assistance Payment. The payment made by HUD to the Owner of 
an assisted unit as provided in the Contract. Where the unit is leased 
to an eligible Family, the payment is the difference between the 
Contract Rent and the Tenant Rent. An additional Housing Assistance 
Payment is made when the Utility Allowance is greater than the Total 
Tenant Payment. A Housing Assistance Payment may be made to the Owner 
when a unit is vacant, in accordance with Sec. 886.109.
    Income. Income from all sources of each member of the household as 
determined in accordance with criteria established by HUD.
    Lease. A written agreement between the owner and a family for 
leasing of a decent, safe and sanitary dwelling unit to the family.
    Low-income family. As defined in part 5 of this title.
    Owner. The mortgagor of record under a multifamily project mortgage 
insured, or held by the Secretary, including purchase money mortgages; 
the owner of a Section 202 project.
    Project. See Sec. 886.101.
    Project Account. The account established and maintained in 
accordance with Sec. 886.108.
    Section 8 Contract (``Contract''). A written Contract between the 
Owner of an Eligible Project and HUD for providing Housing Assistance 
Payments to the Owner on behalf of Eligible Families pursuant to this 
part.
    Subsidized Rent. In Section 221(d)(3) BMIR, Section 202, or Section 
236 projects, the rent payable to the project, based on the particular 
circumstances of any assisted tenant in the absence of any Housing 
Assistance Payment.
    Tenant rent. As defined in part 5 of this title.
    Total tenant payment. As defined in part 5 of this title.
    Utility allowance. As defined in part 5 of this title.
    Utility reimbursement. As defined in part 5 of this title.
    Very low-income family. As defined in part 5 of this title.

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



Sec. 886.103  Allocation of Section 8 contract authority.

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



Sec. 886.104  Invitations to participate.

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

[[Page 133]]



Sec. 886.105  Content of application; Disclosure.

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

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

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

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



Sec. 886.106  Notices.

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

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



Sec. 886.107  Approval of applications.

    HUD shall approve applications, after considering all pertinent 
information including comments (if any) received during the comment 
period from the unit of general local government, based on the following 
criteria:
    (a) The Owner's Affirmative Fair Housing Marketing Plan is 
approvable.
    (b) The HUD-approved unit rents are approvable within the Fair 
Market Rent limitations contained in Sec. 886.110.
    (c) The residential units meet the housing quality standards set 
forth in Sec. 886.113, except for such variations as HUD may approve. 
Local climatic or geological conditions or local codes are examples 
which may justify such variations.
    (d) A significant number of residents, or potential residents, in 
the case of projects having a vacancy rate over 10 percent, are eligible 
for and in need of Section 8 assistance.
    (e) The infusion of Section 8 assistance into the subject project 
should not affect other HUD-related multifamily housing within the same 
neighborhood in a substantially adverse manner. Examples of such adverse 
effects are (1) substantial move-outs from nearby HUD-related projects 
precipitated by much lower rents in the subject project, or (2) 
substantial diversion of prospective applicants from such projects to 
the subject project.
    (f) A first priority is given to HUD-Insured or Secretary-Held 
projects with presently serious financial problems, which are likely to 
result in a claim on the insurance fund in the near future. To the 
extent resources remain available, assistance also may be provided to 
projects with potentially serious financial problems which, on the basis 
of financial and/or management analysis, appear to have a high 
probability of producing a claim on the insurance funds within 
approximately the next five years.
    (g) The infusion of Section 8 assistance into the subject project 
solves an identifiable problem, e.g., high vacancies and/or turnover, 
and provides a

[[Page 134]]

reasonable assurance of long-term project viability. A determination of 
long-term viability shall be based upon the following considerations:
    (1) The project is not subject to any serious problems that are non-
economic in nature. Examples of such problems are poor location, 
structural deficiencies or disinterested ownership.
    (2) The Owner is in substantial compliance with the Regulatory 
Agreement. Owners are not diverting project funds for personal use. No 
dividends are being paid during any period of financial difficulty.
    (3) The management agent is in substantial compliance with the 
management agreement. The current management agreement has been approved 
by HUD. Financial records are adequately kept. Occupancy requirements 
are being met. Marketing and maintenance programs are being carried out 
in an adequate manner, based upon available financial resources.
    (4) The project's problems are primarily the result of factors 
beyond the control of the present ownership and management.
    (5) The major problems are traceable to an inadequate cash flow.
    (6) The infusion of Section 8 assistance will solve the cash flow 
problem by:
    (i) Making it possible to grant needed rent increases;
    (ii) Reducing turnover, vacancies and collection losses.
    (7) The Owner's plan for remedying any deferred maintenance, 
financial problems, or other problems is realistic and achievable. There 
is positive evidence that the Owner will carry out the plan. Examples of 
such evidence are the Owner's past performance in correcting problems 
and, in the case of profit-motivated Owners, any cash contributions made 
to correct project problems.
    (h) Any plan submitted pursuant to Sec. 886.105(d) is found by HUD 
to be adequate.



Sec. 886.108  Maximum annual contract commitment.

    (a) Number of units assisted. Based on analysis of housing 
assistance needs of families residing or expected to reside in the 
project, HUD shall determine the number of units to be assisted up to 
100 percent of the units in the project. All units currently assisted 
under section 23 or section 8 shall be converted and included under the 
Contract pursuant to this subpart, unless the parties to the Lease or 
Contract object to such conversion. Units assisted under section 101 of 
the Housing and Urban Development Act of 1965 or under section 236(f)(2) 
of the National Housing Act shall not be included under the Contract 
pursuant to this subpart unless the Owner proposes and HUD approves such 
conversion.
    (b) Maximum annual Contract commitment. The maximum annual housing 
assistance payments that may be committed under the Contract shall be 
that amount which, when paid annually over the term of the Contract, is 
determined by HUD to be sufficient to provide for all housing assistance 
payments and fees under the Contract.
    (c) Project Account. In order to assure that housing assistance 
payments will be increased on a timely basis to cover increases in 
Contract Rents or decreases in Family Incomes:
    (1) A Project Account shall be established and maintained, in an 
amount as determined by the Secretary consistent with his 
responsibilities under section 8(c)(6) of the Act, out of amounts by 
which the maximum annual Contract commitment per year exceeds amounts 
paid under the Contract for any year. This account shall be established 
and maintained by HUD for each project as a specifically identified and 
segregated account, and payment shall be made therefrom only for the 
purposes of (i) housing assistance payments, and (ii) other costs 
specifically authorized or approved by the Secretary.
    (2) Whenever a HUD-approved estimate of required housing assistance 
payments for a fiscal year exceeds the maximum annual Contract 
commitment, and would cause the amount in the Project Account to be less 
than an amount equal to 40 percent of such maximum annual Contract 
commitment, HUD shall, within a reasonable period of time, take such 
additional steps authorized by Section 8(c)(6) of the Act as may be 
necessary to carry out this assurance, including (as provided in that 
section of the Act) ``the

[[Page 135]]

allocation of a portion of new authorizations for the purpose of 
amending housing assistance contracts.''



Sec. 886.109  Housing assistance payments to owners.

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

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



Sec. 886.110  Contract rents.

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

[[Page 136]]

exceed the rents charged by the Owner to unassisted Families for 
comparable units. HUD shall maintain for three years all certifications 
and relevant documentation under this paragraph (c).

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



Sec. 886.111  Term of contract.

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



Sec. 886.111a  Notice upon contract expiration.

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

[49 FR 31285, Aug. 6, 1984]



Sec. 886.112  Rent adjustments.

    This section applies to adjustments of the dollar amount stated in 
the Contract as the Maximum Unit Rent. It does not apply to adjustments 
in rents payable to Owners as required by HUD in connection with its 
mortgage insurance and/or lending functions.
    (a) Funding of adjustments. Housing Assistance Payments will be made 
in increased amounts commensurate with Contract Rent adjustments up to 
the maximum annual amount of housing assistance payments specified in 
the Contract pursuant to Sec. 886.108(b).
    (b) Annual adjustments. The contract rents may be adjusted annually, 
or more frequently, at HUD's option, either (1) on the basis of a 
written request for a rent increase submitted by the owner and properly 
supported by substantiating evidence, or (2) by applying, on each 
anniversary date of the contract, the applicable Automatic Annual 
Adjustment Factor most recently published by HUD in the Federal Register 
in accordance with 24 CFR part 888, subpart B. Published Automatic 
Annual Adjustment Factors will be reduced appropriately by HUD where 
utilities are paid directly by Families. If HUD requires that the owner 
submit a written request, HUD, within a reasonable time, shall approve a 
rental

[[Page 137]]

schedule that is necessary to compensate for any increase in taxes 
(other than income taxes) and operating and maintenance costs over which 
owners have no effective control, or shall deny the increase stating the 
reasons therefor. Increases in taxes and maintenance and operating costs 
shall be measured against levels of such expenses in comparable assisted 
and unassisted housing in the area to ensure that adjustments in the 
Contract Rents shall not result in material differences between the 
rents charged for assisted and comparable unassisted units. Contract 
Rents may be adjusted upward or downward as may be appropriate; however, 
in no case shall the adjusted rents be less than the contract rents on 
the effective date of the contract.
    (c) Special additional adjustments. Special additional adjustments 
shall be granted, when approved by HUD, to reflect increases in the 
actual and necessary expenses of owning and maintaining the Contract 
units which have resulted from substantial general increases in real 
property taxes, utility rates or similar costs (i.e., assessment, and 
utilities not covered by regulated rates), but only if and to the extent 
that the Owner clearly demonstrates that such general increases have 
caused increases in the Owner's operating costs which are not adequately 
compensated for by automatic annual adjustments. The Owner shall submit 
to HUD financial statements which clearly support the increase.
    (d) Overall limitation. Notwithstanding any other provisions of the 
subpart, adjustments as provided in this section shall not result in 
material differences between the rents charged for assisted and 
comparable unassisted units, as determined by HUD.
    (e) Incorporation of rent adjustments. Any adjustment in Maximum 
Unit Rents shall be incorporated into the Contract by a dated addendum 
to the Contract establishing the effective date of the adjustment.

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



Sec. 886.113  Physical condition standard; physical inspection requirements.

    (a) General. Housing used in this program must be maintained and 
inspected in accordance with the requirements in 24 CFR part 5, subpart 
G.
    (b) Space and security. In addition to the standards in 24 CFR part 
5, subpart G, the dwelling unit must have a living room, a kitchen area, 
and a bathroom. The dwelling unit must have at least one bedroom or 
living/sleeping room for each two persons.
    (c)-(h) [Reserved]
    (i) Lead based paint. The Lead-Based Paint Poisoning Prevention Act 
(42 U.S.C. 4821-4846), the Residential Lead-Based Paint Hazard Reduction 
Act of 1992 (42 U.S.C. 4851-4856), and implementing regulations at part 
35, subparts A, B, H, and R of this title apply to activities under this 
program.
    (j)-(m) [Reserved]
    (n) Congregate housing. In addition to the foregoing standards, the 
following standards apply to congregate housing:
    (1) The unit shall contain a refrigerator of appropriate size.
    (2) The central dining facility (and kitchen facility, if any) shall 
contain suitable space and equipment to store, prepare and serve food in 
a sanitary manner, and there shall be adequate facilities and services 
for the sanitary disposal of food wastes and refuse, including 
facilities for temporary storage where necessary (e.g., garbage cans).

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



Sec. 886.114  Equal opportunity requirements.

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

[[Page 138]]



Sec. 886.115  [Reserved]



Sec. 886.116  Security and utility deposits.

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



Sec. 886.117  [Reserved]



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

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

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



Sec. 886.119  Responsibilities of the owner.

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

[[Page 139]]

    (8) Redeterminations of amount of Tenant Rent and amount of Housing 
Assistance Payment in accordance with part 5 of this title as a result 
of an adjustment by HUD of any applicable Utility Allowance; and
    (9) Compliance with equal opportunity requirements.
    (b) In the event of a financial default under the project mortgage, 
HUD shall have the right to make subsequent Housing Assistance Payments 
to the mortgagee until such time as the default is cured, or, at the 
option of the mortgagee and subject to HUD approval, until some other 
agreed-upon time.
    (c) Subject to HUD approval, any Owner may contract with any private 
or public entity to perform for a fee the services required by paragraph 
(a) of this section: Provided, That such contract shall not shift any of 
the Owner's responsibilities or obligations.

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

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



Sec. 886.120  Responsibility for contract administration.

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



Sec. 886.121  Marketing.

    (a) Marketing of units and selection of Families by the Owner shall 
be in accordance with the Owner's HUD-approved Affirmative Fair Housing 
Marketing Plan, if required, and with all regulations relating to fair 
housing advertising including use of the equal opportunity logotype, 
statement, and slogan in all advertising. Projects shall be managed and 
operated without regard to race, color, creed, religion, sex, or 
national origin.
    (b) The Owner shall comply with the applicable provisions of the 
Contract, this subpart A, and the procedures of part 5 of this title in 
taking applications, selecting families, and all related determinations.
    (c) For the informal hearing provisions related to denial of 
assistance based upon failure to establish citizenship or eligible 
immigration status, see part 5, subpart E, of this title for provisions 
concerning certain assistance for mixed families (families whose members 
include those with eligible immigration status, and those without 
eligible immigration status) in lieu of denial of assistance.

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



Sec. 886.122  [Reserved]



Sec. 886.123  Maintenance, operation and inspections.

    (a) Maintenance and operation. The Owner shall maintain and operate 
the project so as to provide Decent, Safe, and Sanitary housing and he 
shall provide all the services, maintenance and utilities which he 
agrees to provide under the Contract, subject to abatement of housing 
assistance payments or other applicable remedies if he fails to meet 
these obligations.
    (b) Inspection prior to occupancy. Prior to occupancy of any unit by 
a Family, the Owner and the Family shall inspect the unit and both shall 
certify, on forms prescribed by HUD that they have inspected the unit 
and have determined it to be Decent, Safe, and Sanitary in accordance 
with the criteria

[[Page 140]]

provided in the prescribed forms. Copies of these reports shall be kept 
on file by the Owner for at least three years.
    (c) Periodic inspections. HUD will inspect or cause to be inspected 
a reasonable sample of contract units at least annually and at such 
other times as may be necessary to assure that the owner is meeting his 
contractual obligations. HUD will take into account complaints by 
occupants and any other information coming to its attention in 
scheduling inspections and shall notify the owner of its determination.
    (d) Units not Decent, Safe, and Sanitary. If HUD notifies the Owner 
that he has failed to maintain a dwelling unit in Decent, Safe, and 
Sanitary condition and the Owner fails to take corrective action within 
the time prescribed in the notice, HUD may exercise any of its rights or 
remedies under the Contract, including abatement of housing assistance 
payments, even if the Family continues to occupy the unit.

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



Sec. 886.124  Reexamination of family income and composition.

    (a) Regular reexaminations. The owner must reexamine the income and 
composition of all families at least once each year. Upon verification 
of the information, the owner must make appropriate adjustments in the 
Total Tenant Payment in accordance with part 5 of this title and 
determine whether the family's unit size is still appropriate. The owner 
must adjust Tenant Rent and the Housing Assistance Payment to reflect 
any change in Total Tenant Payment and carry out any unit transfer 
required by HUD. At the time of the annual reexamination of family 
income and composition, the owner must require the family to disclose 
and verify Social Security Numbers. For requirements regarding the 
signing and submitting of consent forms by families for the obtaining of 
wage and claim information from State Wage Information Collection 
Agencies, see part 5, subpart B, of this title. At the first regular 
reexamination after June 19, 1995, the owner shall follow the 
requirements of part 5, subpart E, of this title concerning obtaining 
and processing evidence of citizenship or eligible immigration status of 
all family members. Thereafter, at each regular reexamination, the owner 
shall follow the requirements of part 5, subpart E, of this title 
concerning verification of the immigration status of any new family 
member.
    (b) Interim reexaminations. The family must comply with provisions 
in its lease regarding interim reporting of changes in income. If the 
owner receives information concerning a change in the family's income or 
other circumstances between regularly scheduled reexaminations, the 
owner must consult with the family and make any adjustments determined 
to be appropriate. Any change in the family's income or other 
circumstances that results in an adjustment in the Total Tenant Payment, 
Tenant Rent and Housing Assistance Payment must be verified. See part 5, 
subpart B, of this title for the requirements for the disclosure and 
verification of Social Security Numbers at interim reexaminations 
involving new family members. For requirements regarding the signing and 
submitting of consent forms by families for the obtaining of wage and 
claim information from State Wage Information Collection Agencies, see 
part 5, subpart B, of this title. At any interim reexamination after 
June 19, 1995, when there is a new family member, the owner shall follow 
the requirements of part 5, subpart E, of this title concerning 
obtaining and processing evidence of citizenship or eligible immigration 
status of the new family member.
    (c) Continuation of housing assistance payments. A family's 
eligibility for housing assistance payments will continue until the 
Total Tenant Payment equals the Gross Rent. The termination of 
eligibility will not affect the family's other rights under its lease, 
nor will such termination preclude the resumption of payments as a 
result of later changes in income, rents, or other relevant 
circumstances during the term of the Contract. However, eligibility also 
may be terminated in accordance with program requirements, for such 
reasons as failure to submit requested verification information, 
including failure to meet the disclosure

[[Page 141]]

and verification requirements for Social Security Numbers, as provided 
by part 5, subpart B, of this title, or failure to sign and submit 
consent forms for the obtaining of wage and claim information from State 
Wage Information Collection Agencies, as provided by part 5, subpart B, 
of this title. For provisions requiring termination of assistance for 
failure to establish citizenship or eligible immigration status, see 
part 5, subpart E, of this title for provisions concerning certain 
assistance for mixed families (families whose members include those with 
eligible immigration status, and those without eligible immigration 
status) in lieu of termination of assistance, and for provisions 
concerning deferral of termination of assistance

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



Sec. 886.125  Overcrowded and underoccupied units.

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



Sec. 886.126  Adjustment of utility allowances.

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

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

[51 FR 21863, June 16, 1986]



Sec. 886.127  Lease requirements.

    (a) Term of lease. (1) The term of a lease, including a new lease or 
a lease amendment, executed by the owner and the family must be for at 
least one year, or the remaining term of the contract if the remaining 
term of the contract is less than one year.
    (2) During the first year of the lease term, the owner may not 
terminate the tenancy for ``other good cause'' under 24 CFR 247.3(a)(3), 
unless the termination is based on family malfeasance or nonfeasance. 
For example, during the first year of the lease term, the owner may not 
terminate the tenancy for ``other good cause'' based on the failure by 
the family to accept the offer of a new lease.
    (3) The lease may contain a provision permitting the family to 
terminate the lease on 30 days advance written notice to the owner. In 
the case of a lease term for more than one year, the lease must contain 
this provision.
    (b) Required and prohibited provisions. The lease between the owner 
and the family must comply with HUD regulations and requirements, and 
must be in the form required by HUD. The lease may not contain any of 
the following types of prohibited provisions:
    (1) Admission of guilt. Agreement by the family (i) to be sued, (ii) 
to admit guilt, or (iii) to a judgment in favor of the owner, in a court 
proceeding against the family in connection with the lease.
    (2) Treatment of family property. Agreement by the family that the 
owner may take or hold family property, or may sell family property, 
without notice to the family and a court decision on the rights of the 
parties.
    (3) Excusing owner from responsibility. Agreement by the family not 
to hold the owner or the owner's agents responsible for any action or 
failure to act, whether intentional or negligent.
    (4) Waiver of notice. Agreement by the family that the owner does 
not need to give notice of a court proceeding

[[Page 142]]

against the family in connection with the lease, or does not need to 
give any notice required by HUD.
    (5) Waiver of court proceeding for eviction. Agreement by the family 
that the owner may evict the family (i) without instituting a civil 
court proceeding in which the family has the opportunity to present a 
defense, or (ii) before a decision by the court on the rights of the 
parties.
    (6) Waiver of jury trial. Agreement by the family to waive any right 
to a trial by jury.
    (7) Waiver of appeal. Agreement by the family to waive the right to 
appeal, or to otherwise challenge in court, a court decision in 
connection with the lease.
    (8) Family chargeable with legal costs regardless of outcome. 
Agreement by the family to pay lawyer's fees or other legal costs of the 
owner, even if the family wins in a court proceeding by the owner 
against the family. (However, the family may have to pay these fees and 
costs if the family loses.)

[53 FR 3368, Feb. 5, 1988]



Sec. 886.128  Termination of tenancy.

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

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



Sec. 886.129  Leasing to eligible families.

    (a) Availability of units for occupancy by Eligible Families. During 
the term of the Contract, an owner shall make available for occupancy by 
eligible families the total number of units for which assistance is 
committed under the Contract. For purposes of this section, making units 
available for occupancy by eligible families means that the owner: (1) 
Is conducting marketing in accordance with Sec. 886.121; (2) has leased 
or is making good faith efforts to lease the units to eligible and 
otherwise acceptable families, including taking all feasible actions to 
fill vacancies by renting to such families; and (3) has not rejected any 
such applicant family except for reasons acceptable to HUD. If the owner 
is temporarily unable to lease all units for which assistance is 
committed under the Contract to eligible families, one or more units may 
be leased to ineligible families with the prior approval of HUD. Failure 
on the part of the owner to comply with these requirements is a 
violation of the Contract and grounds for all available legal remedies, 
including specific performance of the Contract, suspension or debarment 
from HUD programs, and reduction of the number of units under the 
Contract as set forth in paragraph (b) of this section.
    (b) Reduction of number of units covered by Contract. HUD may reduce 
the number of units covered by the Contract to the number of units 
available for occupancy by eligible families if:
    (1) The owner fails to comply with the requirements of paragraph (a) 
of this section; or
    (2) Notwithstanding any prior approval by HUD to lease such units to 
ineligible families, HUD determines that the inability to lease units to 
eligible families is not a temporary problem.
    (c) Restoration. HUD will agree to an amendment of the Contract to 
provide for subsequent restoration of any reduction made pursuant to 
paragraph (b) of this section if:
    (1) HUD determines that the restoration is justified by demand;
    (2) The owner otherwise has a record of compliance with his or her 
obligations under the Contract; and
    (3) Contract and budget authority are available.
    (d) Applicability. Paragraphs (a) and (b) of this section apply to 
Contracts executed on or after October 3, 1984.
    (e) Termination of assistance for failure to establish citizenship 
or eligible immigration status. If an owner subject to paragraphs (a) 
and (b) of this section is

[[Page 143]]

required to terminate housing assistance payments for the family in 
accordance with part 5, subpart E, of this title because the owner 
determines that the entire family does not have U.S. citizenship or 
eligible immigration status, the owner may allow continued occupancy of 
the unit by the family without Section 8 assistance following the 
termination of assistance, or if the family constitutes a mixed family, 
as defined in part 5, subpart E, of this title, the owner shall comply 
with the provisions of part 5, subpart E, of this title concerning 
assistance to mixed families, and deferral of termination of assistance.

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



Sec. 886.130  HUD review of contract compliance.

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



Sec. 886.131  Audit.

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

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



Sec. 886.132  Tenant selection.

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

[65 FR 16724, Mar. 29, 2000]



Sec. 886.138  Displacement, relocation, and acquisition.

    (a) Minimizing displacement. Consistent with the other goals and 
objectives of this part, owners shall assure that they have taken all 
reasonable steps to minimize the displacement of persons (families, 
individuals, businesses, nonprofit organization, and farms) as a result 
of a project assisted under this part.
    (b) Temporary relocation. The following policies cover residential 
tenants who will not be required to move permanently but who must 
relocate temporarily for the project. Such tenants must be provided;
    (1) Reimbursement for all reasonable out-of-pocket expenses incurred 
in connection with the temporary relocation, including the cost of 
moving to and from the temporary housing and any increase in monthly 
rent/utility costs; and
    (2) Appropriate advisory services, including reasonable advance 
written notice of:
    (i) The date and approximate duration of the temporary relocation;
    (ii) The location of the suitable, decent, safe, and sanitary 
dwelling to be made available for the temporary period;
    (iii) The terms and conditions under which the tenant may lease and 
occupy a suitable, decent, safe, and sanitary dwelling in the building/
complex following completion of the rehabilitation; and
    (iv) The provisions of paragraph (b)(1) of this section.
    (c) Relocation assistance for displaced persons. A ``displaced 
person'' (as defined in paragraph (g) of this section) must be provided 
relocation assistance at the levels described in, and in accordance with 
the requirements of, the Uniform Relocation Assistance and Real Property 
Acquisition Policies Act of 1970 (URA) (42 U.S.C. 4601-4655) and 
implementing regulations at 49 CFR part 24. A ``displaced person'' shall 
be advised of his or her rights under the Fair Housing Act (42 U.S.C. 
3601-19), and, if the representative comparable replacement dwelling 
used to establish the amount of the replacement housing payment to be 
provided to a minority person is located in an area of minority

[[Page 144]]

concentration, such person also shall be given, if possible, referrals 
to comparable and suitable, decent, safe, and sanitary replacement 
dwellings not located in such areas.
    (d) Real property acquisition requirements. The acquisition of real 
property for a project is subject to the URA and the requirements 
described in 49 CFR part 24, subpart B.
    (e) Appeals. A person who disagrees with the Owner's determination 
concerning whether the person qualifies as a ``displaced person,'' or 
the amount of relocation assistance for which the person is found to be 
eligible, may file a written appeal of that determination with the 
owner. A low-income person who is dissatisfied with the owner's 
determination on such appeal may submit a written request for review of 
that determination to the HUD Field Office.
    (f) Responsibility of owner. (1) The owner shall certify (i.e., 
provide assurance of compliance, as required by 49 CFR part 24) that he 
or she will comply with the URA, the regulations at 49 CFR part 24, and 
the requirements of this section. The owner is responsible for such 
compliance notwithstanding and third party's contractual obligation to 
the owner to comply with these provisions.
    (2) The cost of providing required relocation assistance is an 
eligible project cost to the same extent and in the same manner as other 
project costs. Such costs also may be paid for with funds available from 
other sources.
    (3) The owner shall maintain records in sufficient detail to 
demonstrate compliance with the provisions of this section. The owner 
shall maintain data on the race, ethnic, gender, and handicap status of 
displaced persons.
    (g) Definition of displaced person. (1) for purposes of this 
section, the term displaced person means a person (family, individual, 
business, nonprofit organization, or farm) that moves from real 
property, or moves personal property from real property, permanently, as 
a direct result of acquisition, rehabilitation, or demolition for a 
project assisted under this part. This includes any permanent, 
involuntary move for an assisted project, including any permanent move 
from the real property that is made:
    (i) After notice by the owner to move permanently from the property, 
if the move occurs on or after the date of the submission of the 
application to HUD;
    (ii) Before submission of the application to HUD, if HUD determines 
that the displacement resulted directly from acquisition, 
rehabilitation, or demolition for the assisted project; or
    (iii) By a tenant-occupant of a dwelling unit, if any one of the 
following three situations occurs;
    (A) The tenant moves after execution of the Housing Assistance 
Payments Contract, and the move occurs before the tenant is provided 
written notice offering him or her the opportunity to lease and occupy a 
suitable, decent, safe, and sanitary dwelling in the same building/
complex, under reasonable terms and conditions, upon completion of the 
project. Such reasonable terms and conditions include a monthly rent and 
estimated average monthly utility costs that do not exceed the greater 
of:
    (1) The tenant's monthly rent before execution of the Housing 
Assistance Payments Contract and estimated average monthly utility 
costs; or
    (2) The total tenant payment, as determined under part 5 of this 
title, if the tenant is low-income, or 30 percent of gross household 
income, if the tenant is not low-income;
    (B) The tenant is required to relocate temporarily, does not return 
to the building/complex, and either:
    (1) The tenant is not offered payment for all reasonable out-of-
pocket expenses incurred in connection with the temporary relocation, or
    (2) Other conditions of the temporary relocation are not reasonable; 
or
    (C) The tenant is required to move to another dwelling unit in the 
same building/complex but is not offered reimbursement for all 
reasonable out-of-pocket expenses incurred in connection with the move, 
or other conditions of the move are not reasonable.
    (2) Notwithstanding the provisions of paragraph (g)(1) of this 
section, a person does not qualify as a ``displaced person'' (and is not 
eligible for relocation assistance under the URA or this section), if:

[[Page 145]]

    (i) The person has been evicted for serious or repeated violation of 
the terms and conditions of the lease or occupancy agreement, violation 
of applicable Federal, State or local law, or other good cause, and HUD 
determines that the eviction was not undertaken for the purpose of 
evading the obligation to provide relocation assistance;
    (ii) The person moved into the property after the submission of the 
application and, before signing a lease and commencing occupancy, 
received written notice of the project, its possible impact on the 
person (e.g., the person may be displaced, temporarily relocated, or 
suffer a rent increase) and the fact that he or she would not qualify as 
a ``displaced person'' (or for assistance under this section) as a 
result of the project;
    (iii) The person is ineligible under 49 CFR 24.2(g)(2); or
    (iv) HUD determines that the person was not displaced as a direct 
result of acquisition, rehabilitation, or demolition for the project.
    (3) The owner may ask HUD, at any time, to determine whether a 
displacement is or would be covered by this section.
    (h) Definition of initiation of negotiations. For purposes of 
determining the formula for computing the replacement housing assistance 
to be provided to a residential tenant displaced as a direct result of 
private-owner rehabilitation, demolition or acquisition of the real 
property, the term ``initiation of negotiations'' means the owner's 
execution of the Housing Assistance Payments Contract.

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

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

Subpart B [Reserved]



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

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



Sec. 886.301  Purpose.

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

[58 FR 43722, Aug. 17, 1993]



Sec. 886.302  Definitions.

    The terms Fair Market Rent (FMR), HUD, and Public Housing Agency 
(PHA) are defined in 24 CFR part 5.
    Act. The United States Housing Act of 1937.
    Agreement. An Agreement to Enter into a Housing Assistance Payments 
Contract. See Sec. 886.332.
    Annual income. As defined in part 5 of this title.
    Contract. (See Section 8 contract.)
    Contract rent. The rent payable to the owner under the contract, 
including the portion of the rent payable by the family. In the case of 
a cooperative, the term ``contract rent'' means charges under the 
occupancy agreements between the members and the cooperative.
    Decent, safe, and sanitary. Housing is decent, safe, and sanitary if 
it meets the physical condition requirements in 24 CFR part 5, subpart 
G.
    Eligible project or project. A multifamily housing project (see 24 
CFR part 290):
    (1) For which the disposition in accordance with the provisions of 
24 CFR part 290 involves sale with Section 8 housing assistance to 
enable the project to be used, in whole or in part, to provide housing 
for lower income families; and
    (2) The units of which are decent, safe, and sanitary.
    Family. As defined in part 5 of this title.
    HCD Act. The Housing and Community Development Act of 1974.
    Housing Assistance Payment. The payment made by the contract 
administrator to the Owner of an assisted unit as provided in the 
Contract. Where the unit is leased to an eligible Family, the payment is 
the difference between the Contract Rent and the Tenant Rent. A Housing 
Assistance Payment may be

[[Page 146]]

made to the Owner when a unit is vacant, in accordance with the terms of 
the Contract. An additional Housing Assistance Payment is made when the 
Utility Allowance is greater than the Total Tenant Payment.
    Lease. A written agreement between the owner and a family for 
leasing of decent, safe and sanitary dwelling unit to the family.
    Low-income family. As defined in part 5 of this title.
    Owner. The purchaser, including a cooperative entity or an agency of 
the Federal Government, under this subpart, of a HUD-owned project; or 
the purchaser, including a cooperative entity or an agency of the 
Federal Government, through a foreclosure sale of a project that was 
subject to a HUD-held mortgage.
    Project account. The account established and maintained in 
accordance with Sec. 886.308.
    Rehabilitation. The rehabilitation of an eligible project to upgrade 
the property to decent, safe, and sanitary condition to comply with the 
Housing Quality Standards described in Sec. 886.307 of this part, or 
other standards approved by HUD, from a condition below those standards 
and requiring repairs that may vary in degree from gutting and extensive 
reconstruction to the cure of deferred maintenance. Rehabilitation may 
exceed the requirements of Sec. 886.307 of this part.
    Section 8 contract (``Contract''). A written contract between the 
owner of an eligible project and HUD providing housing assistance 
payments to the owner on behalf of eligible families pursuant to this 
subpart.
    Tenant rent. As defined in part 5 of this title.
    Total tenant payment. As defined in part 5 of this title.
    Utility allowance. As defined in part 5 of this title.
    Utility reimbursement. As defined in part 5 of this title.
    Very low-income family. As defined in part 5 of this title.

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



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

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



Sec. 886.304  Project eligibility criteria.

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

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



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

    To be eligible to become an owner of housing assisted under this 
subpart, the owner must meet the disclosure

[[Page 147]]

and verification requirements for Social Security and Employer 
Identification Numbers, as provided by part 5, subpart B, of this title.

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

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



Sec. 886.306  Notices.

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

[53 FR 3369, Feb. 5, 1988]



Sec. 886.307  Physical condition standards; physical inspection requirements.

    (a) General. Housing assisted under this part must be maintained and 
inspected in accordance with the requirements in 24 CFR part 5, subpart 
G.
    (b) Space and security. In addition to the standards in 24 CFR part 
5, subpart G, the dwelling unit must have a living room, a kitchen area, 
and a bathroom. The dwelling unit must have at least one bedroom or 
living/sleeping room for each two persons.
    (c)-(h) [Reserved]
    (i) Lead-based paint. The Lead-Based Paint Poisoning Prevention Act 
(42 U.S.C. 4821-4846), the Residential Lead-Based Paint Hazard Reduction 
Act of 1992 (42 U.S.C. 4851-4856), and implementing regulations at part 
35, subparts A, B, H, and R of this title apply to activities under this 
program.
    (j)-(l) [Reserved]
    (m) Congregate housing. In addition to the foregoing standards, the 
following standards apply to congregate housing:
    (1) The unit shall contain and have ready access to a flush toilet 
which can be used in privacy, a fixed basin with hot and cold running 
water, and a shower and/or tub equipped with hot and cold running water 
all in proper operating condition and adequate for personal cleanliness 
and the disposal of human wastes. These facilities shall utilize an 
approved public or private disposal system, and shall be sufficient in 
number so that they need not be shared by more than four occupants. 
Those units accommodating physically handicapped occupants with 
wheelchairs or other special equipment shall provide access to all 
sanitary facilities, and shall provide, as appropriate to needs of the 
occupants, basins and toilets of appropriate height; grab bars to 
toilets, showers and/or bathtubs; shower seats; and adequate space for 
movement.
    (2) The unit shall contain suitable space to store, prepare and 
serve foods in a sanitary manner. A cooking stove or range, a 
refrigerator(s) of appropriate size and in sufficient quantity for the 
number of occupants, and a kitchen sink with hot and cold running water 
shall be present in proper operating condition. The sink shall drain 
into an approved private or public system. Adequate space for the 
storage, preparation and serving of food shall be provided. There shall 
be adequate facilities and services for the sanitary disposal of food 
wastes and refuse, including facilities for temporary storage where 
necessary (e.g., garbage cans).
    (3) The dwelling unit shall afford the Family adequate space and 
security. A living room, kitchen, dining area, bathroom, and other 
appropriate social and/or recreational community space shall be within 
the unit and the dwelling unit shall contain at least one sleeping room 
of appropriate size for each two persons. Exterior doors and windows 
accessible from outside each unit shall be capable of being locked. An 
emergency exit plan shall be developed and occupants shall be apprised 
of the details of the plan. Regular fire inspections shall be conducted 
by appropriate local officials. Readily accessible first

[[Page 148]]

aid supplies and fire extinguishers shall be provided throughout the 
unit, smoke detectors shall be provided and emergency phone numbers 
(police, ambulance, fire department, etc.) shall be available at every 
phone and individual copies shall be provided to each occupant. All 
emergency and safety features and procedures shall meet applicable State 
and local standards.
    (n) Independent group residence. In addition to the foregoing 
standards, the standards in 24 CFR 887.467 (a) through (g) apply to 
independent group residences.

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



Sec. 886.308  Maximum total annual contract commitment.

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



Sec. 886.309  Housing assistance payment to owners.

    (a) General. Housing Assistance Payments shall be paid to Owners for 
units under lease by eligible Families, in accordance with the Contract 
and as provided in this section. These Housing Assistance Payments will 
cover the difference between the Contract Rent and the Tenant Rent. 
Where applicable, the Utility Reimbursement will be paid to the Family 
as an additional Housing Assistance Payment. The Contract will provide 
that the Owner will make this payment on behalf of HUD. Funds will be 
paid to the Owner in trust solely for the purpose of making this 
additional payment. If the Family and the utility company consent, the 
Owner may pay the Utility Reimbursement jointly to the Family and the 
utility company or directly to the utility company.
    (b) No assistance for owners. No Section 8 assistance may be 
provided for any unit occupied by an owner. However, cooperatives are 
considered rental housing rather than owner-occupied housing under this 
subpart.
    (c) Payments for vacancies from execution of contract to initial 
occupancy. If a Contract unit which is decent, safe and sanitary and has 
been accepted by HUD as available as of the effective date of the 
Contract is not leased within 15 days of the effective date of the 
Contract, the Owner will be entitled to housing assistance payments in 
the amount of 80 percent of the Contract Rent for the unit for a vacancy 
period

[[Page 149]]

not exceeding 60 days from the effective date of the Contract provided 
that the Owner (1) has submitted a list of units leased as of the 
effective date and a list of the units not so leased; (2) 60 days prior 
to the completion of the rehabilitation or the date the agreement was 
executed, whichever is later, had notified the PHA of any units which 
the owner anticipated would be vacant on the anticipated effective date 
of the contract; (3) has taken and continues to take all feasible 
actions to fill the vacancy including, but not limited to: contracting 
applicants on the Owner's waiting list, if any, requesting the PHA and 
other appropriate sources to refer eligible applicants, and advertising 
the availability of the units in a manner specifically designed to reach 
low-income families; and (4) has not rejected any eligible applicant 
except for good cause acceptable to HUD.
    (d) Payments for vacancies after initial occupancy. If an eligible 
family vacates its unit (other than as a result of action by the Owner 
which is in violation of the Lease or the Contract or any applicable 
law), the owner may receive housing assistance payments for so much of 
the month in which the Family vacates the unit as the unit remains 
vacant. Should the unit remain vacant, the Owner may receive from HUD a 
housing assistance payment in the amount of 80 percent of Contract Rent 
for a vacancy period not exceeding an additional month. However, if the 
owner collects any of the family's share of the rent for this period, 
the payment must be reduced to an amount which, when added to the 
family's payments, does not exceed 80 percent of the Contract Rent. Any 
such excess shall be reimbursed by the Owner to HUD or as HUD may 
direct. (See also Sec. 886.315.) The owner shall not be entitled to any 
payment under this paragraph unless he or she: (1) Immediately upon 
learning of the vacancy, has notified HUD of the vacancy or prospective 
vacancy and the reasons for the vacancy, and (2) has made and continues 
to make a good faith effort to fill the vacancy, including but not 
limited to, contacting applicants on the waiting list, if any, 
requesting the PHA and other appropriate sources to refer eligible 
applicants, and advertising the availability of the unit, and (3) has 
not rejected any eligible applicant, except for good cause acceptable to 
HUD.
    (e) Payments for units where family is evicted. If the owner evicts 
a family, the owner shall not be entitled to any payments pursuant to 
paragraph (d) of this section unless the request for such payment is 
supported by a certification that the provisions of Sec. 886.327 and 
part 247 of this title have been followed.
    (f) Prohibition for double compensation for vacancies. The owner 
shall not be entitled to housing assistance payments with respect to 
vacant units under this section to the extent he or she is entitled to 
payments from other sources (for example, payments for losses of rental 
income incurred for holding units vacant for relocatees pursuant to 
Title I of the HCD Act or payments under Sec. 886.315).
    (g) Debt service payments. (1) If a contract unit continues to be 
vacant after the 60-day period specified in paragraph (c) or (d) of this 
section, the Owner may submit a claim and receive additional housing 
assistance payments on a semiannual basis with respect to such a vacant 
unit in an amount equal to the principal and interest payments required 
to amortize the portion of the debt attributable to that unit for the 
period of the vacancy, whether such vacancy commenced during rent-up or 
after rent-up.
    (2) Additional payments under this paragraph (g) for any unit shall 
not be for more than 12 months for any vacancy period, and shall be made 
only if:
    (i) The unit is not in a project insured under the National Housing 
Act except pursuant to section 244 of that Act.
    (ii) The unit was in decent, safe, and sanitary condition during the 
vacancy period for which payments are claimed.
    (iii) The owner has taken and is continuing to take the actions 
specified in paragraphs (c)(1), (2) and (3) or paragraphs (d)(1) and (2) 
of this section, as appropriate.
    (iv) The Owner has demonstrated in connection with the semiannual 
claim on a form and in accordance with the standards prescribed by HUD 
with respect to the period of the vacancy, that the project is not 
providing the Owner

[[Page 150]]

with revenues at least equal to the project costs incurred by the Owner, 
and that the amount of the payments requested is not in excess of that 
portion of the deficiency which is attributable to the vacant units for 
the period of the vacancies.
    (v) The Owner has submitted, in connection with the semiannual 
claim, a statement with relevant supporting evidence that there is a 
reasonable prospect that the project can achieve financial soundness 
within a reasonable time. The statement shall indicate the causes of the 
deficiency; the corrective steps that have been and will be taken; and 
the time by which it is expected that the project revenues will at least 
equal project costs without the additional payments provided under this 
paragraph.
    (3) HUD may deny any claim for additional payments or suspend or 
terminate payments if it determines that based on the Owner's statement 
and other evidence, there is not a reasonable prospect that the project 
can achieve financial soundness within a reasonable time.

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



Sec. 886.310  Initial contract rents.

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

[60 FR 11859, Mar. 2, 1995]



Sec. 886.311  Term of contract.

    The contract term for any unit shall not exceed 15 years, except 
that the term may be less than 15 years as provided under either 
paragraph (a) or (b) of this section.
    (a) The contract term may be less than 15 years if HUD finds that, 
based on the rental charges and financing for the multifamily housing 
project to which the contract relates, the financial viability of the 
project can be maintained under a contract having a term less than 15 
years. Where a contract of less than 15 years is provided under this 
paragraph, the amount of rent payable by tenants of the project for 
units assisted under such a contract shall not exceed the amount payable 
for rent under section 3(a) of the United States Housing Act of 1937 for 
a period of at least 15 years.
    (b) The contract term may be less than 15 years if the assistance is 
provided under a contract authorized under section 6 of the HUD 
Demonstration Act of 1993, and pursuant to a disposition plan under this 
part for a project that is determined by the HUD to be otherwise in 
compliance with this part.

[60 FR 11859, Mar. 2, 1995]



Sec. 886.311a  Notice upon contract expiration.

    (a) The Contract will provide that the owner will notify each 
assisted family, at least 90 days before the end of the Contract term, 
of any increase in the amount the family will be required to pay as rent 
which may occur as a result of its expiration. If the Contract is to be 
renewed but with a reduction in the number of units covered by it, this 
notice shall be given to each family who will no longer be assisted 
under the Contract.
    (b) The notice provided for in paragraph (a) of this section shall 
be accomplished by: (1) Sending a letter by first class mail, properly 
stamped and addressed, to the family at its address at the project, with 
a proper return address, and (2) serving a copy of the notice on any 
adult person answering the door at the leased dwelling unit, or if no 
adult responds, by placing the notice under or through the door, if 
possible, or else by affixing the notice to the door. Service shall not 
be considered to be effective until both required notices have been 
accomplished. The date on which the notice shall be considered to be 
received by the family shall be the date on which the owner mails the 
first class letter provided for in this paragraph, or the date on which 
the notice provided for in this paragraph is properly given, whichever 
is later.

[[Page 151]]

    (c) The notice shall advise each affected family that, after the 
expiration date of the Contract, the family will be required to bear the 
entire cost of the rent and that the owner will be free (to the extent 
the project is not otherwise regulated by HUD) to alter the rent without 
HUD approval, but subject to any applicable requirements or restrictions 
under the lease or under State or local law. The notice shall also 
state:
    (1) The actual (if known) or the estimated rent which will be 
charged following the expiration of the Contract;
    (2) The difference between the rent and the Total Tenant Payment 
toward rent under the Contract; and
    (3) The date the Contract will expire.
    (d) The owner shall give HUD a certification that families have been 
notified in accordance with this section with an example of the text of 
the notice attached.
    (e) This section shall apply to (1) Contracts involving Substantial 
Rehabilitation entered into pursuant to Agreements executed on or after 
October 1, 1981, or Contracts involving Substantial Rehabilitation 
entered into pursuant to Agreements executed before October 1, 1981, but 
renewed or amended on or after October 1, 1984 and (2) all other 
Contracts executed, renewed or amended on or after October 1, 1984.

[49 FR 31285, Aug. 6, 1984]



Sec. 886.312  Rent adjustments.

    (a) Limits. Housing assistance payments will be made in amounts 
commensurate with contract rent adjustments under this paragraph, up to 
the maximum amount authorized under the contract. (See Sec. 886.308.)
    (b) Annual adjustments. The contract rents may be adjusted annually, 
at HUD's option, either (1) on the basis of a written request for a rent 
increase submitted by the owner and properly supported by substantiating 
evidence, or (2) by applying, on each anniversary date of the contract, 
the applicable automatic annual adjustment factor most recently 
published by HUD in the Federal Register. If HUD requires that the owner 
submit a written request, HUD within a reasonable time shall approve a 
rental schedule that is necessary to compensate for any increase 
occurring since the last approved rental schedule in taxes (other than 
income taxes) and operating and maintenance costs over which owners have 
no effective control, or shall deny the increase stating the reasons 
therefor. Increases in taxes and maintenance and operating costs shall 
be measured against levels of such expenses in comparable assisted and 
unassisted housing in the area to ensure that adjustments in the 
contract rents shall not result in material differences between the 
rents charged for assisted and comparable unassisted units. Contract 
rents may be adjusted upward or downward as may be appropriate; however, 
in no case shall the adjusted rents be less than the contract rents on 
the effective date of the contract, provided there was no fraud or 
mistake adverse to the Department's interest in determining the initial 
contract rent.
    (c) Special adjustments. Special adjustments in the contract rents 
shall be requested in writing by the owner and may be authorized by HUD 
to the extent HUD determines such adjustments are necessary to reflect 
increases in the actual and necessary expenses of owning and maintaining 
the contract units which have resulted from substantial general 
increases in real property taxes, utility rates or similar costs (i.e., 
assessments and utilities not covered be regulated rates) which are not 
adequately compensated for by the adjustment authorized by paragraph (b) 
of this section.
    (d) Comparability between assisted and unassisted units. 
Notwithstanding any other provisions of this subpart, adjustments as 
provided in this section shall not result in material differences 
between the rents charged for assisted and comparable unassisted units, 
as determined by HUD: Provided, however, That this limitation shall not 
be construed to prohibit differences in rents between assisted and 
comparable unassisted units to the extent that such differences may have 
existed with respect to the initial contract rents assuming no fraud or 
mistake adverse to the Department's interest.
    (e) Addendums to contract and leases. Any adjustment in contract 
rents shall be incorporated into the contract and

[[Page 152]]

leases by dated addendums to the contract and leases establishing the 
effective date of the adjustment.



Sec. 886.313  Other Federal requirements.

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

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



Sec. 886.314  Financial default.

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



Sec. 886.315  Security and utility deposits.

    (a) Amount of deposits. If at the time of the initial execution of 
the Lease the Owner wishes to collect a security deposit, the maximum 
amount shall be the greater of one month's Gross Family Contribution or 
$50. However, this amount shall not exceed the maximum amount allowable 
under State or local law. For units leased in place, security deposits 
collected prior to the execution of a Contract which are in excess of 
this maximum amount do not have to be refunded until the Family is 
expected to pay security deposits and utility deposits from its 
resources and/or other public or private sources.
    (b) When a Family vacates. If a Family vacates the unit, the Owner, 
subject to State and local law, may use the security deposit as 
reimbursement for any unpaid Family Contribution or other amount which 
the Family owes under the Lease. If a Family vacates the unit owing no 
rent or other amount under the Lease consistent with State or local law 
or if such amount is less than the amount of the security deposit, the 
Owner shall refund the full amount or the unused balance to the Family.
    (c) Interest payable on deposits. In those jurisdictions where 
interest is payable by the Owner on security deposits, the refunded 
amount shall include the amount of interest payable. The Owner shall 
comply with all State and local laws regarding interest payments on 
security deposits.
    (d) Insufficient deposits. If the security deposit is insufficient 
to reimburse the Owner for the unpaid Family Contribution or other 
amounts which the Family owes under the Lease, or if the

[[Page 153]]

Owner did not collect a security deposit, the Owner may claim 
reimbursement from HUD for an amount not to exceed the lesser of: (1) 
The amount owed the Owner, (2) two months' Contract Rent, minus, in 
either case, the greater of the security deposit actually collected or 
the amount of security deposit the owner could have collected under the 
program (pursuant to paragraph (a) of this section). Any reimbursement 
under this section must be applied first toward any unpaid Family 
Contribution due under the Lease and then to any other amounts owed. No 
reimbursement shall be claimed for unpaid rent for the period after the 
family vacates.



Sec. Sec. 886.316-886.317  [Reserved]



Sec. 886.318  Responsibilities of the owner.

    (a) Management and maintenance. The owner shall be responsible for 
the management and maintenance of the project in accordance with 
requirements established by HUD. These responsibilities shall include 
but not be limited to:
    (1) Payment for utilities and services (unless paid directly by the 
family), insurance and taxes;
    (2) Performance of all ordinary and extraordinary maintenance;
    (3) Performance of all management functions, including the taking of 
applications; determining eligibility of applicants in accordance with 
24 CFR part 5 of this title; selection of families, including 
verification of income, obtaining and verifying Social Security Numbers 
submitted by applicants (as provided by part 5, subpart B, of this 
title), obtaining signed consent forms from applicants for the obtaining 
of wage and claim information from State Wage Information Collection 
Agencies (as provided in part 5, subpart B, of this title), and other 
pertinent requirements; and determination of the amount of tenant rent 
in accordance with HUD established schedules and criteria.
    (4) Collection of Tenant Rents;
    (5) Preparation and furnishing of information required under the 
contract;
    (6) Reexamination of family income, composition, and extent of 
exceptional medical or other unusual expenses; redeterminations, as 
appropriate, of the amount of Tenant Rent and amount of housing 
assistance payment in accordance with part 5 of this title; obtaining 
and verifying Social Security Numbers submitted by participants, as 
provided by CFR part 750; and obtaining signed consent forms from 
participants for the obtaining of wage and claim information from State 
Wage Information Collection Agencies, as provided by part 5, subpart B, 
of this title.
    (7) Redeterminations of the amount of Tenant Rent and the amount of 
housing assistance payment in accordance with part 5 of this title as a 
result of an adjustment by HUD of any applicable utility allowance;
    (8) Notifying families in writing when they are determined to be 
qualified for assistance under this subpart where they have not already 
been notified by HUD prior to sale;
    (9) Reviewing at least annually the allowance for utilities and 
other services;
    (10) Compliance with equal opportunity requirements; and
    (11) Compliance with Federal requirements set forth in Sec. 
886.313(c).
    (b) Contracting for Services. Subject to HUD approval, any owner may 
contract with any private or public entity to perform for a fee the 
services required by paragraph (a) of this section: Provided, That such 
contract shall not shift any of the owner's responsibilities or 
obligations.
    (c) HUD review. The owner shall permit HUD to review and audit the 
management and maintenance of the project at any time.
    (d) Submission of financial and operating statements. After 
execution of the Contract, the owner must submit to HUD:
    (1) Financial information in accordance with 24 CFR part 5, subpart 
H; and
    (2) Other statements as to project operation, financial conditions 
and occupancy as HUD may require pertinent to

[[Page 154]]

administration of the Contract and monitoring of project operations.

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

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



Sec. 886.319  Responsibility for contract administration.

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

[60 FR 11860, Mar. 2, 1995]



Sec. 886.320  Default under the contract.

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



Sec. 886.321  Marketing.

    (a) Marketing in accordance with HUD-Approved Plan. Marketing of 
units and selection of families by the owner shall be in accordance with 
the owner's HUD-approved Affirmative Fair Housing Marketing Plan, HUD-
approved tenant selection factors and with all regulations relating to 
fair housing advertising including use of the equal opportunity 
logotype, statement, and slogan in all advertising. Projects shall be 
managed and operated without regard to race, color, creed, religion, 
sex, or national origin.
    (b)(1) HUD will determine the eligibility for assistance of families 
in occupancy before sales closing. After the sale, the owner shall be 
responsible for taking applications, selecting families, and all related 
determinations, in accordance with part 5 of this title. (See 
especially, Sec. Sec. 5.653 through 5.661.)
    (2) For every family that applies for admission, the owner and the 
applicant must complete and sign the form of application prescribed by 
HUD. When the owner decides no longer to accept applications, the owner 
must publish a notice to that effect in a publication likely to be read 
by potential applicants. The notice must state the reasons for the 
owner's refusal to accept additional applications. When the owner agrees 
to accept applications again, a notice to this effect must also be 
published. The owner must retain copies of all completed applications 
together with any related correspondence for three years. For each 
family selected for admission, the owner must submit one copy of the 
completed and signed application to HUD. Housing assistance payments 
will not be made on behalf of an admitted family until after this copy 
has been received by HUD.
    (3) If the owner determines that the applicant is eligible on the 
basis of income and family composition and is otherwise acceptable but 
the owner does not have a suitable unit to offer, the owner shall place 
such family on the waiting list and so advise the family indicating 
approximately when a unit may be available.
    (4) If the owner determines that the applicant is eligible on the 
basis of income and family composition and is otherwise acceptable in 
accordance with the HUD approved tenant selection factors and if the 
owner has a suitable unit, the owner and the family shall enter into a 
lease. The lease shall be on a form approved by HUD and shall otherwise 
be in conformity with the provisions of this subpart.
    (5) Records on applicant families and approved families shall be 
maintained by the owner so as to provide HUD with racial, ethnic, and 
gender data and

[[Page 155]]

shall be retained by the owner for 3 years.
    (6) If the owner determines that an applicant is not eligible, or, 
if eligible, not selected, the owner must notify the applicant in 
writing of the determination, the reasons upon which the determination 
is made, and inform the applicant that the applicant has the right 
within a reasonable time (specified in the letter) to request an 
informal hearing if the applicant believes that the owner's 
determination is based on erroneous information. The procedures of this 
paragraph (b)(6) do not preclude an applicant from exercising his or her 
other rights if the applicant believes that he or she is being 
discriminated against on the basis of race, color, religion, sex, 
national origin, age, or handicap. The owner must retain for three years 
a copy of the application, the letter, the applicant's response, if any, 
the record of any informal hearing, and a statement of final 
disposition. The informal review provisions for the denial of a tenant 
selection preference under Sec. 886.337 are contained in paragraph (k) 
of that section.
    (7) For the informal hearing provisions related to denial of 
assistance based upon failure to establish citizenship or eligible 
immigration status, see part 5 of this title for provisions concerning 
certain assistance for mixed families (families whose members include 
those with eligible immigration status, and those without eligible 
immigration status) in lieu of denial of assistance.
    (c) Initial occupancy. (1) Where rehabilitation is involved, sixty 
days prior to the completion of the rehabilitation, or when the 
rehabilitation is begun, whichever is later, the Owner shall determine 
whether the tenant population of the project generally reflects the 
racial/ethnic makeup of the housing market area. Based on this 
determination, the Owner shall then conduct appropriate marketing 
activities in accordance with a HUD-approved Affirmative Fair Housing 
Marketing Plan. Such activities may include special outreach to those 
groups identified as not ordinarily expected to apply for these units 
without special outreach; notification to PHA's in the housing market 
area of any anticipated vacancies; and formulation of waiting lists 
based on the Owner's HUD-approved tenant selection factors.
    (2) Where a PHA is notified, the PHA shall notify an appropriate 
size family (families) on its waiting list of the availability of the 
unit and refer the family (families) to the owner. (Since the Owner is 
responsible for tenant selection, the owner is not required to lease to 
a PHA selected family, but the owner must comply with Sec. 
886.321(b)(6).)

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



Sec. 886.322  [Reserved]



Sec. 886.323  Maintenance, operation, and inspections.

    (a) Maintain decent, safe, and sanitary housing. The owner shall 
maintain and operate the project so as to provide decent, safe, and 
sanitary housing and the owner shall provide all the services, 
maintenance, and utilities which he or she agrees to provide under the 
contract and the lease. Failure to do so shall be considered a material 
default under the contract and Regulatory Agreement, if any.
    (b) HUD inspection. Prior to execution of the contract, HUD shall 
inspect (or cause to be inspected) each proposed contract unit and 
related facilities to ensure that they are in decent, safe, and sanitary 
condition.
    (c) Owner and family inspection. Prior to occupancy of any vacant 
until by a family, the owner and the family shall inspect the unit and 
both shall certify that they have inspected the unit and have determined 
it to be decent, safe, and sanitary. Copies of these reports shall be 
kept on file by the owner for at least 3 years.
    (d) Annual inspections. HUD will inspect the project (or cause it to 
be inspected) at least annually and at such other times as HUD may 
determine to be necessary to assure that the owner is meeting his or her 
obligation to maintain the units and the related facilities in decent, 
safe, and sanitary condition and to provide the agreed-upon utilities 
and other services. HUD will take into account complaints by occupants 
and any other information

[[Page 156]]

coming to its attention in scheduling inspections and shall notify the 
owner and the family of its determination regarding the condition of the 
units.
    (e) Failure to maintain decent, safe, and sanitary units. If HUD 
notifies the owner that he/she has failed to maintain a dwelling unit in 
decent, safe, and sanitary condition, and the owner fails to take 
corrective action within the time prescribed in the notice, HUD may 
exercise any of its rights or remedies under the contract, or Regulatory 
Agreement, if any, including abatement of housing assistance payments 
(even if the family continues to occupy the unit) and rescission of the 
sale. If, however, the family wishes to be rehoused in another dwelling 
unit, HUD shall provide assistance in finding such a unit for the 
family.



Sec. 886.324  Reexamination of family income and composition.

    (a) Regular reexaminations. The owner must reexamine the income and 
composition of all families at least once each year. Upon verification 
of the information, the owner must make appropriate adjustments in the 
Total Tenant Payment in accordance with part 5 of this title and 
determine whether the family's unit size is still appropriate. The owner 
must adjust Tenant Rent and the Housing Assistance Payment to reflect 
any change in Total Tenant Payment and carry out any unit transfer 
required by HUD. At the time of the annual reexamination of family 
income and composition, the owner must require the family to disclose 
and verify Social Security Numbers, as provided by part 5, subpart B, of 
this title. For requirements regarding the signing and submitting of 
consent forms by families for the obtaining of wage and claim 
information from State Wage Information Collection Agencies, see part 5, 
subpart B, of this title. At the first regular reexamination after June 
19, 1995, the owner shall follow the requirements of part 5 of this 
title concerning obtaining and processing evidence of citizenship or 
eligible immigration status of all family members. Thereafter, at each 
regular reexamination, the owner shall follow the requirements of part 5 
of this title concerning verification of the immigration status of any 
new family member.
    (b) Interim reexaminations. The family must comply with provisions 
in its lease regarding interim reporting of changes in income. If the 
owner receives information concerning a change in the family's income or 
other circumstances between regularly scheduled reexaminations, the 
owner must consult with the family and make any adjustments determined 
to be appropriate. Any change in the family's income or other 
circumstances that results in an adjustment in the Total Tenant Payment, 
Tenant Rent and Housing Assistance Payment must be verified. See part 5, 
subpart B, of this title for the requirements for the disclosure and 
verification of Social Security Numbers at interim reexaminations 
involving new family members. For requirements regarding the signing and 
submitting of consent forms by families for the obtaining of wage and 
claim information from State Wage Information Collection Agencies, see 
part 5, subpart B, of this title. At any interim reexamination after 
June 19, 1995 when there is a new family member, the owner shall follow 
the requirements of part 5 of this title concerning obtaining and 
processing evidence of citizenship or eligible immigration status of the 
new family member.
    (c) Continuation of housing assistance payments. A family's 
eligibility for Housing Assistance Payments will continue until the 
Total Tenant Payment equals the Contact Rent plus any applicable Utility 
Allowance. The termination of eligibility at such point will not affect 
the family's other rights under its lease, nor will such termination 
preclude the resumption of payments as a result of later changes in 
income, rents, or other relevant circumstances during the term of the 
contract. However, eligibility also may be terminated in accordance with 
HUD requirements, for such reasons as failure to submit requested 
verification information, including failure to meet the disclosure and 
verification requirements for Social Security Numbers, as provided by 
part 5, subpart B, of this title, or failure to sign and submit consent 
forms for the obtaining of wage and claim information from State

[[Page 157]]

Wage Information Collection Agencies, as provided by part 5, subpart B, 
of this title. For provisions requiring termination of assistance for 
failure to establish citizenship or eligible immigration status, see 
part 5, subpart E, of this title for provisions concerning certain 
assistance for mixed families (families whose members include those with 
eligible immigration status, and those without eligible immigration 
status) in lieu of termination of assistance, and for provisions 
concerning deferral of termination of assistance.

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



Sec. 886.325  Overcrowded and underoccupied units.

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

[46 FR 19467, Mar. 31, 1981]



Sec. 886.326  Adjustment of utility allowances.

    When the owner requests HUD approval of an adjustment in Contract 
Rents under Sec. 886.312, an analysis of the project's Utility 
Allowances must be included. Such data as changes in utility rates and 
other facts affecting utility consumption should be provided as part of 
this analysis to permit appropriate adjustments in the Utility 
Allowances. In addition, when approval of a utility rate change would 
result in a cumulative increase of 10 percent or more in the most 
recently approved Utility Allowances, the owner must advise the 
Secretary and request approval of new Utility Allowances.

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

[51 FR 21864, June 16, 1986]



Sec. 886.327  Lease requirements.

    (a) Term of lease. (1) The term of a lease, including a new lease or 
a lease amendment, executed by the owner and the family must be for at 
least one year, or the remaining term of the contract if the remaining 
term of the contract is less than one year.
    (2) During the first year of the lease term, the owner may not 
terminate the tenancy for ``other good cause'' under 24 CFR 247.3(a)(3), 
unless the termination is based on family malfeasance or nonfeasance. 
For example, during the first year of the lease term, the owner may not 
terminate the tenancy for ``other good cause'' based on the failure of 
the family to accept the offer of a new lease.
    (3) The lease may contain a provision permitting the family to 
terminate on 30 days advance written notice to the owner. In this case 
of a lease term for more than one year, the lease must contain this 
provision.
    (b) Required and prohibited provisions. The lease between the owner 
and the family must comply with HUD regulations and requirements, and 
must be in the form required by HUD. The lease may not contain any of 
the following types of prohibited provisions:
    (1) Admission of guilt. Agreement by the family (i) to be sued, and 
(ii) to admit guilt, or (iii) to a judgment in

[[Page 158]]

favor of the owner, in a court proceeding against the family in 
connection with the lease.
    (2) Treatment of family property. Agreement by the family that the 
owner may take or hold family property, or may sell family property, 
without notice to the family and a court decision on the rights of the 
parties.
    (3) Excusing owner from responsibility. Agreement by the family not 
to hold the owner or the owner's agents responsible for any action or 
failure to act, whether intentional or negligent.
    (4) Waiver of notice. Agreement by the family that the owner does 
not need to give notice of a court proceeding against the family in 
connection with the lease, or does not need to give any notice required 
by HUD.
    (5) Waiver of court proceeding for eviction. Agreement by the family 
that the owner may evict the family (i) without instituting a civil 
court proceeding in which the family has the opportunity to present a 
defense, or (ii) before a decision by the court on the rights of the 
parties.
    (6) Waiver of jury trial. Agreement by the family to waive any right 
to a trial by jury.
    (7) Waiver of appeal. Agreement by the family to waive the right to 
appeal, or to otherwise challenge in court, a court decision in 
connection with the lease.
    (8) Family chargeable with legal costs regardless of outcome. 
Agreement by the family to pay lawyer's fees or other legal costs of the 
owner, even if the family wins in a court proceeding by the owner 
against the family. (However, the family may have to pay these fees and 
costs if the family loses.)

[53 FR 3369, Feb. 5, 1988]



Sec. 886.328  Termination of tenancy.

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

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



Sec. 886.329  Leasing to eligible families.

    (a) Availability of units for occupancy by Eligible Families. During 
the term of the Contract, an owner shall make available for occupancy by 
eligible families the total number of units for which assistance is 
committed under the Contract. For purposes of this section, making units 
available for occupancy by eligible families means that the owner: (1) 
Is conducting marketing in accordance with Sec. 886.321; (2) has leased 
or is making good faith efforts to lease the units to eligible and 
otherwise acceptable families, including taking all feasible actions to 
fill vacancies by renting to such families; and (3) has not rejected any 
such applicant family except for reasons acceptable to HUD. If the owner 
is temporarily unable to lease all units for which assistance is 
committed under the Contract to eligible families, one or more units may 
be leased to ineligible families with the prior approval of HUD. Failure 
on the part of the owner to comply with these requirements is a 
violation of the Contract and grounds for all available legal remedies, 
including specific performance of the Contract, suspension or debarment 
from HUD programs, and reduction of the number of units under the 
Contract as set forth in paragraph (b) of this section.
    (b) Reduction of number of units covered by Contract. HUD may reduce 
the number of units covered by the Contract to the number of units 
available for occupancy by eligible families if:
    (1) The owner fails to comply with the requirements of paragraph (a) 
of this section; or
    (2) Notwithstanding any prior approval by HUD to lease such units to 
ineligible families, HUD determines that the inability to lease units to 
eligible families is not a temporary problem.
    (c) Restoration. HUD will agree to an amendment of the Contract to 
provide

[[Page 159]]

for subsequent restoration of any reduction made pursuant to paragraph 
(b) of this section if:
    (1) HUD determines that the restoration is justified by demand;
    (2) The owner otherwise has a record of compliance with his or her 
obligations under the Contract; and
    (3) Contract and budget authority are available.
    (d) Applicability. In accordance with section 555 of the Cranston-
Gonzalez National Affordable Housing Act of 1990, paragraphs (a) and (b) 
of this section apply to all contracts involving substantial 
rehabilitation. These paragraphs apply to all other Contracts executed 
on or after October, 3, 1984. An owner who had leased an assisted unit 
to an ineligible family consistent with the regulations in effect at the 
time will continue to lease the unit to that family. However, the 
Borrower must make the unit available for occupancy by an eligible 
family when the ineligible family vacates the unit.
    (e) Termination of assistance for failure to establish citizenship 
or eligible immigration status. If an owner who is subject to paragraphs 
(a) and (b) of this section is required to terminate housing assistance 
payments for the family in accordance with part 5, subpart E, of this 
title because the owner determines that the entire family does not have 
U.S. citizenship or eligible immigration status, the owner may allow 
continued occupancy of the unit by the family without Section 8 
assistance following the termination of assistance, or if the family 
constitutes a mixed family, as defined in part 5, subpart E, of this 
title, the owner shall comply with the provisions of part 5, subpart E, 
of this title concerning assistance to mixed families, and deferral of 
termination of assistance.

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



Sec. 886.329a  Preferences for occupancy by elderly families.

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

[[Page 160]]

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

[[Page 161]]

that were occupied by non-elderly disabled families upon January 1, 
1992; or
    (ii) 10 percent of the number of units assisted under this part in 
the eligible project.
    (2) Option to reserve greater number of units for non-elderly 
disabled families. The owner, at the owner's option, and at any time, 
may reserve a greater number of units for non-elderly disabled families 
than that provided for in paragraph (c)(1) of this section. The option 
to provide a greater number of units to non-elderly disabled families 
will not obligate the owner to always provide that greater number to 
non-elderly disabled families. The number of units required to be 
provided to non-elderly disabled families at any time in an elderly 
project is that number determined under paragraph (c)(1) of this 
section.
    (d) Secondary preferences. An owner of an elderly project also may 
elect to establish secondary preferences in accordance with the 
provisions of this paragraph (d) of this section.
    (1) Preference for near-elderly disabled families in units reserved 
for elderly families. If the owner of an elderly project determines, in 
accordance with paragraph (f) of this section, that there are an 
insufficient number of elderly families who have applied for occupancy 
to fill all the vacant units in the elderly project reserved for elderly 
families (that is, all units except those reserved for the non-elderly 
disabled families as provided in paragraph (c) of this section), the 
owner may give preference for occupancy of such units to disabled 
families who are near-elderly families.
    (2) Preference for near-elderly disabled families in units reserved 
for non-elderly disabled families. If the owner of an elderly project 
determines, in accordance with paragraph (f) of this section, that there 
are an insufficient number of non-elderly disabled families to fill all 
the vacant units in the elderly project reserved for non-elderly 
disabled families as provided in paragraph (c) of this section, the 
owner may give preference for occupancy of these units to disabled 
families who are near-elderly families.
    (e) Availability of units to families without regard to preference. 
An owner shall make vacant units in an elderly project generally 
available to otherwise eligible families who apply for housing, without 
regard to the preferences and reservation of units provided in this 
section if either:
    (1) The owner has adopted the secondary preferences and there are an 
insufficient number of families for whom elderly preference, reserve 
preference, and secondary preference has been given, to fill all the 
vacant units; or
    (2) The owner has not adopted the secondary preferences and there 
are an insufficient number of families for whom elderly preference, and 
reserve preference has been given to fill all the vacant units.
    (f) Determination of insufficient number of applicants qualifying 
for preference. To make a determination that there are an insufficient 
number of applicants who qualify for the preferences, including 
secondary preferences, provided by this section, the owner must:
    (1) Conduct marketing in accordance with Sec. 886.321(a) to attract 
applicants qualifying for the preferences and reservation of units set 
forth in this section; and
    (2) Make a good faith effort to lease to applicants who qualify for 
the preferences provided in this section, including taking all feasible 
actions to fill vacancies by renting to such families.
    (g) Prohibition of evictions. An owner may not evict a tenant 
without good cause, or require that a tenant vacate a unit, in whole or 
in part because of any reservation or preference provided in this 
section, or because of any action taken by the Secretary pursuant to 
subtitle D (sections 651 through 661) of title VI of the Housing and 
Community Development Act of 1992 (42 U.S.C. 13611 through 13620).

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



Sec. 886.330  Work write-ups and cost estimates.

    (a) HUD preparation of work write-ups. If needed, a work write-up, 
including plans and specifications, will be made by HUD specifying 
necessary rehabilitation.
    (b) HUD specifies deficiencies and corrective action. The work 
write-up will specify deficiencies noted by HUD and

[[Page 162]]

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

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



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

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

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



Sec. 886.332  Rehabilitation period.

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

[[Page 163]]

    (2) Contract Rents for project units being rehabilitated shall not 
be increased except in accordance with this subpart. Should an increase 
in Contract Rents be necessitated by changes in local codes or 
ordinances or other unanticipated changes in work items which could not 
have been anticipated by HUD, an increase will only be approved if HUD 
approval is obtained prior to incorporation of any changes in the 
project.

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



Sec. 886.333  Completion of rehabilitation.

    (a) Notification of completion. The owner must notify HUD in writing 
when work is completed and submit to HUD the evidence of completion and 
cost certifications described in paragraph (b) and (c) of this section.
    (b) Evidence of completion. Completion of the project must be 
evidenced by furnishing HUD with the following:
    (1) A certificate of occupancy and/or other official approvals 
necessary for occupancy as required by the locality.
    (2) A certification by the owner that:
    (i) The project unit(s) has been completed in accordance with the 
requirements of the Agreement;
    (ii) The project unit(s) is/are decent, safe, and sanitary;
    (iii) The project unit(s) has/have been rehabilitated in accordance 
with the applicable zoning, building, housing and other codes, 
ordinances or regulations, as modified by any waivers obtained from the 
appropriate officials;
    (iv) The project was in compliance with applicable HUD lead-based 
paint regulations at part 35, subparts A, B, H, and R of this title.
    (v) If applicable, the owner has complied with the provisions of the 
Agreement relating to the payment of not less than prevailing wage rates 
and that to the best of the owner's knowledge and belief there are no 
claims of underpayment in alleged violation of said provisions of the 
Agreement. In the event there are any such pending claims to the 
knowledge of the owner of HUD, the owner shall be required to place a 
sufficient amount in escrow, as determined by HUD, to assure such 
payments;
    (vi) There are no defects or deficiencies in the project except for 
ordinary punchlist items, or incomplete work awaiting seasonal 
opportunity such as landscaping and heating system test (such excepted 
items to be specified); and
    (vii) There has been no change in the evidence of management 
capability or in the proposed management program (if one was required) 
specified in the approved purchase proposal other than changes approved 
in writing by HUD in accordance with the Agreement.
    (c) Actual cost and interest rate certifications. The Owner must 
provide HUD with statements of the actual costs, including the interest 
rate incurred for the rehabilitation, Contract Rent shortfalls, and any 
relocation approved by HUD. The owner shall certify that these are the 
actual costs. HUD shall review and approve these costs subject to post 
audit.
    (d) Review and inspections. (1) Within fifteen working days of the 
receipt of the evidence of completion, and the owner's certification of 
costs, HUD shall review the evidence of completion for compliance with 
paragraphs (b) and (c) of this section.
    (2) Within the same time period, a HUD representative shall inspect 
the units, to determine whether the units meet the Housing Quality 
Standards, the Agreement to Enter into the HAP, and any applicable work 
write-up.
    (e) If the inspection discloses defects or deficiencies, the 
inspector shall report these with sufficient detail and information for 
purposes of paragraphs (g) (1) and (2) of this section.
    (f) Acceptance. If HUD determines from the review and inspection 
that the project has been completed in accordance with the Agreement, 
the proj ect shall be accepted.
    (g) Acceptance where defects or deficiencies reported. If the 
projects unit(s) are not acceptable under paragraph (f) of this section, 
the following shall apply:
    (1) If the only defects or deficiencies are punchlist items or 
incomplete items awaiting seasonal opportunity, the project may be 
accepted and the contract executed. If the owner fails to complete the 
items within a reasonable time to the satisfaction of HUD, HUD

[[Page 164]]

may, upon 30 days notice to the owner terminate the contract and/or 
exercise its other rights thereunder, including rescission of the sale.
    (2) If the defects or deficiencies are other than punchlist items or 
incomplete work awaiting seasonal opportunity, HUD shall determine 
whether and to what extent the defects or deficiencies can be corrected, 
what corrections are essential to permit HUD to accept the project, 
whether and to what extent a reduction of Contract Rents will be 
required as a condition to acceptance of the project, and the extension 
of time required for the remaining work to be done. The owner shall be 
notified of HUD's determinations and, if the owner agrees to comply with 
the conditions, an addendum to the Agreement shall be entered into, 
specifying the remaining work, pursuant to which the defects or 
deficiencies will be corrected and the unit(s) then accepted. If the 
owner is unwilling to enter into such an addendum or fails to perform 
under the addendum, the units will not be accepted and appropriate 
remedies will be sought by HUD. Paragraphs (a) through (g) will apply 
when the remaining work is completed satisfactorily.
    (h) Notification of non-acceptance. If HUD determines that, based on 
the review of the evidence of completion and inspection, the unit(s) 
cannot be accepted, the Owner must be promptly notified of this decision 
and the reasons and steps shall be taken immediately to rescind the 
sale, or such other action deemed appropriate by HUD.

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



Sec. 886.334  Execution of housing assistance payments contract.

    (a) Time of execution. Upon acceptance of the unit(s) by HUD 
pursuant to Sec. 886.333(f), the contract will be executed first by the 
Owner and then by HUD. The effective date must be no earlier than the 
HUD inspection which provides the basis for unconditional acceptance.
    (b) Changes in initial contract rents during rehabilitation. (1) The 
Contract Rents established pursuant to Sec. 886.310 and 24 CFR part 290 
will be the Contract Rents on the effective date of the Contract except 
under the following circumstances:
    (i) When, during rehabilitation, work items are discovered which 
could not reasonably have been anticipated by HUD or are necessitated by 
an unforeseen change in local codes or ordinances; were not listed in 
the work write-up prepared by HUD but are deemed by HUD, in writing, to 
be necessary work; and will require additional expenditures which would 
make the rehabilitations infeasible at the Contract Rents established in 
the Agreement. Under these circumstances, HUD will:
    (A) Approve a change order to the rehabilitation contract, or amend 
the work write-up if there is no rehabilitation contract, specifying the 
additional work to be accomplished and the additional cost for this 
work,
    (B) Recompute the Contract Rents, within the limits specified in 
paragraph (b)(4) of this section, based upon the revised cost estimate, 
and
    (C) Prepare and execute an amendment to the Agreement stating the 
additional work required and the revised Contract Rents.
    (ii) When the actual cost of the rehabilitation performed is less 
than that estimated in the calculation of Contract Rents for the 
Agreement.
    (iii) When, due to unforeseen factors, the actual certified 
relocation payments made by the Owner to temporarily relocated Families 
varies from the cost estimated by HUD.
    (2) Should changes occur as specified in paragraph (b)(1) (ii) or 
(iii) (either an increase or decrease), HUD may recalculate the Contract 
Rents and amend the Contract or Agreement, as appropriate, to reflect 
the revised rents. The rents shall not be recalculated based on 
increased costs to maintain rents at the Section 8 level during the 
rehabilitation period.
    (3) HUD must review and approve the Owner's certification that the 
rehabilitation costs and relocation costs are the actual costs incurred.
    (4) In establishing the revised Contract Rents, HUD must determine 
that the resulting Contract Rents plus an applicable Utility Allowances 
do not

[[Page 165]]

exceed the Fair Market Rent or the exception rent provided in Sec. 
886.310 in effect at the time of execution of the Agreement.
    (c) Unleased unit(s). At the time the contract is executed, HUD will 
provide a list of dwelling unit(s) leased as of the effective date of 
the Contract and a list of the unit(s) not so leased, if any, and shall 
determine whether or not the owner has met the obligations with respect 
to any unleased unit(s) and for which of those unit(s) vacancy payments 
will be made by HUD. The owner must indicate in writing either 
concurrence with this determination or disagreement reserving all rights 
to claim vacancy payments for the unleased unit(s) pursuant to the 
contract, without prejudice by reason of the owner's signing the 
contract.

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



Sec. 886.335  HUD review of agreement and contract compliance.

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



Sec. 886.336  Audit.

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

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



Sec. 886.337  Selection preferences.

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

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



Sec. 886.338  Displacement, relocation, and acquisition.

    (a) Minimizing displacement. Consistent with the other goals and 
objectives of this part, owners shall assure that they have taken all 
reasonable steps to minimize the displacement of persons (families, 
individuals, businesses, nonprofit organizations, and farms) as a result 
of a project assisted under this part.
    (b) Temporary relocation. The following policies cover residential 
tenants who will not be required to move permanently but who must 
relocate temporarily for the project. Such tenants must be provided:
    (1) Reimbursement for all reasonable out-of-pocket expenses incurred 
in connection with the temporary relocation, including the cost of 
moving to and from the temporary housing and any increase in monthly 
rent/utility costs; and
    (2) Appropriate advisory services, including reasonable advance 
written notice of:
    (i) The date and approximate duration of the temporary relocation;
    (ii) The location of the suitable, decent, safe, and sanitary 
dwelling to be made available for the temporary period;
    (iii) The terms and conditions under which the tenant may lease and 
occupy a suitable, decent, safe, and sanitary dwelling in the building/
complex following completion of the rehabilitation; and
    (iv) The provisions of paragraph (b)(1) of this section.
    (c) Relocation assistance for displaced persons. A ``displaced 
person'' (defined in paragraph (g) of this section) must be provided 
relocation assistance at the levels described in, and in accordance with 
the requirements of, the Uniform Relocation Assistance and Real Property 
Acquisition Policies Act of 1970 (URA) (42 U.S.C. 4601-4655) and 
implementing regulations at 49 CFR part

[[Page 166]]

24. A ``displaced person'' shall be advised of his or her rights under 
the Fair Housing Act (42 U.S.C. 3601-19), and, if the representative 
comparable replacement dwelling used to establish the amount of the 
replacement housing payment to be provided to a minority person is 
located in an area of minority concentration, such person also shall be 
given, if possible, referrals to comparable and suitable, decent, safe, 
and sanitary replacement dwellings not located in such areas.
    (d) Real property acquisition requirements. The acquisition of real 
property for a project is subject to the URA and the requirements 
described in 49 CFR part 24, subpart B.
    (e) Appeals. A person who disagrees with the owner's determination 
concerning whether the person qualifies as a ``displaced person,'' or 
the amount of relocation assistance for which the person is found to be 
eligible, may file a written appeal of that determination with the 
owner. A low-income person who is dissatisfied with the owner's 
determination on such appeal may submit a written request for review of 
that determination to the HUD Field Office.
    (f) Responsibility of owner. (1) The owner shall certify (i.e., 
provide assurance of compliance, as required by 49 CFR part 24) that he 
or she will comply with the URA, the regulations at 49 CFR part 24, and 
the requirements of this section. The owner is responsible for such 
compliance notwithstanding any third party's contractual obligation to 
the owner to comply with these provisions.
    (2) The cost of providing required relocation assistance is an 
eligible project cost to the same extent and in the same manner as other 
project costs. Such costs may also be paid for with funds available from 
other sources.
    (3) The owner shall maintain records in sufficient detail to 
demonstrate compliance with the provisions of this section. The owner 
shall maintain data on the race, ethnic, gender, and handicap status of 
displaced persons.
    (g) Definition of displaced person. (1) For purposes of this 
section, the term displaced person means a person (family, individual, 
business, nonprofit organization, or farm) that moves from real 
property, or moves personal property from real property, permanently, as 
a direct result of acquisition, rehabilitation, or demolition for a 
project assisted under this part. This includes any permanent, 
involuntary move for an assisted project, including any permanent move 
from the real property that is made:
    (i) After notice by the owner to move permanently from the property, 
if the move occurs on or after the date of the submission of the 
application to HUD;
    (ii) Before submission of the application to HUD, if HUD determines 
that the displacement resulted directly from acquisition, 
rehabilitation, or demolition for the assisted project; or
    (iii) By a tenant-occupant of a dwelling unit, if any one of the 
following three situations occurs:
    (A) The tenant moves after the execution of the contract to provide 
Housing Assistance Payments, and the move occurs before the tenant is 
provided written notice offering him or her the opportunity to lease and 
occupy a suitable, decent, safe, and sanitary dwelling in the same 
building/complex, under reasonable terms and conditions, upon completion 
of the project. Such reasonable terms and conditions include a monthly 
rent and estimated average monthly utility costs that do not exceed the 
greater of:
    (1) The tenant's monthly rent before execution of the Housing 
Assistance Payments Contract and estimated average monthly utility 
costs; or
    (2) The total tenant payment, as determined under part 5 of this 
title, if the tenant is low-income, or 30 percent of gross household 
income, if the tenant is not low-income; or
    (B) The tenant is required to relocate temporarily, does not return 
to the building/complex, and either:
    (1) The tenant is not offered payment for all reasonable out-of-
pocket expenses incurred in connection with the temporary relocation, or
    (2) Other conditions of the temporary relocation are not reasonable; 
or
    (C) The tenant is required to move to another dwelling unit in the 
same building/complex but is not offered reimbursement for all 
reasonable out-of-pocket expenses incurred in connection

[[Page 167]]

with the move, or other conditions of the move are not reasonable.
    (2) Notwithstanding the provisions of paragraph (g)(1) of this 
section, a person does not qualify as a ``displaced person'' (and is not 
eligible for relocation assistance under the URA or this section), if:
    (i) The person has been evicted for serious or repeated violation of 
the terms and conditions of the lease or occupancy agreement, violation 
of applicable Federal, State or local law, or other good cause, and HUD 
determines that the eviction was not undertaken for the purpose of 
evading the obligation to provide relocation assistance;
    (ii) The person moved into the property after the submission of the 
application and, before signing a lease and commencing occupancy, 
received written notice of the project, its possible impact on the 
person (e.g., the person may be displaced, temporarily relocated, or 
suffer a rent increase) and the fact that he or she would not qualify as 
a ``displaced person'' (or for assistance under this section) as a 
result of the project;
    (iii) The person is ineligible under 49 CFR 24.2(g)(2); or
    (iv) HUD determines that the person was not displaced as a direct 
result of acquisition, rehabilitation, or demolition for the project.
    (3) The owner may ask HUD, at any time, to determine whether a 
displacement is or would be covered by this section.
    (h) Definition of initiation of negotiations. For purposes of 
determining the formula for computing the replacement housing assistance 
to be provided to a residential tenant displaced as a direct result of 
privately undertaken rehabilitation, demolition, or acquisition of the 
real property, the term ``initiation of negotiations'' means the owner's 
execution of the Housing Assistance Payments Contract.

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

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

                           PART 887 [RESERVED]



PART 888_SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM_FAIR MARKET RENTS 
AND CONTRACT RENT ANNUAL ADJUSTMENT FACTORS--Table of Contents




                       Subpart A_Fair Market Rents

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

            Subpart B_Contract Rent Annual Adjustment Factors

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

Subpart C_Retroactive Housing Assistance Payments for New Construction, 
Substantial Rehabilitation, State Finance Agencies, Section 515 Farmers 
  Home Administration, Section 202 Elderly or Handicapped, and Special 
                          Allocations Projects

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

     Subpart D_Retroactive Housing Assistance Payments for Moderate 
                         Rehabilitation Projects

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

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

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

    Editorial Note: For revisions and amendments affecting Schedules A, 
B, C, and D, issued under part 888, but not carried in the Code of 
Federal Regulations, see the List of

[[Page 168]]

CFR Sections Affected, in the Finding Aids section of the printed volume 
and on GPO Access.



                       Subpart A_Fair Market Rents



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

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

[64 FR 56911, Oct. 21, 1999]



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

    (a) Basis for setting fair market rents. Fair Market Rents (FMRs) 
are estimates of rent plus the cost of utilities, except telephone. FMRs 
are housing market-wide estimates of rents that provide opportunities to 
rent standard quality housing throughout the geographic area in which 
rental housing units are in competition. The level at which FMRs are set 
is expressed as a percentile point within the rent distribution of 
standard quality rental housing units in the FMR area. FMRs are set at 
either the 40th or 50th percentile rent--the dollar amount below which 
the rent for 40 or 50 percent of standard quality rental housing units 
falls. The 40th or 50th percentile rent is drawn from the distribution 
of rents of all units that are occupied by recent movers. Adjustments 
are made to exclude public housing units, newly built units and 
substandard units.
    (b) Setting FMRs at the 40th or 50th percentile rent. Generally HUD 
will set the FMRs at the 40th percentile rent. HUD will set FMRs at the 
50th percentile only in accordance with paragraph (c) of this section.
    (c) Setting FMRs at the 50th percentile rent to provide a broad 
range of housing opportunities throughout a metropolitan area. (1) HUD 
will set the FMRs at the 50th percentile rent for all unit sizes in each 
metropolitan FMR area that meets all of the following criteria at the 
time of annual publication of the FMRs:
    (i) The FMR area contains at least 100 census tracts;
    (ii) 70 percent or fewer of the census tracts with at least 10 two 
bedroom rental units are census tracts in which at least 30 percent of 
the two bedroom rental units have gross rents at or below the two 
bedroom FMR set at the 40th percentile rent; and
    (iii) 25 percent or more of the tenant-based rental program 
participants in the FMR area reside in the 5 percent of the census 
tracts within the FMR area that have the largest number of program 
participants.
    (2) If the FMRs are set at the 50th percentile rent in accordance 
with paragraph (c)(1) of this section, HUD will set the FMRs at the 50th 
percentile rent for a total of three years.
    (i) At the end of the three-year period, HUD will continue to set 
the FMRs at the 50th percentile rent only so long as the concentration 
measure for the current year is less than the concentration measure at 
the time the FMR area first received an FMR set at the 50th percentile 
rent. HUD will publish FMRs based on the 40th percentile rent for FMR 
areas that do not qualify for continued use of the 50th percentile rent.
    (ii) For purposes of this section, the term ``concentration 
measure'' means the percentage of tenant-based rental program 
participants in the FMR area who reside in the 5 percent of the census 
tracts within the FMR area that have the largest number of program 
participants.
    (iii) FMR areas that do not meet the test for continued use of FMRs 
set at

[[Page 169]]

the 50th percentile will be ineligible to use FMRs set at the 50th 
percentile for a period of three years.
    (iv) A PHA whose jurisdiction includes one or more FMR areas that 
are no longer eligible to use FMRs set at the 50th percentile may be 
eligible for a higher payment standard under Sec. 982.503(f).
    (d) FMR Areas. FMR areas are metropolitan areas and nonmetropolitan 
counties (nonmetropolitan parts of counties in the New England States). 
With several exceptions, the most current Office of Management and 
Budget (OMB) metropolitan area definitions of Metropolitan Statistical 
Areas (MSAs) and Primary Metropolitan Statistical Areas (PMSAs) are used 
because of their generally close correspondence with housing market area 
definitions. HUD may make exceptions to OMB definitions if the MSAs or 
PMSAs encompass areas that are larger than housing market areas. The 
counties deleted from the HUD-defined FMR areas in those cases are 
established as separate metropolitan county FMR areas. FMRs are 
established for all areas in the United States, the District of 
Columbia, Puerto Rico, the Virgin Islands, and the Pacific Islands.
    (e) Data sources. (1) HUD uses the most accurate and current data 
available to develop the FMR estimates and may add other data sources as 
they are discovered and determined to be statistically valid. The 
following sources of survey data are used to develop the base-year FMR 
estimates:
    (i) The most recent decennial Census, which provides statistically 
reliable rent data.
    (ii) The American Housing Survey (AHS) data, conducted by the Bureau 
of the Census for HUD. AHS's have comparable accuracy to the decennial 
Census, and are used to develop between-census revisions for the largest 
metropolitan areas on a four-year revolving schedule.
    (iii) Random Digit Dialing (RDD) telephone survey data, based on a 
sampling procedure that uses computers to select statistically random 
samples of rental housing.
    (iv) Statistically valid information, as determined by HUD, 
presented to HUD during the public comment and review period.
    (2) Base-year FMRs are updated and trended to the midpoint of the 
program year they are to be effective using Consumer Price Index (CPI) 
data for rents and for utilities or using rent-change factors obtained 
from the RDD regional surveys. The RDD rent-change factors are developed 
annually for the metropolitan and nonmetropolitan parts of the HUD-
specified geographic regions not covered by CPI surveys, and are used to 
update the base-year FMR estimates within these regions.
    (f) Unit size adjustments. (1) For most areas the ratios developed 
from the most recent decennial Census are applied to the two-bedroom FMR 
estimates to derive FMRs for other bedroom sizes. Exceptions to this 
procedure may be made for areas with local bedroom intervals below an 
acceptable range. To help the largest most difficult to house families 
find units, higher ratios than the actual market ratios may be used for 
three-bedroom and larger-size units.
    (2) The FMR for single room occupancy housing is 75 percent of the 
FMR for a zero bedroom unit.
    (g) Manufactured home space rental. The FMR for a manufactured home 
space rental (for the voucher program under part 982 of this title) is:
    (1) 40 percent of the FMR for a two bedroom unit; or
    (2) When approved by HUD on the basis of survey data submitted in 
public comments, either the 40th or 50th percentile as applicable of the 
rental distribution of manufactured home spaces for the FMR area. HUD 
accepts public comments requesting revision of the proposed manufactured 
home spaces FMRs for areas where space rentals are thought to differ 
from 40 percent of the FMR for a two-bedroom unit. To be considered for 
approval, the comments must contain statistically valid survey data that 
show either the 40th or 50th percentile manufactured home space rent 
(including the cost of utilities for the manufactured home) for the FMR 
area. Once approved, the revised manufactured home space FMRs establish 
new base-year estimates that will be updated annually

[[Page 170]]

using the same data used to update the FMRs.

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



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

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

[60 FR 42227, Aug. 15, 1995]



            Subpart B_Contract Rent Annual Adjustment Factors



Sec. 888.201  Purpose.

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

[44 FR 75383, Dec. 20, 1979]



Sec. 888.202  Manner of publication.

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

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



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

    (a) To compute an adjustment to a Contract Rent, find the schedule 
of Automatic Annual Adjustment Factors for the appropriate Census Region 
or Standard Metropolitan Statistical Area--
    (1) If the Contract Rent includes all utilities, use the factor 
shown on the basic schedule for the rent bracket within which the 
particular Contract Rent falls and for the applicable size of unit (by 
number of bedrooms).
    (2) If the Contract Rent does not include all utilities but does 
include the highest cost utility, use the appropriate factor shown on 
the basic schedule.
    (3) If the Contract Rent does not include any utilities or includes 
some utilities but not the highest cost utility, use the Annual 
Adjustment Factor for Contract Rent (Excluding Utilities).
    (b) The adjusted monthly amount of the Contract Rent of a dwelling 
unit shall be determined by multiplying the Contract Rent in effect on 
the anniversary date of the contract by the applicable Automatic Annual 
Adjustment Factor (see paragraph (a) of this section) and rounding the 
result as follows:
    (1) If the result contains a fractional dollar amount ranging from 
$0.01 to $0.49, round to the next lower whole dollar amount;
    (2) If the result contains a fractional dollar amount ranging from 
$0.50 to $0.99, round to the next higher whole dollar amount.

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



Sec. 888.204  Revision to the automatic annual adjustment factors.

    If the application of the Annual Adjustment Factors results in rents 
that are substantially lower than rents charged for comparable units not 
receiving assistance under the U.S. Housing Act of 1937, in the area for 
which the factor was published or a portion thereof, and it is shown to 
HUD that the costs of operating comparable rental housing have increased 
at a substantially greater rate than the Adjustment Factors, the HUD 
Field Office will consider establishing separate or revised Automatic 
Annual Adjustment Factors for that particular area. Any request for 
revision of the factors must be accompanied by an identification of the 
area, its boundaries and evidence that the area constitutes the largest 
contiguous area in which substantially

[[Page 171]]

the same rent levels prevail. The HUD Field Office will publish 
appropriate notice of the establishment of any such revised Automatic 
Annual Adjustment Factors. These factors will remain in effect until 
superseded by the subsequent publication of Automatic Annual Adjustment 
Factors pursuant to Sec. 888.202.

[44 FR 21769, Apr. 12, 1979]



Subpart C_Retroactive Housing Assistance Payments for New Construction,
 
Substantial Rehabilitation, State Finance Agencies, Section 515 Farmers 
  Home Administration, Section 202 Elderly or Handicapped, and Special 
                          Allocations Projects

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



Sec. 888.301  Purpose and scope.

    (a) Purpose. This subpart describes the basic policies and 
procedures for the retroactive payment of Housing Assistance Payments to 
eligible project owners for the period from October 1, 1979 to May 31, 
1991 and for one-time Contract Rent determinations for such eligible 
project owners.
    (b) Applicability. This subpart applies to all project-based Section 
8 Housing Assistance Payments Contracts under New Construction (Part 
880); Substantial Rehabilitation (Part 881); State Finance Agencies 
(Part 883); and Section 515 Farmers Home Administration (Part 884). It 
also applies to those projects under Section 202 Elderly or Handicapped 
(Part 885) and Special Allocations (Part 886, Subparts A and C) whose 
Contract Rents are adjusted by use of the Annual Adjustment Factors 
(AAFs), as described in subpart B of this part.
    (c) Eligible project owners. Project owners may be eligible for 
retroactive payments if, during the period from October 1, 1979 to May 
31, 1991:
    (1) The use of a comparability study by HUD (or the Contract 
Administrator), which was conducted as an independent limitation on the 
amount of rent adjustment that would have resulted from use of the 
applicable AAF, resulted in the reduction of the maximum monthly 
Contract Rents for units covered by a Housing Assistance Payments (HAP) 
contract or resulted in less than the maximum increase for those units 
than would otherwise be permitted by the AAF; or
    (2) The HAP contract required a project owner to request annual rent 
adjustments, and the project owner certifies that a request was not made 
because of an anticipated reduction of the maximum monthly Contract 
Rents resulting from a comparability study.



Sec. 888.305  Amount of the retroactive Housing Assistance Payments.

    (a) Recalculating the total rent adjustment. To establish the amount 
of the retroactive HAP payment for which a project owner meeting the 
criteria in Sec. 888.301(c) is eligible, the total rent adjustment will 
be recalculated for the period from October 1, 1979 to May 31, 1991. For 
purposes of establishing the amount of the retroactive payment only, the 
total rent adjustment will be an amount equal to the Contract Rent, 
minus the amount of the Contract Rent attributable to debt service, 
multiplied by the applicable AAF, for each year.
    (b) Calculating the retroactive payment. HUD (or the Contract 
Administrator) will pay, as a retroactive Housing Assistance Payment, 
the amount, if any, by which the total rent adjustment, calculated under 
paragraph (a) of this section, exceeds the rent adjustments actually 
approved for the same time period, except that in no event will any 
payment be an amount less than 30 percent of the aggregate of the full 
Contract Rent multiplied by the applicable AAF, minus the sum of the 
rent adjustments actually approved for the same time period, adjusted by 
the average occupancy rate.
    (c) Occupancy rates. (1) Retroactive payments will be made only for 
units that were occupied, based on average occupancy rate, including 
units qualifying for vacancy payments under 24 CFR 880.611, 881.611, 
883.712, 884.106, 885.985, 886.109, or 886.309, during the time period 
from October 1, 1979 to May 31, 1991.

[[Page 172]]

    (2) When requesting retroactive payment, a project owner must, if 
the information is available, submit documentation of occupancy rates, 
on either an annual or monthly basis, for the same time period. The 
average occupancy rate will be based on these records. If records are 
unavailable for the full time period, HUD (or the Contract 
Administrator) will establish an average occupancy rate, to be used for 
the entire period, from the occupancy rate for the three years 
immediately preceding May 31, 1991.
    (d) Revised AAFs. For any year during the period from October 1, 
1979 to May 31, 1991, where a HUD field office published a revised 
Annual Adjustment Factor that replaced the applicable AAF for a specific 
locality under 24 CFR 888.204, the revised Annual Adjustment Factor, 
which applied to all projects in that area, will be used to recalculate 
the total rent adjustment under paragraph (a) of this section, and to 
establish the amount of the retroactive payments.
    (e) Special adjustments. When calculating the total rent adjustments 
and establishing the amount of the retroactive payments under paragraphs 
(a) and (b) of this section, any special adjustments granted under 24 
CFR 880.609(b), 881,609(b), 883.710(b), 884.109(c), 886.112(c), or 
886.312(c) during the time period from October 1, 1979 to May 31, 1991, 
to reflect substantial general increases in real property taxes, 
assessments, utility rates, utilities not covered by regulated rates, or 
for special adjustments for any other purpose authorized by a waiver of 
the regulations, will be deducted from the Contract Rent before applying 
the AAF.
    (f) AAFs less than 1.0. For any area where an AAF of less than 1.0 
was published, a factor of 1.0 will be used to recalculate the total 
rent adjustments and to establish the amount of the retroactive payments 
under paragraphs (a) and (b) of this section.
    (g) Debt service. (1) For purposes of this section, debt service 
includes principal, interest, and the mortgage insurance premium, if 
any.
    (2) The monthly debt service set forth in the original mortgage 
documents for a project will be used to compute the debt service portion 
of the contract rent. The debt service will be compared to the spread of 
unit sizes included in the original HAP contract, and the amount used in 
the calculation will be based on the percentage of total rent potential 
of the various unit types.
    (3) If, in some cases, HUD or the Contract Administrator cannot 
determine the debt service for a project, the project owner will be 
asked to provide documentation of the debt service. The project owner 
will be notified by the HUD Field Office or the Contract Administrator 
of the need for documentation of the debt service, and allowed 30 days 
to respond, or for such longer period as approved by HUD or the Contract 
Administrator on a case-by-case basis. Where the debt service is not 
available to HUD or the Contract Administrator and the owner is unable 
to provide the necessary information, retroactive payments cannot be 
made.
    (h) Applicable AAF. The applicable AAF is the factor in effect on 
the anniversary date of the contract and appropriate for the area, for 
the size of the unit, and for the treatment of utilities; except where, 
for any year when AAFs were published after November 8 and made 
retroactive to November 8, a project owner was given the option to 
choose the factor in effect on the anniversary date or the retroactive 
factor, the applicable AAF is the factor chosen by the project owner in 
that year.

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



Sec. 888.310  Notice of eligibility requirements for retroactive payments.

    (a) Notice of eligibility requirements. HUD (or the Contract 
Administrator) will give written notice to all current owners of 
projects of the eligibility requirements for retroactive payments. 
Eligible project owners must make a request for payment and a request 
for a one-time contract determination within 60 days from the date of 
the notice.
    (b) Request for payment. (1) Owners eligible for retroactive 
payments under Sec. 888.301(c) must submit a request for a calculation 
of the total rent adjustments and the establishment of the amount of the 
retroactive payment, as described in Sec. 888.301 (a) and (b), and 
documentation of the occupancy rate

[[Page 173]]

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

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



Sec. 888.315  Restrictions on retroactive payments.

    (a) Restrictions on distribution of surplus cash. Retroactive 
payments for HUD-insured projects and other projects subject to 
limitations on the distribution of surplus cash will be deposited, in 
the manner of Housing Assistance Payments, into the appropriate project 
account. The payments will be subject to HUD rules and procedures (or 
rules and procedures of other agencies, as appropriate), described in 
the applicable regulations and the HAP contracts, for distribution of 
surplus cash to project owners.
    (b) Replacement reserve. Projects required by HUD regulations to 
maintain a reserve for replacement account and to adjust the annual 
payment to the account each year by the amount of the annual rent 
adjustment must deposit into the account the proportionate share of any 
retroactive payment received, in accordance with HUD regulations and the 
HAP contract.
    (c) Physical condition of HUD-insured or State-financed projects. If 
the most recent physical inspection report of a HUD-insured project, 
completed by the mortgagee, or by HUD or the Contract Administrator if a 
mortgagee inspection is not present, shows significant deficiencies that 
have not been addressed to the satisfaction of HUD by the date the 
retroactive payment is deposited into the project account, the payment 
will not be made available for surplus cash distribution until the 
deficiencies are resolved or a plan for their resolution has been 
approved by HUD.



Sec. 888.320  One-time Contract Rent determination.

    (a) Determining the amount of the new Contract Rent. Project owners 
eligible for retroactive payments, as described in Sec. 888.301(c), may 
request a one-time Contract Rent determination, to be effective as 
described in paragraph (c) of this section. The request for a one-time 
rent determination must be made when submitting a request for 
retroactive payments, as described in Sec. 888.315. If no claim for 
retroactive payments is made, an owner may submit only the request for a 
one-time rent determination, provided the owner is eligible for 
retroactive payments. The new Contract Rent under this provision will be 
the greater of:
    (1) The Contract Rent currently approved by HUD (or the Contract 
Administrator); or
    (2) An amount equal to the applicable AAF multipled by the Contract 
Rent minus debt service, calculated for each year from October 1, 1979, 
to May 31, 1991.
    (b) Currently approved rent. The Contract Rent currently approved by 
HUD (or the Contract Administrator) is the Contract Rent stated in the 
most recent amendment to the HAP Contract signed by both HUD (or the 
Contract

[[Page 174]]

Administrator) and the owner, or as shown on HUD Form 92458 (Rental 
Schedule) if the most recent amendment to the HAP Contract cannot be 
located.
    (c) Effective date of new Contract Rent. The new Contract Rent, 
determined under paragraph (a) of this section, will be effective on May 
31, 1991.

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



     Subpart D_Retroactive Housing Assistance Payments for Moderate 
                         Rehabilitation Projects

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



Sec. 888.401  Purpose and scope.

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



Sec. 888.405  Amount of the retroactive Housing Assistance Payments.

    (a) Recalculating the total rent adjustment. To establish the amount 
of the retroactive HAP payment for which a project owner meeting the 
criteria in Sec. 888.401(c) is eligible, the total rent adjustment will 
be recalculated for the period from October 1, 1979 to May 31, 1991. 
Rents for that period will be recalculated, under the procedures set out 
in 24 CFR 882.410(a)(1), by applying the AAF for any affected year, and 
recalculating the rents for the remainder of the period as necessary. 
For each year thereafter, all rent adjustments made at the request of 
the owner at the time will be recalculated, under the procedures in 24 
CFR 882.410(a)(1), to account for the new adjustments.
    (b) Calculating the retroactive payment. HUD will pay, through the 
PHA, as a retroactive Housing Assistance Payment the amount, if any, by 
which the total rent adjustment, calculated under paragraph (a) of this 
section exceeds the rent adjustments actually approved for the same time 
period.
    (c) Occupancy rate. (1) Retroactive payments will be made only for 
units that were occupied, based on average occupancy rate, including 
units qualifying for vacancy payments under 24 CFR 882.411, during the 
time period from October 1, 1979 to May 31, 1991.
    (2) When requesting a retroactive payment, a project owner must, if 
the information is available, submit documentation of occupancy rates, 
on either an annual or monthly basis, for the same time period. The 
average occupancy rate will be based on these records. If records are 
unavailable for the full time period, the PHA will establish an average 
occupancy rate, to be used for the entire period, from the occupancy 
rate for the three years immediately preceding May 31, 1991.
    (d) Revised AAFs. For any year during the period from October 1, 
1979 to May 31, 1991, where a HUD field office published a revised 
Annual Adjustment Factor that replaced the applicable AAF for a specific 
locality under 24 CFR 888.204, the revised Annual Adjustment Factor, 
which applied to all projects in that area, will be used to recalculate 
the total rent adjustment under paragraph (a) of this section, and

[[Page 175]]

to establish the amount of the retroactive payments.
    (e) Special adjustments. When calculating the total rent adjustments 
and establishing the amount of the retroactive payments under paragraphs 
(a) and (b) of this section, any special adjustments granted under 24 
CFR 882.410(a)(2) during the period from October 1, 1979 to May 31, 
1991, to reflect substantial general increases in real property taxes, 
assessments, utility rates, utilities not covered by regulated rates, or 
for special adjustments for any other purpose authorized by a waiver of 
the regulations, will be deducted from the base rent before applying the 
AAF.
    (f) AAFs less than 1.0. For any area where an AAF of less than 1.0 
was published, a factor of 1.0 will be used to recalculate the total 
rent adjustments and to establish the amount of the retroactive payments 
under paragraphs (a) and (b) of this section.

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



Sec. 888.410  Notice of eligibility requirements for retroactive payments.

    (a) Notice of eligibility requirements. PHAs will give written 
notice to all current owners of projects, for which they are the 
Contract Administrators, of the eligibility requirements for retroactive 
payments. Eligible project owners must make a request for payment or a 
request for a one-time contract determination within 60 days from the 
date of the notice.
    (b) Request for payment. (1) Owners eligible for retroactive 
payments under Sec. 888.401(c) must submit a request for a calculation 
of the total rent adjustments and the establishment of the amount of the 
retroactive payment, as described in Sec. 888.401 (a) and (b), and 
documentation of the occupancy rate for the period from October 1, 1979 
to May 31, 1991, if available.
    (2) Owners claiming eligibility under Sec. 888.401(c)(2) must 
certify that a request was not made because of an anticipated reduction 
in the Contract Rents as a result of a comparability study. The 
certification must contain the year or years upon which the request for 
payment is based and a statement of the basis for the belief that rents 
would have been reduced.
    (3) Retroactive payments will be made to owners over a three-year 
period as funds are appropriated for that purpose. When funds are 
available for payment, HUD will publish a Federal Register Notice 
containing procedures for claiming payments.
    (c) Request for one-time contract rent determination. When making a 
request for payment, eligible owners may also request a one-time 
contract rent determination, as described in Sec. 888.420. Eligible 
owners may request a one-time contract rent determination even if they 
choose to forgo receiving retroactive payments, provided they are 
eligible for retroactive payments.
    (d) Transfer of ownership since October 1, 1979. Eligible owners 
requesting retroactive payments must certify that they are entitled to 
the entire amount of the payment. Any owner who is unable to certify 
must present documentation of an agreement between the current and 
former owners of the proportionate share of the payment for which each 
is eligible.

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



Sec. 888.415  Restrictions on retroactive payments.

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



Sec. 888.420  One-time Contract Rent determination.

    (a) Determining the amount of the new Contract Rent. Project owners 
eligible

[[Page 176]]

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

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



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




                 Subpart A_General Program Requirements

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

        Subpart B_Section 202 Supportive Housing for the Elderly

891.200 Applicability.
891.205 Definitions.
891.210 Special project standards.
891.215 Limits on number of units.
891.220 Prohibited facilities.
891.225 Provision of services.
891.230 Selection preferences.

 Subpart C_Section 811 Supportive Housing for Persons With Disabilities

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

                      Subpart D_Project Management

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

      Subpart E_Loans for Housing for the Elderly and Persons with 
                              Disabilities

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

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

891.520 Definitions applicable to 202/8 projects.
891.525 Amount and terms of financing.
891.530 Prepayment privileges.
891.535 Requirements for awarding construction contracts.
891.540 Loan disbursement procedures.
891.545 Completion of project, cost certification, and HUD approvals.
891.555 Smoke detectors.
891.560 HAP contract.
891.565 Term of HAP contract.
891.570 Maximum annual commitment and project account.
891.575 Leasing to eligible families.

[[Page 177]]

891.580 HAP contract administration.
891.585 Default by Borrower.
891.590 Notice upon HAP contract expiration.
891.595 HAP contract extension or renewal.
891.600 Responsibilities of Borrower.
891.605 Replacement reserve.
891.610 Selection and admission of tenants.
891.615 Obligations of the family.
891.620 Overcrowded and underoccupied units.
891.625 Lease requirements.
891.630 Denial of admission, termination of tenancy, and modification of 
          lease.
891.635 Security deposits.
891.640 Adjustment of rents.
891.645 Adjustment of utility allowances.
891.650 Conditions for receipt of vacancy payments for assisted units.

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

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

Subpart F_For-Profit Limited Partnerships and Mixed-Finance Development 
   for Supportive Housing for the Elderly or Persons With Disabilities

891.800 Purpose.
891.802 Applicability of other provisions.
891.805 Definitions.
891.808 Capital advance funds.
891.809 Limitations on capital advance funds.
891.810 Project rental assistance.
891.813 Eligible uses for assistance provided under this subpart.
891.815 Developer's fee.
891.818 Firm commitment application.
891.820 Mixed-finance proposal.
891.823 HUD review and approval.
891.825 Evidentiary materials.
891.828 Loan of capital advance funds to mixed-finance owner.
891.830 Drawdown.
891.833 Monitoring and review.
891.835 Eligible uses of project rental assistance.
891.840 Site and neighborhood standards.
891.848 Project design and cost standards.
891.853 Development cost limits.
891.855 Replacement reserves.
891.860 Operating reserves.
891.863 Maintenance as supportive housing units for elderly persons and 
          persons with disabilities.
891.865 Sanctions.

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

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



                 Subpart A_General Program Requirements



Sec. 891.100  Purpose and policy.

    (a) Purpose. The Section 202 Program of Supportive Housing for the 
Elderly and the Section 811 Program of Supportive Housing for Persons 
with Disabilities provide Federal capital advances and project rental 
assistance under section 202 of the Housing Act of 1959 (12 U.S.C. 
1701q) (section 202) and section 811 of the National Affordable Housing 
Act (42 U.S.C. 8013) (section 811), respectively, for housing projects 
serving elderly households and persons with disabilities. Section 202 
projects shall provide a range of services that are tailored to the 
needs of the residents. Owners of Section 811 projects shall ensure that 
the residents are provided with any necessary supportive services that 
address their individual needs.
    (b) General policy. (1) Supportive Housing for the Elderly. A 
capital advance and contract for project rental assistance provided 
under this program shall be used for the purposes described in Section 
202 (12 U.S.C. 1701q(b)).

[[Page 178]]

    (2) Supportive Housing for Persons with Disabilities. A capital 
advance and contract for project rental assistance provided under this 
program shall be used for the purposes described in Section 811 (42 
U.S.C. 8013(b)).
    (c) Use of capital advance funds. No part of the funds reserved may 
be transferred by the Sponsor, except to the Owner caused to be formed 
by the Sponsor. This action must be accomplished prior to issuance of a 
commitment for capital advance funding.
    (d) Amendments. Subject to the availability of funds, HUD may amend 
the amount of an approved capital advance only after initial closing has 
occurred.



Sec. 891.105  Definitions.

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

[[Page 179]]

the Owner for assisted units as provided in the PRAC. The payment is the 
difference between the total tenant payment and the HUD-approved per 
unit operating expenses except for expenses related to items not 
eligible under design and cost provisions. An additional payment is made 
to a household occupying an assisted unit when the utility allowance is 
greater than the total tenant payment. A project rental assistance 
payment, known as a ``vacancy payment,'' may be made to the Owner when 
an assisted unit is vacant, in accordance with the terms of the PRAC.
    Rehabilitation means the improvement of the condition of a property 
from deteriorated or substandard to good condition. Rehabilitation may 
vary in degree from the gutting and extensive reconstruction to the cure 
of substantial accumulation of deferred maintenance. Cosmetic 
improvements alone do not qualify as rehabilitation under this 
definition. Rehabilitation may also include renovation, alteration, or 
remodeling for the conversion or adaptation of structurally sound 
property to the design and condition required for use under this part, 
or the repair or replacement of major building systems or components in 
danger of failure. Improvement of an existing structure must require 15 
percent or more of the estimated development cost to rehabilitate the 
project to a useful life of 55 years.
    Replacement reserve account means a project account into which funds 
are deposited, which may be used only with the approval of the Secretary 
for repairs, replacement, capital improvements to the project, and 
retrofitting to reduce the number of units as provided by 24 CFR 
891.405(d).
    Section 202 means section 202 of the Housing Act of 1959 (12 U.S.C. 
1701q), as amended, or the Supportive Housing for the Elderly Program 
authorized by that section.
    Section 811 means section 811 of the National Affordable Housing Act 
(42 U.S.C. 8013), as amended, or the Supportive Housing for Persons with 
Disabilities Program authorized by that section.
    Start-up expenses mean necessary costs (to plan a Section 202 or 
Section 811 project, as applicable) incurred by the Sponsor or Owner 
prior to initial closing.
    Tenant payment to Owner equals total tenant payment less utility 
allowance, if any.
    Total tenant payment means the monthly amount defined in, and 
determined in accordance with part 5, subpart F of subtitle A of this 
title.
    Utility allowance is defined in part 5, subpart F of this subtitle A 
of this title and is determined or approved by HUD.
    Very low-income families shall have the same meaning provided in 
section 3(b)(2) of the United States Housing Act of 1937 (42 U.S.C. 
1437a).

[61 FR 11956, Mar. 22, 1996, as amended at 66 FR 6225, Jan. 19, 2001; 66 
FR 8175, Jan. 30, 2001; 68 FR 67320, Dec. 1, 2003]



Sec. 891.110  Allocation of authority.

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



Sec. 891.115  Notice of funding availability.

    Following an allocation of authority under Sec. 891.110, HUD shall 
publish a separate Notice of Funding Availability (NOFA) for the Section 
202 Program of Supportive Housing for the Elderly and for the Section 
811 Program of Supportive Housing for Persons with Disabilities in the 
Federal Register. The NOFAs will contain specific information on how and 
when to apply for the available capital advance authority, the contents 
of the application, and the selection process.



Sec. 891.120  Project design and cost standards.

    In addition to the special project standards described in Sec. Sec. 
891.210 and 891.310, as applicable, the following standards apply:

[[Page 180]]

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

[61 FR 11956, Mar. 22, 1996, as amended at 68 FR 67320, Dec. 1, 2003]



Sec. 891.125  Site and neighborhood standards.

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

[[Page 181]]

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

[[Page 182]]

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



Sec. 891.130  Prohibited relationships.

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



Sec. 891.135  Amount and terms of capital advances.

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



Sec. 891.140  Development cost limits.

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



Sec. 891.145  Owner deposit (Minimum Capital Investment).

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



Sec. 891.150  Operating cost standards.

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

[[Page 183]]

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



Sec. 891.155  Other Federal requirements.

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

[[Page 184]]

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

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



Sec. 891.160  Audit requirements.

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



Sec. 891.165  Duration of capital advance.

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



Sec. 891.170  Repayment of capital advance.

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



Sec. 891.175  Technical assistance.

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



Sec. 891.180  Physical condition standards; physical inspection requirements.

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

[63 FR 46580, Sept. 1, 1998]



Sec. 891.185  Preemption of rent control laws.

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

[63 FR 64803, Nov. 23, 1998]



        Subpart B_Section 202 Supportive Housing for the Elderly



Sec. 891.200  Applicability.

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



Sec. 891.205  Definitions.

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

[[Page 185]]

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

[61 FR 11956, Mar. 22, 1996, as amended at 68 FR 67321, Dec. 1, 2003]

[[Page 186]]



Sec. 891.210  Special project standards.

    In addition to the applicable project standards in Sec. 891.120, 
resident units in Section 202 projects are limited to efficiencies or 
one-bedroom units. If a resident manager is proposed for a project, up 
to two bedrooms could be provided for the resident manager unit.



Sec. 891.215  Limits on number of units.

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



Sec. 891.220  Prohibited facilities.

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



Sec. 891.225  Provision of services.

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



Sec. 891.230  Selection preferences.

    For purposes of the Section 202 Program, the selection preferences 
in 24 CFR part 5, subpart D apply.



 Subpart C_Section 811 Supportive Housing for Persons With Disabilities



Sec. 891.300  Applicability.

    The requirements set forth in this subpart C apply to the Section 
811 Program of Supportive Housing for Persons with Disabilities only, 
and to applicants, Sponsors, and Owners under that program.



Sec. 891.305  Definitions.

    As used in this part in reference to the Section 811 Program, and in 
addition to the applicable definitions in Sec. 891.105:
    Acquisition means the purchase of (or otherwise obtaining title to) 
existing structures to be used as housing for persons with disabilities.
    Congregate space (hereinafter referred to as community space) means 
space for multipurpose rooms, common areas, and other space necessary 
for the provision of supportive services. Community space does not 
include commercial areas.
    Disabled household means a household composed of:
    (1) One or more persons at least one of whom is an adult (18 years 
or older) who has a disability;
    (2) Two or more persons with disabilities living together, or one or 
more such persons living with another person who is determined by HUD, 
based upon a certification from an appropriate professional (e.g., a 
rehabilitation counselor, social worker, or licensed physician) to be 
important to their care or well being; or
    (3) The surviving member or members of any household described in 
paragraph (1) of this definition who were living in a unit assisted 
under this part, with the deceased member of the household at the time 
of his or her death.

[[Page 187]]

    Nonprofit organization means any institution or foundation:
    (1) That has tax-exempt status under section 501(c)(3) of the 
Internal Revenue Code of 1986 (26 U.S.C. 1 et seq.);
    (2) No part of the net earnings of which inures to the benefit of 
any Board member, founder, contributor, or individual;
    (3) That has a governing board;
    (i) The membership of which is selected in a manner to assure that 
there is significant representation of the views of the community in 
which such housing is located (including persons with disabilities); and
    (ii) That is responsible for the operation of the housing assisted 
under this part; and
    (4) That is approved by HUD as to financial responsibility.
    Owner means a single-purpose nonprofit organization established by 
the Sponsor that will receive a capital advance and project rental 
assistance payments to develop and operate, as its legal owner, 
supportive housing for persons with disabilities under this part. The 
purposes of the Owner must include the promotion of the welfare of 
persons with disabilities. The Owner may not be controlled by or under 
the direction of persons or firms seeking to derive profit or gain 
therefrom.
    Person with disabilities shall have the meaning provided in Section 
811 (42 U.S.C. 8013(k)(2)). The term ``person with disabilities'' shall 
also include the following:
    (1) A person who has a developmental disability, as defined in 
section 102(7) of the Developmental Disabilities Assistance and Bill of 
Rights Act (42 U.S.C. 6001(5)), i.e., if he or she has a severe chronic 
disability which:
    (i) Is attributable to a mental or physical impairment or 
combination of mental and physical impairments;
    (ii) Is manifested before the person attains age twenty-two;
    (iii) Is likely to continue indefinitely;
    (iv) Results in substantial functional limitation in three or more 
of the following areas of major life activity:
    (A) Self-care;
    (B) Receptive and expressive language;
    (C) Learning;
    (D) Mobility;
    (E) Self-direction;
    (F) Capacity for independent living;
    (G) Economic self-sufficiency; and
    (v) Reflects the person's need for a combination and sequence of 
special, interdisciplinary, or generic care, treatment, or other 
services which are of lifelong or extended duration and are individually 
planned and coordinated.
    (2) A person with a chronic mental illness, i.e., a severe and 
persistent mental or emotional impairment that seriously limits his or 
her ability to live independently, and which impairment could be 
improved by more suitable housing conditions.
    (3) A person infected with the human acquired immunodeficiency virus 
(HIV) and a person who suffers from alcoholism or drug addiction, 
provided they meet the definition of ``person with disabilities'' in 
Section 811 (42 U.S.C. 8013(k)(2)). A person whose sole impairment is a 
diagnosis of HIV positive or alcoholism or drug addiction (i.e., does 
not meet the qualifying criteria in section 811 (42 U.S.C. 8013(k)(2)) 
will not be eligible for occupancy in a section 811 project.
    Sponsor means any nonprofit entity:
    (1) That has tax-exempt status under section 501(c)(3) of the 
Internal Revenue Code of 1986 (26 U.S.C. 1 et seq.);
    (2) No part of the net earnings of which inures to the benefit of 
any private shareholder, member, founder, contributor or individual;
    (3) That is not controlled by or under the direction of persons or 
firms seeking to derive profit or gain therefrom;
    (4) That has a governing board the membership of which is selected 
in a manner to assure that there is significant representation of the 
views of persons with disabilities; and
    (5) That is approved by HUD as to administrative and financial 
capacity and responsibility.

[61 FR 11956, Mar. 22, 1996, as amended at 68 FR 67321, Dec. 1, 2003]



Sec. 891.310  Special project standards.

    In addition to the applicable project standards in Sec. 891.120, 
the following special standards apply to the Section 811 Program and to 
projects funded under Sec. Sec. 891.655 through 891.790:

[[Page 188]]

    (a) Minimum group home standards. Each group home must provide a 
minimum of 290 square feet of prorated space for each resident, 
including a minimum area of 80 square feet for each resident in a shared 
bedroom (with no more than two residents occupying a shared bedroom) and 
a minimum area of 100 square feet for a single occupant bedroom; at 
least one full bathroom for every four residents; space for recreation 
at indoor and outdoor locations on the project site; and sufficient 
storage for each resident in the bedroom and other storage space 
necessary for the operation of the home. If the project involves 
acquisition (with or without rehabilitation), the structure must at 
least be in compliance with applicable State requirements. In the 
absence of such requirements, the above standards shall apply.
    (b) Additional accessibility requirements. In addition to the 
accessibility requirements in Sec. 891.120(b), the following 
requirements apply to the Section 811 Program and to projects funded 
under Sec. Sec. 891.655 through 891.790:
    (1) All entrances, common areas, units to be occupied by resident 
staff, and amenities must be readily accessible to and usable by persons 
with disabilities.
    (2) In projects for chronically mentally ill individuals, a minimum 
of 10 percent of all dwelling units in an independent living facility 
(or 10 percent of all bedrooms and bathrooms in a group home, but at 
least one of each such space), must be designed to be accessible or 
adaptable for persons with disabilities.
    (3) In projects for developmentally disabled or physically disabled 
persons, all dwelling units in an independent living facility (or all 
bedrooms and bathrooms in a group home) must be designed to be 
accessible or adaptable for persons with physical disabilities. A 
project involving acquisition and/or rehabilitation may provide a lesser 
number if:
    (i) The cost of providing full accessibility makes the project 
financially infeasible;
    (ii) Fewer than one-half of the intended occupants have mobility 
impairments; and
    (iii) The project complies with the requirements of 24 CFR 8.23.
    (4) For the purposes of paragraph (b) of this section, the following 
definitions apply:
    (i) Accessible describes a site, building, facility, or portion 
thereof that complies with the Uniform Federal Accessibility Standards 
and that can be approached, entered, and used by physically disabled 
people;
    (ii) Adaptability means the ability of certain building spaces and 
elements, such as kitchen counters, sinks, and grab bars, to be added or 
altered so as to accommodate the needs of either disabled or nondisabled 
persons, or to accommodate the needs of either disabled or nondisabled 
persons, or to accommodate the needs of persons with different types or 
degrees of disability.



Sec. 891.315  Prohibited facilities.

    This section shall apply to capital advances under the Section 811 
Program, as well as loans financed under subpart E of this part. Project 
facilities may not include infirmaries, nursing stations, spaces 
dedicated to the delivery of medical treatment or physical therapy, 
padded rooms, or space for respite care or sheltered workshops, even if 
paid for from sources other than the HUD capital advance or loan. Except 
for office space used by the Owner (or Borrower, if applicable) 
exclusively for the administration of the project, project facilities 
may not include office space.



Sec. 891.320  Site and neighborhood standards.

    In addition to the requirements in Sec. 891.125 and Sec. 891.680, 
if applicable, the following site and neighborhood requirements apply to 
the Section 811 Program:
    (a) Travel time and cost via public transportation or private 
automobile, from the neighborhood to places of employment providing a 
range of jobs for very low-income workers (or low-income workers, as 
applicable), must not be excessive.
    (b) Projects should be located in neighborhoods where other family 
housing is located. Projects should not

[[Page 189]]

be located adjacent to the following facilities, or in areas where such 
facilities are concentrated: schools or day-care centers for persons 
with disabilities, workshops, medical facilities, or other housing 
primarily serving persons with disabilities. Not more than one group 
home may be located on any one site and no such home may be located on a 
site contiguous to another site containing such a home.



Sec. 891.325  Lead-based paint requirements.

    The requirements of the Lead-Based Paint Poisoning Prevention Act 
(42 U.S.C. 4821-4846), the Residential Lead-Based Paint Hazard Reduction 
Act of 1992 (42 U.S.C. 4851-4856), and implementing regulations at part 
35, subparts A, B, H, and R of this title apply to the Section 811 
program and to projects funded under Sec. Sec. 891.655 through 891.790.

[64 FR 50228, Sept. 15, 1999]



                      Subpart D_Project Management



Sec. 891.400  Responsibilities of owner.

    (a) Marketing. (1) The Owner must commence and continue diligent 
marketing activities not later than 90 days before the anticipated date 
of availability of the first unit or occupancy of the group home. Market 
activities shall include the provision of notices of the availability of 
housing under the program to operators of temporary housing for the 
homeless in the same housing market.
    (2) Marketing must be done in accordance with a HUD-approved 
affirmative fair housing marketing plan and all Federal, State or local 
fair housing and equal opportunity requirements. The purpose of the plan 
and requirements is to achieve a condition in which eligible households 
of similar income levels in the same housing market area have a like 
range of housing choices available to them regardless of discriminatory 
considerations such as their race, color, creed, religion, familial 
status, disability, sex or national origin.
    (3) At the time of PRAC execution, the Owner must submit to HUD a 
list of leased and unleased assisted units (or in the case of a group 
home, leased and unleased residential spaces) with a justification for 
the unleased units or residential spaces, in order to qualify for 
vacancy payments for the unleased units or residential spaces.
    (b) Management and maintenance. The Owner is responsible for all 
management functions. These functions include selection and admission of 
tenants, required reexaminations of incomes for households occupying 
assisted units or residential spaces, collection of tenant payments, 
termination of tenancy and eviction, and all repair and maintenance 
functions (including ordinary and extraordinary maintenance and 
replacement of capital items). All functions must be performed in 
compliance with equal opportunity requirements.
    (c) Contracting for services. (1) With HUD approval, the Owner may 
contract with a private or public entity for performance of the services 
or duties required in paragraphs (a) and (b) of this section. However, 
such an arrangement does not relieve the Owner of responsibility for 
these services and duties. All such contracts are subject to the 
restrictions governing prohibited contractual relationships described in 
Sec. 891.130. (These prohibitions do not extend to management contracts 
entered into by the Owner with the Sponsor or its nonprofit affiliate.)
    (2) Consistent with the objectives of Executive Order No. 11625 (36 
FR 19967, 3 CFR, 1971-1975 Comp., p. 616; as amended by Executive Order 
No. 12007 (42 FR 42839, 3 CFR, 1977 Comp., p. 139)); Executive Order No. 
12432 (48 FR 32551, 3 CFR, 1983 Comp., p. 198); and Executive Order No. 
12138 (44 FR 29637, 3 CFR, 1979 Comp., p. 393; as amended by Executive 
Order No. 12608 (52 FR 34617, 3 CFR, 1987 Comp., p. 245)), the Owner 
will promote awareness and participation of minority and women's 
business enterprises in contracting and procurement activities.
    (d) Submission of financial and operating statements. The Owner must 
submit to HUD:
    (1) Within 60 days after the end of each fiscal year of project 
operations,

[[Page 190]]

financial statements for the project audited by an independent public 
accountant and in the form required by HUD; and
    (2) Other statements regarding project operation, financial 
conditions and occupancy as HUD may require to administer the PRAC and 
to monitor project operations.
    (e) Use of project funds. The Owner shall maintain a separate 
interest bearing project fund account in a depository or depositories 
which are members of the Federal Deposit Insurance Corporation or 
National Credit Union Share Insurance Fund and shall deposit all tenant 
payments, charges, income and revenues arising from project operation or 
ownership to this account. All project funds are to be deposited in 
Federally insured accounts. All balances shall be fully insured at all 
times, to the maximum extent possible. Project funds must be used for 
the operation of the project (including required insurance coverage), 
and to make required deposits to the replacement reserve under Sec. 
891.405, in accordance with HUD-approved budget. Any remaining project 
funds in the project funds account (including earned interest) following 
the expiration of the fiscal year shall be deposited in a Federally-
insured residual receipts account within 60 days following the end of 
the fiscal year. Withdrawals from this account may be made only for 
project purposes and with the approval of HUD. If there are funds 
remaining in the residual receipts account when the mortgage is 
satisfied, such funds shall be returned to HUD.
    (f) Reports. The Owner shall submit such reports as HUD may 
prescribe to demonstrate compliance with applicable civil rights and 
equal opportunity requirements. See Sec. 891.410(a).

(Approved by the Office of Management and Budget under control number 
2502-0470)



Sec. 891.405  Replacement reserve.

    (a) Establishment of reserve. The Owner shall establish and maintain 
a replacement reserve to aid in funding extraordinary maintenance and 
repair and replacement of capital items.
    (b) Deposits to reserve. The Owner shall make monthly deposits to 
the replacement reserve in an amount determined by HUD.
    (c) Level of reserve. The reserve must be built up to and maintained 
at a level determined by HUD to be sufficient to meet projected 
requirements. Should the reserve reach that level, the amount of the 
deposit to the reserve may be reduced with the approval of HUD.
    (d) Administration of reserve. Replacement reserve funds must be 
deposited with HUD or in a Federally-insured depository in an interest-
bearing account(s) whose balances(s) are fully insured at all times. All 
earnings including interest on the reserve must be added to the reserve. 
Funds may be drawn from the reserve and used only in accordance with HUD 
guidelines and with the approval of, or as directed by, HUD. With HUD 
approval, reserves may be used to reduce the number of dwelling units, 
provided that the purpose for the reduction is the retrofitting of 
obsolete or unmarketable units.

[61 FR 11956, Mar. 22, 1996, as amended at 68 FR 67321, Dec. 1, 2003]



Sec. 891.410  Selection and admission of tenants.

    (a) Written procedures. The Owner shall adopt written tenant 
selection procedures that ensure nondiscrimination in the selection of 
tenants and that are consistent with the purpose of improving housing 
opportunities for very low-income elderly persons and persons with 
disabilities (as applicable); and reasonably related to program 
eligibility and an applicant's ability to perform the obligations of the 
lease. Owners shall promptly inform in writing any rejected applicant of 
the grounds for any rejection. Additionally, Owners shall maintain a 
written, chronological waiting list showing the name, race, gender, 
ethnicity, and date of each person applying for the program.
    (b) Application for admission. The Owner must accept applications 
for admission to the project in the form prescribed by HUD, and (under 
the Section 202 Program only) is obligated to confirm all information 
provided by applicant families on the application. Applicant households 
applying for assisted

[[Page 191]]

units (or residential spaces in a group home) must complete a 
certification of eligibility as part of the application for admission. 
Applicant households must meet the disclosure and verification 
requirements for Social Security Numbers, as provided by 24 CFR part 5, 
subpart B. Applicant families must sign and submit consent forms for the 
obtaining of wage and claim information from State Wage Information 
Collection Agencies, as provided by 24 CFR part 5, subpart B. Both the 
Owner and the applicant household must complete and sign the application 
for admission. On request, the Owner must furnish copies of all 
applications for admission to HUD.
    (c) Determination of eligibility and selection of tenants. (1) The 
Owner is responsible for determining whether applicants are eligible for 
admission and for the selection of households. To be eligible for 
admission, an applicant must be an elderly person or a person with 
disabilities, as applicable (as defined in Sec. Sec. 891.205 and 
891.305, respectively); must meet the disclosure and verification 
requirements for Social Security Numbers, as provided by 24 CFR part 5, 
subpart B; must sign and submit consent forms for the obtaining of wage 
and claim information from State Wage Information Collection Agencies, 
as provided by 24 CFR part 5, subpart B; and must be a very low-income 
family, as defined in Sec. 891.105.
    (2) Under the Section 811 Program:
    (i) In order to be eligible for admission, the applicant must also 
meet any project occupancy requirements approved by HUD.
    (ii) Owners shall make selections in a nondiscriminatory manner 
without regard to considerations such as race, religion, color, sex, 
national origin, familial status, or disability. An Owner may, with the 
approval of the Secretary, limit occupancy within housing developed 
under this part 891 to persons with disabilities who have similar 
disabilities and require a similar set of supportive services in a 
supportive housing environment. However, the Owner must permit occupancy 
by any qualified person with a disability who could benefit from the 
housing and/or services provided regardless of the person's disability.
    (d) Unit assignment. If the Owner determines that the household is 
eligible and is otherwise acceptable and units (or residential spaces in 
a group home) are available, the Owner will assign the household a unit 
or residential space in a group home. If the household will occupy an 
assisted unit, the Owner will assign the household a unit of the 
appropriate size in accordance with HUD's general occupancy guidelines. 
If no suitable unit (or residential space in a group home) is available, 
the Owner will place the household on a waiting list for the project and 
notify the household when a suitable unit or residential space may 
become available. If the waiting list is so long that the applicant 
would not be likely to be admitted for the next 12 months, the Owner may 
advise the applicant that no additional applications for admission are 
being considered for that reason.
    (e) Ineligibility determination. If the Owner determines that an 
applicant is ineligible for admission or the Owner is not selecting the 
applicant for other reasons, the Owner will promptly notify the 
applicant in writing of the determination, the reasons for the 
determination, and the applicant's right to request a meeting to review 
the rejection, in accordance with HUD requirements. The review, if 
requested, may not be conducted by a member of the Owner's staff who 
made the initial decision to reject the applicant. The applicant may 
also exercise other rights (e.g., rights granted under Federal, State or 
local civil rights laws) if the applicant believes he or she is being 
discriminated against on a prohibited basis.
    (f) Records. Records on applicants and approved eligible households, 
which provide racial, ethnic, gender and place of previous residency 
data required by HUD, must be retained for three years. See Sec. 
891.410(a).
    (g) Reexamination of household family income and composition--(1) 
Regular reexaminations. The Owner must reexamine the income and 
composition of the household at least every 12 months. Upon verification 
of the information, the Owner must make appropriate adjustments in the 
total tenant payment in accordance with part 813 of this

[[Page 192]]

chapter, as modified by Sec. 891.105, and must determine whether the 
household's unit size is still appropriate. The Owner must adjust tenant 
payment and the project rental assistance payment, and must carry out 
any unit transfer in accordance with HUD standards. At the time of 
reexamination under paragraph (g)(1) of this section, the Owner must 
require the household to meet the disclosure and verification 
requirements for Social Security Numbers, as provided by 24 CFR part 5, 
subpart B. For requirements regarding the signing and submitting of 
consent forms by families for obtaining of wage and claim information 
from State Wage Information Collection Agencies, see 24 CFR part 5, 
subpart B.
    (2) Interim reexaminations. The household must comply with the 
provisions in its lease regarding interim reporting of changes in 
income. If the Owner receives information concerning a change in the 
household's income or other circumstances between regularly scheduled 
reexaminations, the Owner must consult with the household and make any 
adjustments determined to be appropriate. See 24 CFR part 5, subpart B 
for the requirements for the disclosure and verification of Social 
Security Number at interim reexaminations involving new household 
members. For requirements regarding the signing and submitting of 
consent forms by families for the obtaining of wage and claim 
information from State Wage Information Collection Agencies, see 24 CFR 
part 5, subpart B. Any change in the household's income or other 
circumstances that result in an adjustment in the total tenant payment, 
tenant payment, and project rental assistance payment must be verified.
    (3) Continuation of project rental assistance payment. (i) A 
household shall remain eligible for project rental assistance payment 
until the total tenant payment equals or exceeds the gross rent (or a 
pro rata share of the gross rent in a group home). The termination of 
subsidy eligibility will not affect the household's other rights under 
its lease. Project rental assistance payment may be resumed if, as a 
result of changes in income, rent or other relevant circumstances during 
the term of the PRAC, the household meets the income eligibility 
requirements of 24 CFR part 813 (as modified in Sec. 891.105) and 
project rental assistance is available for the unit or residential space 
under the terms of the PRAC. The household will not be required to 
establish its eligibility for admission to the project under the 
remaining requirements of paragraph (c) of this section.
    (ii) A household's eligibility for project rental assistance payment 
may be terminated in accordance with HUD requirements for such reasons 
as failure to submit requested verification information, including 
information related to disclosure and verification of Social Security 
Numbers, as provided by 24 CFR part 5, subpart B or failure to sign and 
submit consent forms for the obtaining of wage and claim information 
from State Wage Information Collection Agencies (as provided by 24 CFR 
part 5, subpart B).

[61 FR 11956, Mar. 22, 1996, as amended at 65 FR 16724, Mar. 29, 2000]



Sec. 891.415  Obligations of the household or family.

    This section shall apply to capital advances under the Section 202 
Program and the Section 811 Program, as well as loans financed under 
subpart E of this part.
    (a) Requirements. The household (or family, as applicable) shall:
    (1) Pay amounts due under the lease directly to the Owner (or 
Borrower, as applicable);
    (2) Supply such certification, release of information, consent, 
completed forms or documentation as the Owner (or Borrower, as 
applicable) or HUD determines necessary, including information and 
documentation relating to the disclosure and verification of Social 
Security Numbers, as provided by 24 CFR part 5, subpart B, and the 
signing and submission of consent forms for the obtaining of wage and 
claim information from State Wage Information Collection Agencies, as 
provided by 24 CFR part 5, subpart B;
    (3) Allow the Owner (or Borrower, as applicable) to inspect the 
dwelling unit or residential space at reasonable times and after 
reasonable notice;
    (4) Notify the Owner (or Borrower, as applicable) before vacating 
the dwelling unit or residential space; and

[[Page 193]]

    (5) Use the dwelling unit or residential space solely for residence 
by the household (or family, as applicable) and as the household's (or 
family's) principal place of residence.
    (b) Prohibitions. The household (or family, as applicable) shall 
not:
    (1) Assign the lease or transfer the unit or residential space; or
    (2) Occupy, or receive assistance for the occupancy of, a unit or 
residential space governed under this part 891 while occupying, or 
receiving assistance for the occupancy of, another unit assisted under 
any Federal housing assistance program, including any section 8 program.

(Approved by the Office of Management and Budget under control number 
2502-0470)



Sec. 891.420  Overcrowded and underoccupied units.

    If the Owner determines that because of change in household size, an 
assisted unit is smaller than appropriate for the eligible household to 
which it is leased, or that the assisted unit is larger than 
appropriate, project rental assistance payment with respect to the unit 
will not be reduced or terminated until the eligible household has been 
relocated to an appropriate alternate unit. If possible, the Owner will, 
as promptly as possible, offer the household an appropriate alternate 
unit. The Owner may receive vacancy payments for the vacated unit if the 
Owner complies with the requirements of Sec. 891.445.



Sec. 891.425  Lease requirements.

    This section shall apply to capital advances under the Section 202 
Program and the Section 811 Program, as well as loans financed under 
subpart E of this part.
    (a) Term of lease. The term of the lease may not be less than one 
year. Unless the lease has been terminated by appropriate action, upon 
expiration of the lease term, the household and Owner (or family and 
Borrower, as applicable) may execute a new lease for a term not less 
than one year, or may take no action. If no action is taken, the lease 
will automatically be renewed for successive terms of one month.
    (b) Termination by the household (or family, as applicable). All 
leases may contain a provision that permits the household (or family) to 
terminate the lease upon 30 days advance notice. A lease for a term that 
exceeds one year must contain such provision.
    (c) Form. The Owner (or Borrower, as applicable) shall use the lease 
form prescribed by HUD. In addition to required provisions of the lease 
form, the Owner (or Borrower) may include a provision in the lease 
permitting the Owner (or Borrower) to enter the leased premises at any 
time without advance notice when there is reasonable cause to believe 
that an emergency exists or that health or safety of a family member is 
endangered.



Sec. 891.430  Denial of admission, termination of tenancy, and modification 
of lease.

    (a) The provisions of part 5, subpart I, of this title apply to 
Section 202 and Section 811 capital advance projects.
    (b) The provisions of part 247 of this title apply to all decisions 
by an owner to terminate the tenancy or modify the lease of a household 
residing in a unit (or residential space in a group home).

[66 FR 28798, May 24, 2001]



Sec. 891.435  Security deposits.

    This section shall apply to capital advances under the Section 202 
Program and the Section 811 Program, as well as loans financed under 
subpart E of this part. For loans financed under subpart E of this part, 
the requirements in Sec. 891.635 also apply.
    (a) Collection of security deposits. At the time of the initial 
execution of the lease, the Owner (or Borrower, as applicable) will 
require each household (or family, as applicable) occupying an assisted 
unit or residential space in a group home to pay a security deposit in 
an amount equal to one month's tenant payment or $50, whichever is 
greater. The household (or family) is expected to pay the security 
deposit from its own resources and other available public or private 
resources. The Owner (or Borrower) may collect the security deposit on 
an installment basis.
    (b) Security deposit provisions applicable to units-- (1) 
Administration of security deposit. The Owner (or Borrower, as 
applicable) must place the security deposits in a segregated interest-
bearing

[[Page 194]]

account. The amount of the segregated, interest-bearing account 
maintained by the Owner (or Borrower) must at all times equal the total 
amount collected from the households (or families, as applicable) then 
in occupancy plus any accrued interest and less allowable administrative 
cost adjustments. The Owner (or Borrower) must comply with any 
applicable State and local laws concerning interest payments on security 
deposits.
    (2) Household (or family, as applicable) notification requirement. 
In order to be considered for the refund of the security deposit, a 
household (or family) must provide the Owner (or Borrower, as 
applicable) with a forwarding address or arrange to pick up the refund.
    (3) Use of security deposit. The Owner (or Borrower, as applicable), 
subject to State and local law and the requirements of paragraphs (b)(1) 
and (b)(3) of this section, may use the household's (or family's, as 
applicable) security deposit balance as reimbursement for any unpaid 
amounts that the household (or family) owes under the lease. Within 30 
days (or shorter time if required by State or local law) after receiving 
notification under paragraph (b)(2) of this section, the Owner (or 
Borrower) must:
    (i) Refund to a household (or family) that does not owe any amount 
under the lease the full amount of the household's (or family's) 
security deposit balance;
    (ii) Provide to a household (or family) owing amounts under the 
lease a list itemizing each amount, along with a statement of the 
household's (or family's) rights under State and local law. If the 
amount that the Owner (or Borrower) claims is owed by the household (or 
family) is less than the amount of the household's (or family's) 
security deposit balance, the Owner (or Borrower) must refund the excess 
balance to the household (or family). If the Owner (or Borrower) fails 
to provide the list, the household (or family) will be entitled to the 
refund of the full amount of the household's (or family's) security 
deposit balance.
    (4) Disagreements. If a disagreement arises concerning reimbursement 
of the security deposit, the household (or family, if applicable) will 
have the right to present objections to the Owner (or Borrower, if 
applicable) in an informal meeting. The Owner (or Borrower) must keep a 
record of any disagreements and meetings in a tenant file for inspection 
by HUD. The procedures of this paragraph do not preclude the household 
(or family) from exercising its rights under State or local law.
    (5) Decedent's interest in security deposit. Upon the death of a 
member of a household (or family, as applicable), the decedent's 
interest, if any, in the security deposit will be governed by State or 
local law.
    (c) Reimbursement by HUD for assisted units. If the household's (or 
family's, if applicable) security deposit balance is insufficient to 
reimburse the Owner (or Borrower, if applicable) for any amount that the 
household (or family) owes under the lease for an assisted unit or 
residential space, and the Owner (or Borrower) has provided the 
household (or family) with the list required by paragraph (b)(3)(ii) of 
this section, the Owner (or Borrower) may claim reimbursement from HUD 
for an amount not to exceed the lesser of:
    (1) The amount owed the Owner (or Borrower); or
    (2) One month's per unit operating cost (or contract rent, if 
applicable), minus the amount of the household's (or family's) security 
deposit balance. Any reimbursement under this section will be applied 
first toward any unpaid tenant payment (or rent, if applicable) due 
under the lease. No reimbursement may be claimed for any unpaid tenant 
payment (or rent) for the period after termination of the tenancy. The 
Owner (or Borrower) may be eligible for vacancy payments following a 
vacancy in accordance with the requirements of Sec. 891.445 (or 
Sec. Sec. 891.650 or 891.790, as applicable).



Sec. 891.440  Adjustment of utility allowances.

    This section shall apply to projects funded under the Section 202 
Program, to independent living complexes funded under Section 811 
Program, and to projects financed with loans under subpart E of this 
part. The Owner (or Borrower, as applicable) must submit an

[[Page 195]]

analysis of any utility allowances applicable. Such data as changes in 
utility rates and other facts affecting utility consumption should be 
provided as part of this analysis to permit appropriate adjustments in 
the utility allowances for assisted units. In addition, when utility 
rate changes would result in a cumulative increase of 10 percent or more 
in the most recently approved utility allowances, the Owner (or 
Borrower) must advise HUD and request approval of new utility 
allowances. Whenever a utility allowance for an assisted unit is 
adjusted, the Owner (or Borrower) will promptly notify affected 
households (or families, as applicable) and make a corresponding 
adjustment of the tenant payment (or rent, as applicable) and the amount 
of the project rental assistance payment (or housing or project 
assistance payment, as applicable).

(Approved by the Office of Management and Budget under control number 
2502-0470)



Sec. 891.445  Conditions for receipt of vacancy payments for assisted units.

    (a) General. Vacancy payments under the PRAC will not be made unless 
the conditions for receipt of these project rental assistance payments 
set forth in this section are fulfilled.
    (b) Vacancies during rent-up. For each unit (or residential space in 
a group home) that is not leased as of the effective date of the PRAC, 
the Owner is entitled to vacancy payments in the amount of 50 percent of 
the per unit operating cost (or pro rata share of the group home 
operating cost) for the first 60 days of vacancy, if the Owner:
    (1) Conducted marketing in accordance with Sec. 891.400(a) and 
otherwise complied with Sec. 891.400;
    (2) Has taken and continues to take all feasible actions to fill the 
vacancy; and
    (3) Has not rejected any eligible applicant except for good cause 
acceptable to HUD.
    (c) Vacancies after rent-up. If an eligible household vacates an 
assisted unit (or residential space in a group home) the Owner is 
entitled to vacancy payments in the amount of 50 percent of the approved 
per unit operating cost (or pro rata share of the group home operating 
cost) for the first 60 days of vacancy if the Owner:
    (1) Certifies that it did not cause the vacancy by violating the 
lease, the PRAC, or any applicable law;
    (2) Notified HUD of the vacancy or prospective vacancy and the 
reasons for the vacancy upon learning of the vacancy or prospective 
vacancy;
    (3) Has fulfilled and continues to fulfill the requirements 
specified in Sec. 891.400(a) (2) and (3) and Sec. 891.445(b) (2) and 
(3); and
    (4) For any vacancy resulting from the Owner's eviction of an 
eligible household, certifies that it has complied with Sec. 891.430.
    (d) Prohibition of double compensation for vacancies. If the Owner 
collects payments for vacancies from other sources (tenant payment, 
security deposits, payments under Sec. 891.435(c), or governmental 
payments under other programs), the Owner shall not be entitled to 
collect vacancy payments to the extent these collections from other 
sources plus the vacancy payment exceed the approved per unit operating 
cost.



Sec. 891.450  HUD review.

    HUD shall conduct periodic on-site management reviews of the Owner's 
compliance with the requirements of this part.



      Subpart E_Loans for Housing for the Elderly and Persons with 
                              Disabilities



Sec. 891.500  Purpose and policy.

    (a) Purpose. The program under subpart E of this part provides 
direct Federal loans under section 202 of the Housing Act of 1959 (42 
U.S.C. 1701q) for housing projects serving elderly or handicapped 
families and individuals. The housing projects shall provide the 
necessary services for the occupants which may include, but are not 
limited to: Health, continuing education, welfare, informational, 
recreational, homemaking, meal and nutritional services, counseling, and 
referral services, as well as transportation where necessary to 
facilitate access to these services.
    (b) General policy. A loan made under subpart E of this part shall 
be used to

[[Page 196]]

finance the construction or the substantial rehabilitation of projects 
for elderly or handicapped families, or for the acquisition with or 
without moderate rehabilitation of existing housing and related 
facilities for group homes for nonelderly handicapped individuals.
    (c) Applicability. Subpart E of this part applies to all fund 
reservations made before October 1, 1990, except for loans not initially 
closed that were converted to capital advances. Specifically, Sec. 
891.520 through 891.650 of subpart E apply to projects for elderly or 
handicapped families that received reservations under section 202 of the 
Housing Act of 1959 (12 U.S.C. 1701q) and housing assistance under 
section 8 of the United States Housing Act of 1937 (42 U.S.C. 1437 et 
seq). Sections 891.655 through 891.790 of subpart E apply to projects 
for nonelderly handicapped families receiving reservations under section 
202 and project assistance payments under section 202(h) of the Housing 
Act of 1959.



Sec. 891.505  Definitions.

    For the purposes of this subpart E:
    Act means section 202 of the Housing Act of 1959, as amended (12 
U.S.C. 1701q).
    Borrower means a private nonprofit corporation or a nonprofit 
consumer cooperative that may be established by the Sponsor, which will 
obtain a Section 202 loan and execute a mortgage in connection therewith 
as the legal owner of the project. ``Borrower'' does not mean a public 
body or the instrumentality of any public body. The purposes of the 
Borrower must include the promotion of the welfare of elderly and/or 
handicapped families. No part of the net earnings of the Borrower may 
inure to the benefit of any private shareholder, contributor, or 
individual, and the Borrower may not be controlled by or under the 
direction of persons or firms seeking to derive profit or gain 
therefrom. Because of the nonprofit nature of the Section 202 program, 
no officer or director, or trustee, member, stockholder or authorized 
representative of the Borrower is permitted to have any financial 
interest in any contract in connection with the rendition of services, 
the provision of goods or supplies, project management, procurement of 
furnishings and equipment, construction of the project, procurement of 
the site or other matters whatsoever.
    Elderly family means:
    (1) Families of two or more persons the head of which (or his or her 
spouse) is 62 years of age or older;
    (2) The surviving member or members of any family described in 
paragraph (1) of this definition living in a unit assisted under subpart 
E of this part with the deceased member of the family at the time of his 
or her death;
    (3) A single person who is 62 years of age or older; or
    (4) Two or more elderly persons living together, or one or more such 
persons living with another person who is determined by HUD, based upon 
a licensed physician's certificate provided by the family, to be 
essential to their care or well being.
    Handicapped family means:
    (1) Families of two or more persons the head of which (or his or her 
spouse) is handicapped;
    (2) The surviving member or members of any family described in 
paragraph (1) of this definition living in a unit assisted under subpart 
E of this part with the deceased member of the family at the time of his 
or her death;
    (3) A single handicapped person over the age of 18; or
    (4) Two or more handicapped persons living together, or one or more 
such persons living with another person who is determined by HUD, based 
upon a licensed physician's certificate provided by the family, to be 
essential to their care or well being.
    Handicapped person or individual means:
    (1) Any adult having a physical, mental, or emotional impairment 
that is expected to be of long-continued and indefinite duration, 
substantially impedes his or her ability to live independently, and is 
of a nature that such ability could be improved by more suitable housing 
conditions.
    (2) A person with a developmental disability, as defined in section 
102(7) of the Developmental Disabilities Assistance and Bill of Rights 
Act (42 U.S.C. 6001(5), i.e., a person with a severe chronic disability 
that:

[[Page 197]]

    (i) Is attributable to a mental or physical impairment or 
combination of mental and physical impairments;
    (ii) Is manifested before the person attains age twenty-two;
    (iii) Is likely to continue indefinitely;
    (iv) Results in substantial functional limitation in three or more 
of the following areas of major life activity:
    (A) Self-care;
    (B) Receptive and expressive language;
    (C) Learning;
    (D) Mobility;
    (E) Self-direction;
    (F) Capacity for independent living;
    (G) Economic self-sufficiency; and
    (v) Reflects the person's need for a combination and sequence of 
special, interdisciplinary, or generic care, treatment, or other 
services that are of lifelong or extended duration and are individually 
planned and coordinated.
    (3) A person with a chronic mental illness, i.e., if he or she has a 
severe and persistent mental or emotional impairment that seriously 
limits his or her ability to live independently, and whose impairment 
could be improved by more suitable housing conditions.
    (4) Persons infected with the human acquired immunodeficiency virus 
(HIV) who are disabled as a result of infection with the HIV are 
eligible for occupancy in section 202 projects designed for the 
physically disabled, developmentally disabled, or chronically mentally 
ill depending upon the nature of the person's disability. A person whose 
sole impairment is alcoholism or drug addition (i.e., who does not have 
a developmental disability, chronic mental illness, or physical 
disability that is the disabling condition required for eligibility in a 
particular project) will not be considered to be disabled for the 
purposes of the section 202 program.
    Housing and related facilities means rental or cooperative housing 
structures constructed or substantially rehabilitated as permanent 
residences for use by elderly or handicapped families, or acquired with 
or without moderate rehabilitation for use by nonelderly handicapped 
families as group homes. The term includes structures suitable for use 
by families residing in the project or in the area, such as cafeterias 
or dining halls, community rooms, or buildings, or other essential 
service facilities. In the case of acquisition with or without moderate 
rehabilitation, at least three years must have elapsed from the later of 
the date of completion of the project or the beginning of occupancy to 
the date of the application for a Section 202 fund reservation. Except 
for intermediate care facilities for the mentally retarded and 
individuals with related conditions, this term does not include nursing 
homes, hospitals, intermediate care facilities, or transitional care 
facilities.
    Nonelderly handicapped family means a handicapped family in which 
the head of the family (and spouse, if any) is less than 62 years of age 
at the time of the family's initial occupancy of a project.
    Section 8 Program means the housing assistance payments program that 
implements section 8 of the United States Housing Act of 1937 (42 U.S.C. 
1437f note).



Sec. 891.510  Displacement, relocation, and real property acquisition.

    (a) Minimizing displacement. Consistent with the other goals and 
objectives of subpart E of this part, Sponsors and Borrowers shall 
assure that they have taken all reasonable steps to minimize the 
displacement of persons (families, individuals, businesses, nonprofit 
organizations, and farms) as a result of a project assisted under 
subpart E of this part.
    (b) Relocation assistance for displaced persons. A displaced person 
(defined in paragraph (f) of this section) must be provided relocation 
assistance at the levels described in, and in accordance with the 
requirements of the Uniform Relocation Assistance and Real Property 
Acquisition Policies Act of 1970, as amended (URA) (42 U.S.C. 4201-
4655), as implemented by 49 CFR part 24. A displaced person shall be 
advised of his or her rights under the Fair Housing Act (42 U.S.C. 3601-
3619). If the comparable replacement dwellings are located in areas of 
minority concentration, minority persons also must be given, if 
possible, referrals to suitable, decent, safe, and sanitary replacement 
dwellings not located in such areas.
    (c) Real property acquisition requirements. The acquisition of real 
property

[[Page 198]]

for a project is subject to the URA and the requirements described in 49 
CFR part 24, subpart B.
    (d) Appeals. A person who disagrees with the Sponsor's/Borrower's 
determination concerning whether the person qualifies as a ``displaced 
person,'' or with the amount of relocation assistance for which the 
person is eligible, may file a written appeal of that determination with 
the Sponsor/Borrower. A low-income person who is dissatisfied with the 
Sponsor's/Borrower's determination on his or her appeal may submit a 
written request for review of that determination to the HUD field 
office.
    (e) Responsibility of Sponsor/Borrower. The Sponsor/Borrower shall 
certify that it will comply (i.e., provide assurance of compliance, as 
required by 49 CFR part 24) with the URA, the regulations at 49 CFR part 
24, and the requirements of this section, and shall ensure such 
compliance notwithstanding any third party's contractual obligation to 
comply with these provisions. The Sponsor/Borrower shall maintain 
records in sufficient detail to demonstrate compliance with the 
provisions of this section. The Sponsor/Borrower shall maintain data on 
the race, ethnic, gender, and handicap status of displaced persons.
    (f) Definition of a displaced person. (1) For purposes of this 
section, the term displaced person means a person (family, individual, 
business, nonprofit organization, or farm) that moves from real 
property, or moves personal property from real property, permanently, as 
a direct result of acquisition, rehabilitation, or demolition for a 
project assisted under this part. This includes any permanent, 
involuntary move for an assisted project including any permanent move 
from the real property that is made:
    (i) After notice by the Sponsor/Borrower to move permanently from 
the property if the move occurs on or after:
    (A) The date of the submission of an application to HUD that is 
later approved, if the Sponsor has control of an appropriate site; or
    (B) The date that the Sponsor obtains control of an approvable site, 
if such control is obtained after the submission of an application to 
HUD:
    (ii) Before the date described in paragraph (f)(1)(i) of this 
section, if the Sponsor, Borrower or HUD determines that the 
displacement resulted directly from acquisition, rehabilitation, or 
demolition for the project;
    (iii) By a tenant-occupant of a dwelling unit, if any one of the 
following three situations occurs;
    (A) The tenant moves after execution of the Agreement between the 
Sponsor/Borrower and HUD, and the move occurs before the tenant is 
provided written notice offering him or her the opportunity to lease and 
occupy a suitable, decent, safe, and sanitary dwelling in the same 
building/complex upon completion of the project under reasonable terms 
and conditions. Such reasonable terms and conditions include a monthly 
rent and estimated average monthly utility costs that do not exceed the 
greater of:
    (1) The tenant's monthly rent and estimated average monthly utility 
costs before the Agreement; or
    (2) The total tenant payment, as determined under 24 CFR 813.107, if 
the tenant is low-income, or 30 percent of gross household income, if 
the tenant is not low-income; or
    (B) The tenant is required to relocate temporarily, does not return 
to the building/complex, and either:
    (1) The tenant is not offered payment for all reasonable out-of-
pocket expenses incurred in connection with the temporary relocation; or
    (2) Other conditions of the temporary relocation are not reasonable; 
or
    (C) The tenant is required to move to another dwelling in the same 
building/complex but is not offered reimbursement for all reasonable 
out-of-pocket expenses incurred in connection with the move, or other 
conditions of the move are not reasonable.
    (2) Notwithstanding the provisions of paragraph (f)(1) of this 
section, however, a person does not qualify as a ``displaced person'' 
(and is not eligible for relocation assistance at URA levels), if:
    (i) The person has been evicted for cause based upon a serious or 
repeated violation of the terms and conditions of the lease or occupancy 
agreement, violation of applicable Federal, State, or local law, or 
other good cause, and

[[Page 199]]

HUD determines that the eviction was not undertaken for the purpose of 
evading the obligation to provide relocation assistance.
    (ii) The person moved into the property after the submission of the 
application and, before signing a lease and commencing occupancy, was 
provided written notice of the project, its possible impact on the 
person (e.g., displacement, temporary relocation or a rent increase) and 
the fact that he or she will not qualify as a displaced person as a 
result of the project;
    (iii) The person is ineligible under 49 CFR 24.2(g)(2); or
    (iv) HUD determines that the person was not displaced as a direct 
result of acquisition, rehabilitation, or demolition for the project;
    (3) The Sponsor/Borrower may request, at any time, a HUD 
determination of whether a displacement is or would be covered by this 
section.



Sec. 891.515  Audit requirements.

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

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



Sec. 891.520  Definitions applicable to 202/8 projects.

    The following definitions apply to projects for eligible families 
receiving assistance under section 8 of the United States Housing Act of 
1937 in addition to reservations under section 202 of the Housing Act of 
1959 (202/8 projects):
    Adjusted income as defined in part 5, subpart F of subtitle A of 
this title.
    Assisted unit means a dwelling unit eligible for assistance under a 
HAP contract.
    Contract rent means the total amount of rent specified in the HAP 
contract as payable by HUD and the tenant to the Borrower for an 
assisted unit.
    Family (eligible family) means an elderly or handicapped family that 
meets the project occupancy requirements approved by HUD and, if the 
family occupies an assisted unit, meets the requirements described in 
part 813 of this chapter.
    Gross rent is defined in part 5, subpart F of subtitle A of this 
title.
    HAP contract (housing assistance payments contract) means the 
contract entered into by the Borrower and HUD setting forth the rights 
and duties of the parties with respect to the project and the payments 
under the HAP contract.
    Housing assistance payment means the payment made by HUD to the 
Borrower for assisted units as provided in the HAP contract. The payment 
is the difference between the contract rent and the tenant rent. An 
additional payment is made to a family occupying an assisted unit when 
the utility allowance is greater than the total tenant payment. A 
housing assistance payment, known as a ``vacancy payment,'' may be made 
to the Borrower when an assisted unit is vacant, in accordance with the 
terms of the HAP contract.
    Project account means a specifically identified and segregated 
account for each project that is established in accordance with Sec. 
891.570(b) out of the amounts by which the maximum annual commitment 
exceeds the amount actually paid out under the HAP contract each year.
    Project occupancy requirements means that eligible populations to be 
served under the Section 202 program are qualified individuals or 
families whose head of household or spouse is elderly, physically 
handicapped, developmentally disabled, or chronically mentally ill. 
Projects are designed to meet the special needs of the particular tenant 
population that the Borrower was selected to serve. Individuals from one 
eligible group may not be accepted for occupancy in a project designed 
for a different tenant group. However, a Sponsor can propose to house 
eligible tenant groups other than the one it was selected to serve, but 
must apply to the HUD field office for permission to do so, based on a 
plan that demonstrates that it can adequately serve the proposed tenant 
group. Upon review and recommendation by the field office, HUD 
Headquarters will approve or disapprove the request.
    Rent, in the case of a unit in a cooperative project, means the 
carrying charges payable to the cooperative with respect to occupancy of 
the unit.

[[Page 200]]

    Tenant rent means the monthly amount defined in, and determined in 
accordance with part 5, subpart F of subtitle A of this title.
    Total tenant payment means the monthly amount defined in, and 
determined in accordance with part 5, subpart F of subtitle A of this 
title.
    Utility allowance is defined in part 5, subpart F of subtitle A of 
this title and is determined or approved by HUD.
    Utility reimbursement is defined in part 5, subpart F of subtitle A 
of this title.
    Vacancy payment means the housing assistance payment made to the 
Borrower by HUD for a vacant assisted unit if certain conditions are 
fulfilled, as provided in the HAP contract. The amount of the vacancy 
payment varies with the length of the vacancy period and is less after 
the first 60 days of any vacancy.

[61 FR 11956, Mar. 22, 1996, as amended at 66 FR 6225, Jan. 19, 2001; 66 
FR 8174, Jan. 30, 2001]



Sec. 891.525  Amount and terms of financing.

    (a) The amount of financing approved shall be the amount stated in 
the Notice of Section 202 Fund Reservation, including any increase 
approved by the field office prior to the final closing of a loan; 
provided, however, that the amount of financing provided shall not 
exceed the lesser of:
    (1) The dollar amounts stated in paragraphs (b) through (f) of this 
section; or
    (2) The total development cost of the project as determined by the 
field office.
    (b) For such part of the property or project attributable to 
dwelling use (excluding exterior land improvements, as defined by the 
Assistant Secretary) the maximum loan amount, depending on the number of 
bedrooms, may not exceed:
    (1) $28,032 per family unit without a bedroom.
    (2) $32,321 per family unit with one bedroom.
    (3) $38,979 per family unit with two bedrooms.
    (c) In order to compensate for the higher costs incident to 
construction of elevator type structures of sound standards of 
construction and design, the field office may increase the dollar 
limitations per family unit, as provided in paragraph (b) of this 
section, to not to exceed:
    (1) $29,500 per family unit without a bedroom.
    (2) $33,816 per family unit with one bedroom.
    (3) $41,120 per family unit with two bedrooms.
    (d) Reduced loan amount--leaseholds. In the event the loan is 
secured by a leasehold estate rather than a fee simple estate, the 
allowable cost of the property upon which the loan amount is based shall 
be reduced by the value of the leased fee.
    (e) Adjusted loan amount--rehabilitation projects. A loan amount 
that involves a project to be rehabilitated shall be subject to the 
following additional limitations:
    (1) Property held in fee. If the Borrower is the fee simple owner of 
the project not encumbered by a mortgage, the maximum loan amount shall 
not exceed 100 percent of the cost of the proposed rehabilitation.
    (2) Property subject to existing mortgage. If the Borrower owns the 
project subject to an outstanding indebtedness, which is to be 
refinanced with part of the Section 202 loan, the maximum loan amount 
shall not exceed the cost of rehabilitation plus such portion of the 
outstanding indebtedness as does not exceed the fair market value of 
such land and improvements prior to the rehabilitation, as determined by 
the field office.
    (3) Property to be acquired. If the project is to be acquired by the 
Borrower and the purchase price is to be financed with a part of the 
Section 202 loan, the maximum loan amount shall not exceed the cost of 
the rehabilitation plus such portion of the purchase price as does not 
exceed the fair market value of such land and improvements prior to the 
rehabilitation, as determined by the field office.
    (f) Increased Mortgage Limits--High Cost Areas. (1)(i) The Assistant 
Secretary may increase the dollar amount limitations in paragraphs (b) 
and (c) of this section:

[[Page 201]]

    (A) By not to exceed 110 percent in any geographical area in which 
the Assistant Secretary finds that cost levels so require; and
    (B) By not to exceed 140 percent where the Assistant Secretary 
determines it necessary on a project-by-project basis.
    (ii) In no case, however, may any such increase exceed 90 percent, 
where the Assistant Secretary determines that there is involved a 
mortgage purchased or to be purchased by the Government National 
Mortgage Association (GNMA) in implementing its Special Assistance 
Functions under section 305 of the National Housing Act (as section 305 
existed immediately before its repeal on November 30, 1983).
    (2) If the Assistant Secretary finds that because of high costs in 
Alaska, Guam, or Hawaii it is not feasible to construct dwellings 
without the sacrifice of sound standards of construction, design, and 
livability within the limitations of maximum loan amounts provided in 
this section, the principal amount of mortgages may be increased by such 
amounts as may be necessary to compensate for such costs, but not to 
exceed in any event the maximum, including high cost area increases, if 
any, otherwise applicable by more than one-half thereof.
    (g) Loan interest rate. Loans shall bear interest at a rate 
determined by HUD in accordance with this section.
    (1) Annual interest rate. Except as provided under paragraph (g)(2), 
loans shall bear interest at the rate in effect at the time the loan is 
made. The loan interest rate shall not exceed:
    (i) The average yield on the most recently issued 30-year marketable 
obligations of the United States during the 3-month period immediately 
preceding the fiscal year in which the loan is made (adjusted to the 
nearest one-eighth of one percent), plus an allowance to cover 
administrative costs and probable losses under the program; and
    (ii) Any applicable statutory ceiling on the loan interest rate 
including the allowance to cover administrative costs and probable 
losses.
    (2) Optional interest rate. The Borrower may elect an optional loan 
interest rate. To elect the optional rate, the Borrower must request 
that HUD determine the loan interest rate at the time of the Borrower's 
request for conditional or firm commitment for direct loan financing.
    (i) If the Borrower elects the optional loan interest rate, the loan 
interest rate shall not exceed:
    (A) The average yield on the most recently issued 30-year marketable 
obligations of the United States during the 3-month period immediately 
preceding the fiscal year in which the request for commitment is 
submitted (adjusted to the nearest one-eighth of one percent), plus an 
allowance to cover administrative costs and probable losses under the 
program;
    (B) The average yield on the most recently issued 30-year marketable 
obligations of the United States during the 1-month period immediately 
preceding the month in which the request for commitment is submitted 
(adjusted to the nearest one-eighth of one percent), plus an allowance 
to cover the administrative costs and probable losses under the program; 
and (C) Any applicable statutory ceiling on the loan interest rate 
including an allowance to cover administrative costs and probable losses 
under the program.
    (ii) The date of submission of a request for conditional or firm 
commitment is the date that the Borrower submits the complete and 
acceptable request to HUD. The date of the submission of a request for 
commitment will not be affected by any subsequent resubmission of the 
request by the Borrower or by any reprocessing of the request by HUD.
    (iii) The Borrower may withdraw its election of the optional 
interest rate at any time before initial loan closing. If the Borrower 
elected the optional interest rate with its request for conditional 
commitment and withdraws its election, the loan will bear interest at 
the rate determined under paragraph (g)(1) of this section, unless the 
Borrower elects an optional interest rate with its request for firm 
commitment. If the Borrower withdraws its election after the date of 
submission of its request for firm commitment, the loan will bear 
interest at the rate determined under paragraph (g)(1) of this section.

[[Page 202]]

    (iv) If initial loan closing has not occurred within 18 months after 
the Notice of Section 202 Fund Reservation is issued, the Borrower's 
election of the optional rate will be cancelled and the loan will bear 
interest at the rate determined under paragraph (g)(1) of this section.
    (3) Allowance for administrative costs and probable losses. For the 
purpose of computing the loan interest rate under paragraphs (g) (1) and 
(2) of this section, the allowance to cover administrative costs and 
probable losses under the program is one-fourth of one percent (.25%) 
per annum for both the construction and permanent loan periods.
    (h) Announcement of interest rates. (1) HUD will annually announce 
the loan interest rate determination under paragraph (g)(1) of this 
section by publishing notice of the rate in the Federal Register. The 
Federal Register notice will include a statement explaining the basis 
for the interest rate determination.
    (2) Upon the Borrower's request, HUD will provide available current 
information concerning the determination of the interest rate under 
paragraph (g)(2) of this section.
    (i) The loan shall be secured by a first mortgage on real estate in 
fee simple or long term leasehold. The mortgage shall be repayable 
during a term not to exceed 40 years and shall be subject to such terms 
and conditions as shall be determined by the Assistant Secretary.
    (j) In order to assure HUD of the Borrower's continued commitment to 
the development, management, and operation of the project, a minimum 
capital investment is required of Section 202 Borrowers of one-half of 
one percent (0.5%) of the mortgage amount committed to be disbursed, not 
to exceed the amount of $10,000. Section 106(b) loans made pursuant to 
section 106 of the Housing Act of 1968 may not be utilized to meet the 
minimum capital investment requirement. Such minimum capital investment 
shall be placed in escrow at the initial closing of the Section 202 loan 
and shall be held by HUD or other escrow agent acceptable to the field 
office for not less than a 3-year period from the date of initial 
occupancy and may be used for operating expenses or deficits as may be 
directed by the field office. Any unexpended balance remaining in the 
minimum capital investment account at the end of the escrow period shall 
be returned to the Borrower.



Sec. 891.530  Prepayment privileges.

    (a) The prepayment (whether in whole or in part) or the assignment 
or transfer of physical and financial assets of any Section 202 project 
is prohibited, unless the Secretary gives prior written approval.
    (b) The Secretary may not grant approval unless he or she has 
determined that the prepayment or transfer of the loan is part of a 
transaction that will ensure the continued operation of the project, 
until the original maturity date of the loan, in a manner that will 
provide rental housing for the elderly and handicapped on terms at least 
as advantageous to existing and future tenants as the terms required by 
the original Section 202 loan agreement and any other loan agreements 
entered into under other provisions of law.



Sec. 891.535  Requirements for awarding construction contracts.

    (a) Awards shall be made only to responsible contractors that 
possess the potential ability to perform successfully under the terms 
and conditions of a proposed construction contract. Consideration shall 
be given to such matters as contractor integrity, compliance with public 
policy, record of past performance, and financial and technical 
resources.
    (b) Each Borrower is permitted to use either competitive bidding 
(formal advertising) in selecting a construction contractor or the 
negotiated noncompetitive method of contract award under paragraph (c) 
of this section. In competitive bidding, sealed bids are publicly 
solicited and a firm, fixed-price contract is awarded (in accordance 
with the requirements of this paragraph (b)) to the responsible bidder 
whose bid, conforming with all the material terms and conditions of the 
invitation for bids, is lowest in price. Regardless of which method a 
Borrower uses, there should be an opportunity for minority owned and 
women owned businesses to be awarded a contract.

[[Page 203]]

    (1) Bids shall be solicited from an adequate number of known 
contractors a reasonable time prior to the date set forth for opening of 
bids. In addition, the invitation shall be publicly advertised.
    (2) The invitation for bids shall specify:
    (i) The name of the Borrower;
    (ii) A brief description of the proposed project and the proposed 
construction contract;
    (iii) A preliminary estimate of cost;
    (iv) That bids will be received at a specified place until a 
specified time at which time and place all bids will be publicly opened;
    (v) The location where the proposed forms of contract and bid 
documents, including plans and specifications, are on file and may be 
obtained on payment of a specified returnable deposit;
    (vi) That a certified check or bank draft or satisfactory bid bond 
in the amount of 5 percent of the bid shall be submitted with the bid;
    (vii) That the successful bidder will be required to provide 
assurance of completion in the form of a performance and payment bond or 
cash escrow; and
    (viii) That the Borrower reserves the right to reject any or all 
bids and to waive any informality.
    (3) The bid form, which must be submitted by all bidders, must 
specify:
    (i) The name of the project;
    (ii) The name and address of the bidder;
    (iii) That the bidder proposes to furnish all labor, materials, 
equipment and services required to construct and complete the project, 
as described in the invitation for bids (including the contents of all 
documents on file), for a specified lump-sum price;
    (iv) That the security specified in paragraph (b)(2)(vi) of this 
section accompanies the bid;
    (v) The period after the bid opening during which the bid shall not 
be withdrawn without the consent of the Borrower;
    (vi) That the bidder will, if notified of acceptance of such bid 
within a specified period after the opening, execute and deliver a 
contract in the prescribed form and furnish the required bond within ten 
days thereafter;
    (vii) That the bidder acknowledges any amendments to the invitation 
for bids; and
    (viii) That the bidder certifies that the bid is in strict 
accordance with all terms of the invitation for bids (including the 
contents of all documents on file) and that the bid is signed by a 
person authorized to bind the bidder.
    (4) Bidding shall be open to all general contractors who furnish the 
security guaranteeing their bid, as described in paragraph (b)(2)(vi) of 
this section.
    (5) All bids shall be opened publicly at the time and place stated 
in the invitation for bids, in the presence of the HUD Regional 
Administrator or his designee.
    (6) A firm, fixed-price contract award shall be made by written 
notice to the responsible bidder whose bid, conforming to the invitation 
for bids, is lowest. The contract may provide for an incentive payment 
to the contractor for an early completion.
    (c) A Sponsor or Borrower may award a negotiated, noncompetitive 
construction contract.



Sec. 891.540  Loan disbursement procedures.

    (a) Disbursements of loan proceeds shall be made directly by HUD to 
or for the account of the Borrower and may be made through an approved 
lender, mortgage servicer, title insurance company, or other agent 
satisfactory to the Borrower and HUD.
    (b) All disbursements to the Borrower shall be made on a periodic 
basis in an amount not to exceed the HUD-approved cost of portions of 
construction or rehabilitation work completed and in place (except as 
modified in paragraph (d) of this section), minus the appropriate 
holdback, as determined by the field office.
    (c) Requisitions for loan disbursements shall be submitted by the 
Borrower on forms to be prescribed by the Assistant Secretary and shall 
be accompanied by such additional information as the field office may 
require in order to approve loan disbursements under subpart E of this 
part, including

[[Page 204]]

but not limited to evidence of compliance with the Davis-Bacon Act, 
Department of Labor regulations, all applicable zoning, building, and 
other governmental requirements, and such evidence of continued priority 
of the mortgage of the Borrower as the Assistant Secretary may 
prescribe.
    (d) In loan disbursements for building components stored off-site, 
the term building component shall mean any manufactured or preassembled 
part of a structure as defined by HUD and that the Assistant Secretary 
has designated for off-site storage because it is of such size or weight 
that storage of the components required for timely construction progress 
at the construction site is impractical, or weather damage or other 
adverse conditions prevailing at the construction site would make 
storage at the site impractical or unduly costly. Each building 
component must be specifically identified for incorporation into the 
property as provided under paragraph (d)(1)(ii) of this section.
    (1) Storage. (i) A loan disbursement may be made for up to 90 
percent of the invoice value (to exclude costs of transportation and 
storage) of the building components stored off-site if the components 
are stored at a location approved by HUD.
    (ii) Each building component shall be adequately marked so as to be 
readily identifiable in the inventory of the off-site location. It shall 
be kept together with all other building components of the same 
manufacturer intended for use in the same project for which loan 
disbursements have been made and separate and apart from similar units 
not for use in the project.
    (iii) Storage costs, if any, shall be borne the general contractor.
    (2) Responsibility for transportation, storage and insurance of off-
site building components. The general contractor of the project shall 
have the responsibility for:
    (i) Insuring the components in the name of the Borrower while in 
transit and storage; and
    (ii) Delivering or contracting for the delivery of the components to 
the storage area and to the construction site, including payment of 
freight.
    (3) Loan disbursements. (i) Before a loan disbursement for a 
building component stored off-site is made, the Borrower shall:
    (A) Obtain a bill of sale for the component;
    (B) Provide HUD with a security agreement pledged by a first lien on 
the building components with the exception of such other liens or 
encumbrances as may be approved by HUD; and
    (C) File a financing statement in accordance with the Uniform 
Commercial Code.
    (ii) Before each loan disbursement for building components stored 
off-site is made the manufacturer and the general contractor shall 
certify to HUD that the components, in their intended use, comply with 
HUD-approved contract plan and specifications.
    (iii) Loan disbursements may be made only for components stored off-
site in a quantity required to permit uninterrupted installation at the 
site.
    (iv) At no time shall the invoice value of building components being 
stored off-site, for which advances have been insured, represent more 
than 25 percent of the total estimated construction costs for the 
insured mortgaged project as specified in the construction contract. 
Notwithstanding the preceding sentence and other regulatory requirements 
that set bonding requirements, the percentage of total estimated 
construction costs insured by advances under this section may exceed 25 
percent but not 50 percent if the mortgagor furnishes assurance of 
completion in the form of a corporate surety bond for the payment and 
performance each in the amount of 100 percent of the amount of the 
construction contract. In no event will insurance of components stored 
off-site be made in the absence of a payment and performance bond.
    (v) No single loan disbursement which is to be made shall be in an 
amount less than ten thousand ($10,000) dollars.



Sec. 891.545  Completion of project, cost certification, and HUD approvals.

    (a) The Borrower must satisfy the requirements for completion of 
construction and substantial rehabilitation and

[[Page 205]]

approvals by HUD before submission of a final requisition for 
disbursement of loan proceeds.
    (b) The Borrower shall submit to the field office all documentation 
required for final disbursement of the loan, including:
    (1) A Borrower's/Mortgagor's Certificate of Actual Cost, showing the 
actual cost to the mortgagor of the construction contract, 
architectural, legal, organizational, offsite costs, and all other items 
of eligible expense. The certificate shall not include as actual cost 
any kickbacks, rebates, trade discounts, or other similar payments to 
the mortgagor or to any of its officers, directors, or members.
    (2) A verification of the Certificate of Actual Cost by an 
independent Certified Public Accountant or independent public accountant 
acceptable to the field office.
    (3) In the case of projects not subject to competitive bidding, a 
certification of the general contractor (and of such subcontractors, 
material suppliers, and equipment lessors as the Assistant Secretary or 
field office may require), on a form prescribed by the Assistant 
Secretary, as to all actual costs paid for labor, materials, and 
subcontract work under the general contract exclusive of the builder's 
fee and kickbacks, rebates, trade discounts, or other similar payments 
to the general contractor, the mortgagor, or any of its officers, 
directors, stockholders, partners, or members.
    (c) In lieu of the requirements set forth in paragraphs (c)(1) and 
(3) of this section, a simplified form of cost certification prescribed 
by the Secretary may be completed and submitted by the Borrower for 
projects with mortgages of $500,000 or less. The simplified cost 
certification shall be verified by an independent Certified Public 
Accountant or an independent public accountant in a manner acceptable to 
the Secretary.
    (d) If the Borrower's certified costs provided in accordance with 
paragraph (c) or (d) of this section and as approved by HUD are less 
than the loan amount, the contract rents will be reduced accordingly.
    (e) If the contract rents are reduced pursuant to paragraph (e) of 
this section, the maximum annual HAP Contract commitment will be 
reduced. If contract rents are reduced based on cost certification after 
HAP Contract execution, any overpayment after the effective date of the 
Contract will be recovered from the Borrower by HUD.

(Approved by the Office of Management and Budget under control number 
2502-0044)



Sec. 891.555  Smoke detectors.

    (a) Performance requirement. After October 30, 1992, each dwelling 
unit must include at least one battery-operated or hard-wired smoke 
detector, in proper working condition, on each level of the unit. If the 
unit is occupied by hearing-impaired persons, smoke detectors must have 
an alarm system designed for hearing-impaired persons in each bedroom 
occupied by a hearing-impaired person.
    (b) Acceptability criteria. The smoke detector must be located, to 
the extent practicable, in a hallway adjacent to a bedroom, unless the 
unit is occupied by a hearing-impaired person, in which case each 
bedroom occupied by a hearing-impaired person must have an alarm system 
connected to the smoke detector installed in the hallway.



Sec. 891.560  HAP contract.

    (a) HAP contract. The housing assistance payments contract sets 
forth rights and duties of the Borrower and HUD with respect to the 
project and the housing assistance payments.
    (b) HAP contract execution. (1) Upon satisfactory completion of the 
project, the Borrower and HUD shall execute the HAP contract on the form 
prescribed by HUD.
    (2) The effective date of the HAP contract may be earlier than the 
date of execution, but no earlier than the date of HUD's issuance of the 
permission to occupy.
    (3) If the project is completed in stages, the procedures of 
paragraph (b) of this section shall apply to each stage.
    (c) Housing assistance payments to owners under the HAP contract. 
The housing assistance payments made under the HAP contract are:
    (1) Payments to the Borrower to assist eligible families leasing 
assisted units. The amount of the housing assistance

[[Page 206]]

payment made to the Borrower for an assisted unit leased to an eligible 
family is equal to the difference between the contract rent for the unit 
and the tenant rent payable by the family.
    (2) Payments to the Borrower for vacant assisted units (vacancy 
payments). The amount of and conditions for vacancy payments are 
described in Sec. 891.650. The housing assistance payments are made 
monthly by HUD upon proper requisition by the Borrower, except payments 
for vacancies of more than 60 days, which are made semiannually by HUD 
upon requisition by the Borrower.
    (d) Payment of utility reimbursement. As applicable, a utility 
reimbursement will be paid to a family occupying an assisted unit as an 
additional housing assistance payment. The HAP contract will provide 
that the Borrower will make this payment on behalf of HUD. Funds will be 
paid to the Borrower in trust solely for the purpose of making the 
additional payment. The Borrower may pay the utility reimbursement 
jointly to the family and the utility company, or, if the family and 
utility company consent, directly to the utility company.



Sec. 891.565  Term of HAP contract.

    The term of the HAP contract for assisted units shall be 20 years. 
If the project is completed in stages, the term of the HAP contract for 
assisted units in each stage shall be 20 years. The term of the HAP 
contract for all assisted units in all stages of a project shall not 
exceed 22 years.



Sec. 891.570  Maximum annual commitment and project account.

    (a) Maximum annual commitment. The maximum annual amount that may be 
committed under the HAP contract is the total of the contract rents and 
utility allowances for all assisted units in the project.
    (b) Project account. (1) HUD will establish and maintain a 
specifically identified and segregated project account for each project. 
The project account will be established out of the amounts by which the 
maximum annual commitment exceeds the amount actually paid out under the 
HAP contract each year. HUD will make payments from this account for 
housing assistance payments as needed to cover increases in contract 
rents or decreases in tenant income and other payments for costs 
specifically approved by the Secretary.
    (2) If the HUD-approved estimate of required annual payments under 
the HAP contract for a fiscal year exceeds the maximum annual commitment 
for that fiscal year plus the current balance in the project account, 
HUD will, within a reasonable time, take such steps authorized by 
section 8(c)(6) of the United States Housing Act of 1937 (42 U.S.C. 
1437f note), as may be necessary, to assure that payments under the HAP 
contract will be adequate to cover increases in contract rents and 
decreases in tenant income.



Sec. 891.575  Leasing to eligible families.

    (a) Availability of assisted units for occupancy by eligible 
families. (1) During the term of the HAP contract, a Borrower shall make 
available for occupancy by eligible families the total number of units 
for which assistance is committed under the HAP contract. For purposes 
of this section, making units available for occupancy by eligible 
families means that the Borrower:
    (i) Is conducting marketing in accordance with Sec. 891.600(a);
    (ii) Has leased or is making good faith efforts to lease the units 
to eligible and otherwise acceptable families, including taking all 
feasible actions to fill vacancies by renting to such families;
    (iii) Has not rejected any such applicant family except for reasons 
acceptable to HUD.
    (2) If the Borrower is temporarily unable to lease all units for 
which assistance is committed under the HAP contract to eligible 
families, one or more units may, with the prior approval of HUD, be 
leased to otherwise eligible families that do not meet the income 
eligibility requirements of part 813 of this chapter. Failure on the 
part of the Borrower to comply with these requirements is a violation of 
the HAP contract and grounds for all available legal remedies, including 
an action for specific performance of the HAP contract, suspension or 
debarment from HUD programs, and reduction of the

[[Page 207]]

number of units under the HAP contract as set forth in paragraph (b) of 
this section.
    (b) Reduction of number of units covered by the HAP contract. HUD 
may reduce the number of units covered by the HAP contract to the number 
of units available for occupancy by eligible families if:
    (1) The Borrower fails to comply with the requirements of paragraph 
(a) of this section; or
    (2) Notwithstanding any prior approval by HUD, HUD determines that 
the inability to lease units to eligible families is not a temporary 
problem.
    (c) Restoration. HUD will agree to an amendment of the HAP contract 
to provide for subsequent restoration of any reduction made under 
paragraph (b) of this section if:
    (1) HUD determines that the restoration is justified by demand;
    (2) The Borrower otherwise has a record of compliance with the 
Borrower's obligations under the HAP contract; and
    (3) Contract and budget authority is available.
    (d) Applicability. In accordance with section 555 of the Cranston-
Gonzalez National Affordable Housing Act of 1990, paragraphs (a) and (b) 
of this section apply to all contracts. An owner who had leased an 
assisted unit to an ineligible family consistent with the regulations in 
effect at the time will continue to lease the unit to that family. 
However, the owner must make the unit available for occupancy by an 
eligible family when the ineligible family vacates the unit.
    (e) Occupancy by families that are not elderly or handicapped. HUD 
may permit units in the project to be leased to other than elderly or 
handicapped families if:
    (1) The Borrower has made reasonable efforts to lease assisted and 
unassisted units to eligible families;
    (2) The Borrower has been granted HUD approval under paragraph (a) 
of this section; and
    (3) The Borrower is temporarily unable to achieve or maintain a 
level of occupancy sufficient to prevent financial default and 
foreclosure under the Section 202 loan documents. HUD approval under 
paragraph (e)(3) of this section will be of limited duration. HUD may 
impose terms and conditions to this approval that are consistent with 
program objectives and necessary to protect its interest in the Section 
202 loan.



Sec. 891.580  HAP contract administration.

    HUD is responsible for the administration of the HAP contract.



Sec. 891.585  Default by Borrower.

    (a) HAP contract provisions. The HAP contract will provide:
    (1) That if HUD determines that the Borrower is in default under the 
HAP contract, HUD will notify the Borrower of the actions required to be 
taken to cure the default and of the remedies to be applied by HUD 
including an action for specific performance under the HAP contract, 
reduction or suspension of housing assistance payments and recovery of 
overpayments, where appropriate; and
    (2) That if the Borrower fails to cure the default, HUD has the 
right to terminate the HAP contract or to take other corrective action.
    (b) Loan provisions. Additional provisions governing default under 
the section 202 loan are included in the regulatory agreement and other 
loan documents.



Sec. 891.590  Notice upon HAP contract expiration.

    (a) Notice required. The HAP contract will provide that the Borrower 
will, at least one year before the end of the HAP contract term, notify 
each family leasing an assisted unit of any increase in the amount the 
family will be required to pay as rent as a result of the expiration.
    (b) Service requirements. The notice under paragraph (a) of this 
section shall be accomplished by sending a letter by first class mail, 
properly stamped and addressed, to the family at its address at the 
project, with a proper return address; and serving a copy of the notice 
on any adult person answering the door at the leased dwelling unit, or 
if no adult responds, by placing the notice under or through the door, 
if possible, or else by affixing the notice to the door. Service shall 
not be

[[Page 208]]

considered to be effective until both required notices have been 
accomplished. The date on which the notice shall be considered to be 
received by the family shall be the date on which the Borrower mails the 
first class letter provided for in paragraph (b) of this section, or the 
date on which the notice provided for in paragraph (b) of this section 
is properly given, whichever is later.
    (c) Contents of notice. The notice shall advise each affected family 
that, after the expiration date of the HAP contract, the family will be 
required to bear the entire cost of the rent and that the Borrower may, 
subject to requirements and restrictions contained in the regulatory 
agreement, the lease, and State or local law, change the rent. The 
notice also shall state:
    (1) The actual (if known) or the estimated rent that will be charged 
following the expiration of the HAP contract;
    (2) The difference between the new rent and the total tenant payment 
toward rent under the HAP contract; and
    (3) The date the HAP contract will expire.
    (d) Certification to HUD. The Borrower shall give HUD a 
certification that families have been notified in accordance with this 
section and shall attach to the certification an example of the text of 
the notice.
    (e) Applicability. This section applies to all HAP contracts entered 
into under an agreement to enter into a housing assistance payments 
contract executed on or after October 1, 1981, or entered into under 
such an agreement executed before October 1, 1981 but renewed or amended 
after February 9, 1995.

(Approved by the Office of Management and Budget under control number 
2502-0371)



Sec. 891.595  HAP contract extension or renewal.

    Upon expiration of the term of the HAP contract, HUD and the 
Borrower may agree (subject to available funds) to extend the term of 
the HAP contract or to renew the HAP contract. The number of assisted 
units under the extended or renewed HAP contract shall equal the number 
of assisted units under the original HAP contract, except that:
    (a) HUD and the Borrower may agree to reduce the number of assisted 
units by the number of assisted units that are not occupied by eligible 
families at the time of the extension or renewal; and
    (b) HUD and the Borrower may agree to permit reductions in the 
number of assisted units during the term of the extended or renewed HAP 
contract as assisted units are vacated by eligible families. Nothing in 
this section shall prohibit HUD from reducing the number of units 
covered under the extended or renewed HAP contract in accordance with 
Sec. 891.575(b).



Sec. 891.600  Responsibilities of Borrower.

    (a) Marketing. (1) The Borrower must commence and continue diligent 
marketing activities not later than 90 days before the anticipated date 
of availability for occupancy of the first unit of the project. Market 
activities shall include the provision of notices of availability of 
housing under the program to operators of temporary housing for the 
homeless in the same housing market.
    (2) Marketing must be done in accordance with the HUD-approved 
affirmative fair housing marketing plan and all Federal, State, or local 
fair housing and equal opportunity requirements. The purpose of the plan 
and requirements is to achieve a condition in which eligible families of 
similar income levels in the same housing market have a like range of 
housing choices available to them regardless of discriminatory 
considerations, such as their race, color, creed, religion, familial 
status, disability, sex or national origin. Marketing must also be done 
in accordance with the communication and notice requirements of Section 
504 at 24 CFR 8.6 and 24 CFR 8.54.
    (3) At the time of HAP contract execution, the Borrower must submit 
to HUD a list of leased and unleased assisted units, with a 
justification for the unleased units, in order to qualify for vacancy 
payments for the unleased units.

[[Page 209]]

    (b) Management and maintenance. The Borrower is responsible for all 
management functions. These functions include selection and admission of 
tenants, required reexaminations of incomes for families occupying 
assisted units (or residential spaces, as applicable), collection of 
rents, termination of tenancy and eviction, and all repair and 
maintenance functions (including ordinary and extraordinary maintenance 
and replacement of capital items). All functions must be performed in 
compliance with equal opportunity requirements.
    (c) Contracting for services. (1) With HUD approval, the Borrower 
may contract with a private or public entity for performance of the 
services or duties required in paragraphs (a) and (b) of this section. 
However, such an arrangement does not relieve the Borrower of 
responsibility for these services and duties. All such contracts are 
subject to the restrictions governing prohibited contractual 
relationships described in Sec. Sec. 891.130 and 891.505, if 
applicable. (These prohibitions do not extend to management contracts 
entered into by the Borrower with the Sponsor or its nonprofit 
affiliate).
    (2) Consistent with the objectives of Executive Order No. 11625 (36 
FR 19967, 3 CFR, 1971-1975 Comp., p. 616; as amended by Executive Order 
No. 12007 (42 FR 42839, 3 CFR, 1977 Comp., p. 139; unless otherwise 
noted); Executive Order No. 12432 (48 FR 32551, 3 CFR, 1983 Comp., p. 
198; unless otherwise noted); and Executive Order No. 12138 (44 FR 
29637, 3 CFR, 1979 Comp., p. 393; unless otherwise noted), the Borrower 
will promote awareness and participation of minority and women's 
business enterprises in contracting and procurement activities.
    (d) Submission of financial and operating statements. The Borrower 
must submit to HUD:
    (1) Within 60 days after the end of each fiscal year of project 
operations, financial statements for the project audited by an 
independent public accountant and in the form required by HUD; and
    (2) Other statements regarding project operation, financial 
conditions and occupancy as HUD may require to administer the housing 
assistance payments contract (HAP contract) or the project assistance 
contract (PAC), as applicable, and to monitor project operations.
    (e) Use of project funds. The Borrower shall maintain a separate 
project fund account in a depository or depositories that are members of 
the Federal Deposit Insurance Corporation or National Credit Union Share 
Insurance Fund and shall deposit all rents, charges, income and revenues 
arising from project operation or ownership to this account. All project 
funds are to be deposited in Federally-insured accounts. All balances 
shall be fully insured at all times, to the maximum extent possible. 
Project funds must be used for the operation of the project (including 
required insurance coverage), to make required principal and interest 
payments on the Section 202 loan, and to make required deposits to the 
replacement reserve under Sec. Sec. 891.605 and 891.745 (as 
applicable), in accordance with a HUD-approved budget. Any project funds 
in the project funds account (including earned interest) following the 
expiration of the fiscal year shall be deposited in a Federally-insured 
residual receipts account within 60 days following the end of the fiscal 
year. Withdrawals from this account may be made only for project 
purposes and with the approval of HUD. If there are funds remaining in 
the residual receipts account when the mortgage is satisfied, such funds 
shall be returned to HUD.
    (f) Reports. The Borrower shall submit such reports as HUD may 
prescribe to demonstrate compliance with applicable civil rights and 
equal opportunity requirements.

(Approved by the Office of Management and Budget under control number 
2502-0371)



Sec. 891.605  Replacement reserve.

    (a) Establishment of reserve. The Borrower shall establish and 
maintain a replacement reserve to aid in funding extraordinary 
maintenance, and repair and replacement of capital items.
    (b) Deposits to reserve. The Borrower shall make monthly deposits to 
the replacement reserve in an amount determined by HUD. Further 
requirements regarding the amount of the deposits

[[Page 210]]

for projects funded under Sec. Sec. 891.655 through 891.790 are 
provided in Sec. 891.745.
    (c) Level of reserve. The reserve must be built up to and maintained 
at a level determined by HUD to be sufficient to meet projected 
requirements. Should the reserve reach that level, the amount of the 
deposit to the reserve may be reduced with the approval of HUD.
    (d) Administration of reserve. Replacement reserve funds must be 
deposited with HUD or in a Federally-insured depository in an interest-
bearing account(s) whose balances are fully insured at all times. All 
earnings including interest on the reserve must be added to the reserve. 
Funds may be drawn from the reserve and used only in accordance with HUD 
guidelines and with the approval of, or as directed by, HUD.



Sec. 891.610  Selection and admission of tenants.

    (a) Written procedures. The Owner shall adopt written tenant 
selection procedures that ensure nondiscrimination in the selection of 
tenants and that are consistent with the purpose of improving housing 
opportunities for very low-income elderly or handicapped persons; and 
reasonably related to program eligibility and an applicant's ability to 
perform the obligations of the lease. Owners shall promptly notify in 
writing any rejected applicant of the grounds for any rejection. 
Additionally, owners shall maintain a written, chronological waiting 
list showing the name, race, gender, ethnicity and date of each person 
applying for the program.
    (b) Application for admission. The Borrower must accept applications 
for admission to the project in the form prescribed by HUD and is 
obligated to confirm all information provided by the applicant families 
on the application. Applicant families must be requested to complete a 
release of information consent for verification of information. 
Applicants applying for assisted units must complete a certification of 
eligibility as part of the application for admission. Applicant families 
must meet the disclosure and verification requirements for Social 
Security Numbers, and sign and submit consent forms for the obtaining of 
wage and claim information from State Wage Information Collection 
Agencies, as provided by 24 CFR part 5, subpart B. Both the Borrower and 
the applicant must complete and sign the application for admission. On 
request, the Borrower must furnish copies of all applications for 
admission to HUD.
    (c) Determination of eligibility and selection of tenants. The 
Borrower is responsible for determining whether applicants are eligible 
for admission and for the selection of families. To be eligible for 
admission, an applicant must be an elderly or handicapped family as 
defined in Sec. 891.505; meet any project occupancy requirements 
approved by HUD; meet the disclosure and verification requirements for 
Social Security Numbers and sign and submit consent forms for obtaining 
of wage and claim information from State Wage Information Collection 
Agencies, as provided by 24 CFR part 5, subpart B; and, if applying for 
an assisted unit, be eligible for admission under part 813 of this 
chapter.
    (d) Unit assignment. If the Borrower determines that the family is 
eligible and is otherwise acceptable and units are available, the 
Borrower will assign the family a unit. The Borrower will assign the 
family a unit of the appropriate size in accordance with HUD's general 
occupancy guidelines. If no suitable unit is available, the Borrower 
will place the family on a waiting list for the project and notify the 
family of when a suitable unit may become available. If the waiting list 
is so long that the applicant would not be likely to be admitted within 
the next 12 months, the Borrower may advise the applicant that no 
additional applications for admission are being considered for that 
reason, except that the Borrower may not refuse to place an applicant on 
the waiting list if the applicant is otherwise eligible for assistance 
and claims that he or she qualifies for a Federal preference as provided 
in 24 CFR part 5, subpart D.
    (e) Ineligibility determination. If the Borrower determines that an 
applicant is ineligible for admission or the Borrower is not selecting 
the applicant for other reasons, the Borrower will

[[Page 211]]

promptly notify the applicant in writing of the determination, the 
reasons for the determination, and that the applicant has a right to 
request a meeting with the Borrower or managing agent to review the 
rejection, in accordance with HUD requirements. The review, if 
requested, may not be conducted by a member of the Borrower's staff who 
made the initial decision to reject the applicant. The applicant may 
also exercise other rights (e.g., rights granted under Federal, State, 
or local civil rights laws) if the applicant believes he or she is being 
discriminated against on a prohibited basis. The informal review 
provisions for the denial of a Federal preference are provided in Sec. 
5.410(g) of this title.
    (f) Records. Records on applicants and approved eligible families, 
which provide racial, ethnic, gender, handicap status, and place of 
previous residency data required by HUD, must be retained for three 
years.
    (g) Reexamination of family income and composition. (1) Regular 
reexaminations. The Borrower must reexamine the income and composition 
of the family at least every 12 months. Upon verification of the 
information, the Borrower shall make appropriate adjustments in the 
total tenant payment in accordance with part 813 of this chapter and 
determine whether the family's unit size is still appropriate. The 
Borrower must adjust tenant rent and the housing assistance payment and 
must carry out any unit transfer in accordance with the administrative 
instructions issued by HUD. At the time of reexamination under paragraph 
(g)(1) of this section, the Borrower must require the family to meet the 
disclosure and verification requirements for Social Security Numbers, as 
provided by 24 CFR part 5, subpart B.
    (2) Interim reexaminations. The family must comply with the 
provisions in its lease regarding interim reporting of changes in 
income. If the Borrower receives information concerning a change in the 
family's income or other circumstances between regularly scheduled 
reexaminations, the Borrower must consult with the family and make any 
adjustments determined to be appropriate. Any change in the family's 
income or other circumstances that results in an adjustment in the total 
tenant payment, tenant rent and housing assistance payment must be 
verified.
    (3) Continuation of housing assistance payments. (i) A family shall 
remain eligible for housing assistance payments until the total tenant 
payment equals or exceeds the gross rent. The termination of subsidy 
eligibility will not affect the family's other rights under its lease. 
Housing assistance payments may be resumed if, as a result of changes in 
income, rent or other relevant circumstances during the term of the HAP 
contract, the family meets the income eligibility requirements of part 
813 of this chapter and housing assistance is available for the unit 
under the terms of the HAP contract. The family will not be required to 
establish its eligibility for admission to the project under the 
remaining requirements of paragraph (c) of this section.
    (ii) A family's eligibility for housing assistance payments may be 
terminated in accordance with HUD requirements for such reasons as 
failure to submit requested verification information, including 
information related to disclosure and verification of Social Security 
Numbers, or failure to sign and submit consent forms for the obtaining 
of wage and claim information from State wage information collection 
agencies, as provided by 24 CFR part 5, subpart B.

(Approved by the Office of Management and Budget under control number 
2502-0371)



Sec. 891.615  Obligations of the family.

    The obligations of the family are provided in Sec. 891.415.



Sec. 891.620  Overcrowded and underoccupied units.

    If the Borrower determines that because of change in family size, an 
assisted unit is smaller than appropriate for the eligible family to 
which it is leased, or that the assisted unit is larger than 
appropriate, housing assistance payments or project assistance payments 
(as applicable) with respect to the unit will not be reduced or 
terminated until the eligible family has been relocated to an 
appropriate alternate unit. If possible, the Borrower will, as promptly 
as possible, offer the family

[[Page 212]]

an appropriate alternate unit. The Borrower may receive vacancy payments 
for the vacated unit if the Borrower complies with the requirements of 
Sec. 891.650.



Sec. 891.625  Lease requirements.

    The lease requirements are provided in Sec. 891.425.



Sec. 891.630  Denial of admission, termination of tenancy, and 
modification of lease.

    (a) The provisions of part 5, subpart I, of this title apply to 
Section 202 direct loan projects.
    (b) The provisions of part 247 of this title apply to all decisions 
by a Borrower to terminate the tenancy or modify the lease of a family 
residing in a unit.

[66 FR 28798, May 24, 2001]



Sec. 891.635  Security deposits.

    The general requirements for security deposits on assisted units are 
provided in Sec. 891.435. For purposes of subpart E of this part, the 
additional requirements apply:
    (a) The Borrower may require each family occupying an unassisted 
unit (or residential space in a group home) to pay a security deposit 
equal to one month's rent payable by the family.
    (b) The Borrower shall maintain a record of the amount in the 
segregated interest-bearing account that is attributable to each family 
in residence in the project. Annually for all families, and when 
computing the amount available for disbursement under Sec. 
891.435(b)(3), the Borrower shall allocate to the family's balance the 
interest accrued on the balance during the year. Unless prohibited by 
State or local law, the Borrower may deduct for the family, from the 
accrued interest for the year, the administrative cost of computing the 
allocation to the family's balance. The amount of the administrative 
cost adjustment shall not exceed the accrued interest allocated to the 
family's balance for the year.



Sec. 891.640  Adjustment of rents.

    (a) Contract rents. (1) Adjustment based on approved budget. If the 
HAP contract provides, or has been amended to provide, that contract 
rents will be adjusted based upon a HUD-approved budget, HUD will 
calculate contract rent adjustments based on the sum of the project's 
operating costs and debt service (as calculated by HUD), with 
adjustments for vacancies, the project's nonrental income, and other 
factors that HUD deems appropriate. The calculation will be made on the 
basis of information provided by the Borrower on a form acceptable to 
the Secretary. The automatic adjustment factor described in part 888 of 
this chapter is not used to adjust contract rents under paragraph (a)(1) 
of this section, except to the extent that the amount of the replacement 
reserve deposit is adjusted under Sec. 880.602 of this chapter.
    (2) Annual and special adjustments. If the HAP contract provides 
that contract rents will be adjusted based on the application of an 
automatic adjustment factor and by special additional adjustments:
    (i) Consistent with the HAP contract, contract rents may be adjusted 
in accordance with part 888 of this chapter;
    (ii) Special additional adjustments will be granted, to the extent 
determined necessary by HUD, to reflect increases in the actual and 
necessary expenses of owning and maintaining the assisted units that 
have resulted from substantial general increases in real property taxes, 
assessments, utility rates or similar costs (i.e., assessments and 
utilities not covered by regulated rates), and that are not adequately 
compensated for by an annual adjustment. The Borrower must submit to HUD 
required supporting data, financial statements, and certifications for 
the special additional adjustment.
    (b) Rent for unassisted units. The rent payable by families 
occupying units that are not assisted under the HAP contract shall be 
equal to the contract rent computed under paragraph (a) of this section.

(Approved by the Office of Management and Budget under control number 
2502-0371)



Sec. 891.645  Adjustment of utility allowances.

    In connection with adjustments of contract rents as provided in

[[Page 213]]

Sec. 891.640(a), the requirements for the adjustment of utility 
allowances provided in Sec. 891.440 apply.



Sec. 891.650  Conditions for receipt of vacancy payments for assisted 
units.

    (a) General. Vacancy payments under the HAP contract will not be 
made unless the conditions for receipt of these housing assistance 
payments set forth in this section are fulfilled.
    (b) Vacancies during rent-up. For each unit that is not leased as of 
the effective date of the HAP contract, the Borrower is entitled to 
vacancy payments in the amount of 80 percent of the contract rent for 
the first 60 days of vacancy, if the Borrower:
    (1) Complied with Sec. 891.600;
    (2) Has taken and continues to take all feasible actions to fill the 
vacancy; and
    (3) Has not rejected any eligible applicant except for good cause 
acceptable to HUD.
    (c) Vacancies after rent-up. If an eligible family vacates a unit, 
the Borrower is entitled to vacancy payments in the amount of 80 percent 
of the contract rent for the first 60 days of vacancy if the Borrower:
    (1) Certifies that it did not cause the vacancy by violating the 
lease, the HAP contract, or any applicable law;
    (2) Notified HUD of the vacancy or prospective vacancy and the 
reasons for the vacancy immediately upon learning of the vacancy or 
prospective vacancy;
    (3) Has fulfilled and continues to fulfill the requirements 
specified in Sec. 891.600(a)(2) and (3), and in paragraphs (b)(2) and 
(3) of this section; and
    (4) For any vacancy resulting from the Borrower's eviction of an 
eligible family, certifies that it has complied with Sec. 891.630.
    (d) Vacancies for longer than 60 days. If a unit continues to be 
vacant after the 60-day period specified in paragraph (b) or (c) of this 
section, the Borrower may apply to receive additional vacancy payments 
in an amount equal to the principal and interest payments required to 
amortize that portion of the debt service attributable to the vacant 
unit for up to 12 additional months for the unit if:
    (1) The unit was in decent, safe, and sanitary condition during the 
vacancy period for which payment is claimed;
    (2) The Borrower has fulfilled and continues to fulfill the 
requirements specified in paragraph (b) or (c) of this section, as 
appropriate; and
    (3) The Borrower has demonstrated to the satisfaction of HUD that:
    (i) For the period of vacancy, the project is not providing the 
Borrower with revenues at least equal to project expenses (exclusive of 
depreciation) and the amount of payments requested is not more than the 
portion of the deficiency attributable to the vacant unit; and
    (ii) The project can achieve financial soundness within a reasonable 
time.
    (e) Prohibition of double compensation for vacancies. If the 
Borrower collects payments for vacancies from other sources (tenant 
rent, security deposits, payments under Sec. 891.435(c), or 
governmental payments under other programs), the Borrower shall not be 
entitled to collect vacancy payments to the extent these collections 
from other sources plus the vacancy payment exceed contract rent.

(Approved by the Office of Management and Budget under control number 
2502-0371)

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



Sec. 891.655  Definitions applicable to 202/162 projects.

    The following definitions apply to projects for eligible families 
receiving project assistance payments under section 202(h) of the 
Housing Act of 1959 in addition to reservations under section 202 (202/
162 projects):
    Annual income is defined in part 813 of this chapter. In the case of 
an individual residing in an intermediate care facility for the mentally 
retarded that is assisted under Title XIX of the Social Security Act and 
subpart E of this part, the annual income of the individual shall 
exclude protected personal income as provided under that Act. For the 
purposes of determining the total tenant payment, the income of such 
individuals shall be imputed to be the amount that the family would 
receive

[[Page 214]]

if assisted under Title XVI of the Social Security Act.
    Assisted unit means a dwelling unit that is eligible for assistance 
under a project assistance contract (PAC).
    Contract rent means the total amount of rent specified in the PAC as 
payable by HUD and the family to the Borrower for an assisted unit or 
residential space.
    Family (eligible family) means a handicapped family (as defined in 
Sec. 891.505) that meets the project occupancy requirements approved by 
HUD and, if the family occupies an assisted unit, meets the low-income 
requirements described in Sec. 813.102 of this chapter, as modified by 
the definition of ``annual income'' in this section.
    Gross rent is defined in part 813 of this chapter.
    Group home means a single family residential structure designed or 
adapted for occupancy by nonelderly handicapped individuals.
    Housing for handicapped families means housing and related 
facilities occupied by handicapped families that are primarily 
nonelderly handicapped families.
    Independent living complex means a project designed for occupancy by 
nonelderly handicapped families in separate dwelling units where each 
dwelling unit includes a kitchen and a bath.
    Operating costs means expenses related to the provision of housing 
and excludes expenses related to administering, or managing the 
provision of, supportive services. Operating costs include:
    (1) Administrative expenses, including salary and management 
expenses related to the provision of shelter;
    (2) Maintenance expenses, including routine and minor repairs and 
groundskeeping;
    (3) Security expenses;
    (4) Utilities expenses, including gas, oil, electricity, water, 
sewer, trash removal, and extermination services. Operating costs 
exclude telephone services for families;
    (5) Taxes and insurance; and
    (6) Allowances for reserves.
    PAC (project assistance contract) means the contract entered into by 
the Borrower and HUD setting forth the rights and duties of the parties 
with respect to the project and the payments under the PAC.
    Project account means a specifically identified and segregated 
account for each project which is established in accordance with Sec. 
891.715(b) out of the amounts by which the maximum annual commitment 
exceeds the amount actually paid out under the PAC each year.
    Project assistance payment means the payment made by HUD to the 
Borrower for assisted units as provided in the PAC. The payment is the 
difference between the contract rent and the tenant rent. An additional 
payment is made to a family occupying an assisted unit in an independent 
living complex when the utility allowance is greater than the total 
tenant payment. A project assistance payment, known as a ``vacancy 
payment,'' may be made to the Borrower when an assisted unit (or 
residential space in a group home) is vacant, in accordance with the 
terms of the PAC.
    Rent is defined in Sec. 891.505.
    Tenant rent means the monthly amount defined in, and determined in 
accordance with part 813 of this chapter.
    Total tenant payment means the monthly amount defined in, and 
determined in accordance with part 813 of this chapter.
    Utility allowance is defined in part 813 of this chapter and is 
determined or approved by HUD.
    Utility reimbursement is defined in part 813 of this chapter.
    Vacancy payment means the project assistance payment made to the 
Borrower by HUD for a vacant assisted unit (or residential space in a 
group home) if certain conditions are fulfilled, as provided in the PAC. 
The amount of the vacancy payment varies with the length of the vacancy 
period and is less after the first 60 days of any vacancy.



Sec. 891.660  Project standards.

    (a) Property standards. The property standards for 202/162 projects 
are provided in Sec. 891.120(a).
    (b) Minimum group home standards. The minimum group home standards 
for 202/162 projects are provided in Sec. 891.310(a).

[[Page 215]]

    (c) Accessibility requirements. The accessibility requirements for 
202/162 projects are provided in Sec. Sec. 891.120(b) and 891.310(b).
    (d) Smoke detectors. The requirements for smoke detectors for 202/
162 projects are provided in Sec. 891.120(d).



Sec. 891.665  Project size limitations.

    (a) Maximum project size. Projects funded under Sec. Sec. 891.655 
through 891.790 are subject to the following project size limitations:
    (1) Group homes may not be designed to serve more than 15 persons on 
one site;
    (2) Independent living complexes for chronically mentally ill 
individuals may not be designed to serve more than 20 persons on one 
site; and
    (3) Independent living complexes for handicapped families in the 
developmental disability or physically handicapped occupancy categories 
may not have more than 24 units nor more than 24 households on one site. 
For the purposes of this section, household has the same meaning as 
handicapped family, except that unrelated handicapped individuals 
sharing a unit (other than a handicapped person living with another 
person who is essential to the handicapped person's well-being) are 
counted as separate households. For independent living complexes for 
handicapped families in the developmental disability or physically 
handicapped occupancy categories, units with three or more bedrooms may 
only be developed to serve handicapped families of one or two parents 
with children.
    (b) Additional limitations. Based on the amount of loan authority 
appropriated for a fiscal year, HUD may have imposed additional 
limitations on the number of units or residents that may be proposed 
under an application for Section 202 loan fund reservation, as published 
in the annual notice of funding availability or the invitation for 
Section 202 fund reservation.
    (c) Exemptions. On a case-by-case basis, HUD may approve independent 
living complexes that do not comply with the project size limitations 
prescribed in paragraphs (a)(2), (a)(3), or (b) of this section. HUD may 
approve such projects if the Sponsor demonstrates:
    (1) The increased number of units is necessary for the economic 
feasibility of the project;
    (2) A project of the size proposed is compatible with other 
residential development and the population density of the area in which 
the project is to be located;
    (3) A project of the size proposed can be successfully integrated 
into the community; and
    (4) A project of the size proposed is marketable in the community.



Sec. 891.670  Cost containment and modest design standards.

    (a) Restrictions on amenities. Projects must be modest in design. 
Except as provided in paragraph (d) of this section, amenities must be 
limited to those amenities, as determined by HUD, that are generally 
provided in unassisted decent, safe, and sanitary housing for low-income 
families in the market area. Amenities not eligible for HUD funding 
include balconies, atriums, decks, bowling alleys, swimming pools, 
saunas, and jacuzzis. Dishwashers, trash compactors, and washers and 
dryers in individual units will not be funded in independent living 
complexes. The use of durable materials to control or reduce 
maintenance, repair, and replacement costs is not an excess amenity.
    (b) Unit sizes. For independent living complexes, HUD will establish 
limitations on the size of units and number of bathrooms, based on the 
number of bedrooms that are in the unit.
    (c) Special spaces and accommodations. (1) The costs of construction 
of special spaces and accommodations may not exceed 10 percent of the 
total cost of construction, except as provided in paragraph (d) of this 
section. Special spaces and accommodations include multipurpose rooms, 
game rooms, libraries, lounges, and, in independent living complexes, 
central kitchens and dining rooms.
    (2) Special spaces and accommodations exclude offices, halls, 
mechanical rooms, laundry rooms, and parking areas; dwelling units and 
lobbies in

[[Page 216]]

independent living complexes; and bedrooms, living rooms, dining and 
kitchen areas, shared bathrooms, and resident staff dwelling units in 
group homes.
    (d) Exceptions. HUD may approve a project that does not comply with 
the cost containment and modest design standards of paragraphs (a) 
through (c) of this section if:
    (1) The Sponsor demonstrates a willingness and ability to contribute 
the incremental development cost and continuing operating costs 
associated with the additional amenities or design features; or
    (2) The proposed project involves substantial rehabilitation or 
acquisition with or without moderate rehabilitation, the additional 
amenities or design features were incorporated into the existing 
structure before the submission of the application, and the total 
development cost of the project with the additional amenities or design 
features does not exceed the cost limits.



Sec. 891.675  Prohibited facilities.

    The requirements for prohibited facilities for 202/162 projects are 
provided in Sec. 891.315, except that Section 202/162 projects may not 
include commercial spaces.



Sec. 891.680  Site and neighborhood standards.

    The general requirements for site and neighborhood standards for 
202/162 projects are provided in Sec. Sec. 891.125 and 891.320. In 
addition to the requirements in Sec. Sec. 891.125 and 891.320, the 
following requirements apply to 202/162 projects:
    (a) The site must promote greater choice of housing opportunities 
and avoid undue concentration of assisted persons in areas containing a 
high proportion of low-income persons.
    (b) Projects must be located in neighborhoods where other family 
housing is located. Except as provided below, projects may not be 
located adjacent to the following facilities, or in areas where such 
facilities are concentrated: schools or day care centers for handicapped 
persons, workshops, medical facilities, or other housing primarily 
serving handicapped persons. Projects may be located adjacent to other 
housing primarily serving handicapped persons if the projects together 
do not exceed the project size limitations under Sec. 891.665(a).



Sec. 891.685  Prohibited relationships.

    The requirements for prohibited relationships for 202/162 projects 
are provided in Sec. 891.130.



Sec. 891.690  Other Federal requirements.

    In addition to the Federal requirements set forth in 24 CFR part 5, 
other Federal requirements for the 202/162 projects are provided in 
Sec. Sec. 891.155 and 891.325.



Sec. 891.695  Operating cost standards.

    The requirements for the operating cost standards are provided in 
Sec. 891.150.



Sec. 891.700  Prepayment of loans.

    (a) Prepayment prohibition. The prepayment (whether in whole or in 
part) or the assignment or transfer of physical and financial assets of 
any Section 202 project is prohibited, unless the Assistant Secretary 
gives prior written approval.
    (b) HUD-approved prepayment. Approval for prepayment or transfer 
will not be granted unless HUD determines that the prepayment or 
transfer of the loan is a part of a transaction that will ensure the 
continued operation of the project until the original maturity date of 
the loan in a manner that will provide rental housing for the 
handicapped families on terms at least as advantageous to existing and 
future tenants as the terms required by the original Section 202 loan 
agreement and any other loan agreements entered into under other 
provisions of law.



Sec. 891.705  Project assistance contract.

    (a) Project assistance contract (PAC). The PAC sets forth rights and 
duties of the Borrower and HUD with respect to the project and the 
project assistance payments.
    (b) PAC execution. (1) Upon satisfactory completion of the project, 
the Borrower and HUD shall execute the PAC on the form prescribed by 
HUD.
    (2) The effective date of the PAC may be earlier than the date of 
execution, but no earlier than the date of HUD's issuance of the 
permission to occupy.

[[Page 217]]

    (3) If the project is completed in stages, the procedures of 
paragraph (b) of this section shall apply to each stage.
    (c) Project assistance payments to owners under the PAC. The project 
assistance payments made under the PAC are:
    (1) Payments to the Borrower to assist eligible families leasing 
assisted units. The amount of the project assistance payment made to the 
Borrower for an assisted unit (or residential space in a group home) 
that is leased to an eligible family is equal to the difference between 
the contract rent for the unit (or pro rata share of the contract rent 
in a group home) and the tenant rent payable by the family.
    (2) Payments to the Borrower for vacant assisted units (``vacancy 
payments''). The amount of and conditions for vacancy payments are 
described in Sec. 891.790. HUD makes the project assistance payments 
monthly upon proper requisition by the Borrower, except payments for 
vacancies of more than 60 days, which HUD makes semiannually upon 
requisition by the Borrower.
    (d) Payment of utility reimbursement. If applicable, a utility 
reimbursement will be paid to a family occupying an assisted unit in an 
independent living complex as an additional project assistance payment. 
The PAC will provide that the Borrower will make this payment on behalf 
of HUD. Funds will be paid to the Borrower in trust solely for the 
purpose of making the additional payment. The Borrower may pay the 
utility reimbursement jointly to the family and the utility company, or, 
if the family and utility company consent, directly to the utility 
company.



Sec. 891.710  Term of PAC.

    The term of the PAC shall be 20 years. If the project is completed 
in stages, the term of the PAC for each stage shall be 20 years. The 
term of the PAC for stages of a project shall not exceed 22 years.



Sec. 891.715  Maximum annual commitment and project account.

    (a) Maximum annual commitment. The maximum annual amount that may be 
committed under the PAC is the total of the initial contract rents and 
utility allowances for all assisted units in the project.
    (b) Project account. (1) HUD will establish and maintain a 
specifically identified and segregated project account for each project. 
The project account will be established out of the amounts by which the 
maximum annual commitment exceeds the amount actually paid out under the 
PAC each year. HUD will make payments from this account for project 
assistance payments as needed to cover increases in contract rents or 
decreases in tenant income and other payments for costs specifically 
approved by the Secretary.
    (2) If the HUD-approved estimate of required annual payments under 
the PAC for a fiscal year exceeds the maximum annual commitment for that 
fiscal year plus the current balance in the project account, HUD will, 
within a reasonable time, take such steps authorized by section 
202(h)(4)(A) of the Housing Act of 1959, as may be necessary, to assure 
that payments under the PAC will be adequate to cover increases in 
contract rents and decreases in tenant income.



Sec. 891.720  Leasing to eligible families.

    (a) Availability of assisted units for occupancy by eligible 
families. During the term of the PAC, a Borrower shall make all units 
(or residential spaces in a group home) available for eligible families. 
For purposes of this section, making units or residential spaces 
available for occupancy by eligible families means that the Borrower:
    (1) Is conducting marketing in accordance with Sec. 891.740(a);
    (2) Has leased or is making good faith efforts to lease the units or 
residential spaces to eligible and otherwise acceptable families, 
including taking all feasible actions to fill vacancies by renting to 
such families; and (3) Has not rejected any such applicant family except 
for reasons acceptable to HUD. If the Borrower is temporarily unable to 
lease all units or residential spaces to eligible families, one or more 
units or residential spaces may, with the prior approval of HUD, be 
leased to otherwise eligible families that do not meet the income 
requirements of part 813 of this chapter, as modified by Sec. 891.505. 
Failure on the part of the Borrower to

[[Page 218]]

comply with these requirements is a violation of the PAC and grounds for 
all available legal remedies, including an action for specific 
performance of the PAC, suspension or debarment from HUD programs, and 
reduction of the number of units (or in the case of group homes, 
reduction of the number of residential spaces) under the PAC as set 
forth in paragraph (b) of this section.
    (b) Reduction of number of units covered by the PAC. HUD may reduce 
the number of units (or in the case of group homes, the number of 
residential spaces) covered by the PAC to the number of units or 
residential spaces available for occupancy by eligible families if:
    (1) The Borrower fails to comply with the requirements of paragraph 
(a) of this section; or
    (2) Notwithstanding any prior approval by HUD, HUD determines that 
the inability to lease units or residential spaces to eligible families 
is not a temporary problem.
    (c) Restoration. HUD will agree to an amendment of the PAC to 
provide for subsequent restoration of any reduction made under paragraph 
(b) of this section if:
    (1) HUD determines that the restoration is justified by demand;
    (2) The Borrower otherwise has a record of compliance with the 
Borrower's obligations under the PAC; and
    (3) Contract and budget authority is available.
    (d) Occupancy by families that are not handicapped. HUD may relieve 
the Borrower of the requirement that all units in the project (or 
residential spaces in a group home) must be leased to handicapped 
families if:
    (1) The Borrower has made reasonable efforts to lease to eligible 
families;
    (2) The Borrower has been granted HUD approval under paragraph (a) 
of this section; and
    (3) The Borrower is temporarily unable to achieve or maintain a 
level of occupancy sufficient to prevent financial default and 
foreclosure under the Section 202 loan documents. HUD approval under 
this paragraph will be of limited duration. HUD may impose terms and 
conditions to this approval that are consistent with program objectives 
and necessary to protect its interest in the Section 202 loan.



Sec. 891.725  PAC administration.

    HUD is responsible for the administration of the PAC.



Sec. 891.730  Default by Borrower.

    (a) PAC provisions. The PAC will provide:
    (1) That if HUD determines that the Borrower is in default under the 
PAC, HUD will notify the Borrower of the actions required to be taken to 
cure the default and of the remedies to be applied by HUD, including an 
action for specific performance under the PAC, reduction or suspension 
of project assistance payment and recovery of overpayments, as 
appropriate; and
    (2) That if the Borrower fails to cure the default, HUD has the 
right to terminate the PAC or to take other corrective action.
    (b) Loan provisions. Additional provisions governing default under 
the Section 202 loan are included in the regulatory agreement and other 
loan documents.



Sec. 891.735  Notice upon PAC expiration.

    The PAC will provide that the Borrower will, at least 90 days before 
the end of the PAC contract term, notify each family occupying an 
assisted unit (or residential space in a group home) of any increase in 
the amount the family will be required to pay as rent as a result of the 
expiration. The notice of expiration will contain such information and 
will be served in such manner as HUD may prescribe.



Sec. 891.740  Responsibilities of Borrower.

    (a) Marketing. (1) The Borrower must commence and continue diligent 
marketing activities not later than 90 days before the anticipated date 
of availability for occupancy of the group home or the anticipated date 
of availability of the first unit in an independent living complex. 
Market activities shall include the provision of notices of the 
availability of housing under the program to operators of temporary 
housing for the homeless in the same housing market.

[[Page 219]]

    (2) Marketing must be done in accordance with the HUD-approved 
affirmative fair housing marketing plan and all fair housing and equal 
opportunity requirements. The purpose of the plan and requirements is to 
achieve a condition in which eligible families of similar income levels 
in the same housing market have a like range of housing choices 
available to them regardless of their race, color, creed, religion, sex, 
or national origin.
    (3) At the time of PAC execution, the Borrower must submit to HUD a 
list of leased and unleased assisted units (or in the case of a group 
home, leased and unleased residential spaces) with a justification for 
the unleased units or residential spaces, in order to qualify for 
vacancy payments for the unleased units or residential spaces.
    (b) Management and maintenance. The responsibilities of the Borrower 
with regard to management and maintenance are provided in Sec. 
891.600(b).
    (c) Contracting for services. The responsibilities of the Borrower 
with regard to contracting for services are provided in Sec. 
891.600(c).
    (d) Submission of financial and operating statements. The 
responsibilities of the Borrower with regard to the submission of 
financial and operating statements are provided in Sec. 891.600(d).
    (e) Use of project funds. The responsibilities of the Borrower with 
regard to the use of project funds are provided in Sec. 891.600(e).
    (f) Reports. The responsibilities of the Borrower with regard to 
reports are provided in Sec. 891.600(f).



Sec. 891.745  Replacement reserve.

    The general requirements for the replacement reserve are provided in 
Sec. 891.605. For projects funded under Sec. Sec. 891.655 through 
891.790, the amount of the deposits for the initial year of operation 
shall be an amount equal to 0.6 percent of the cost of the total 
structures (for new construction projects), 0.4 percent of the cost of 
the initial mortgage amount (for all other projects), or such higher 
rate as required by HUD. For the purposes of this section, total 
structures include main buildings, accessory buildings, garages, and 
other buildings. The amount of the deposits will be adjusted each year 
by the amount of the annual adjustment factor as described in part 888 
of this chapter.



Sec. 891.750  Selection and admission of tenants.

    (a) Application for admission. The Borrower must accept applications 
for admission to the project in the form prescribed by HUD. Applicant 
families applying for assisted units (or residential spaces in a group 
home) must complete a certification of eligibility as part of the 
application for admission. Applicant families must meet the disclosure 
and verification requirements for Social Security Numbers, and sign and 
submit consent forms for the obtaining of wage and claim information 
from State Wage Information Collection Agencies, as provided by 24 CFR 
part 5, subpart B. Both the Borrower and the applicant family must 
complete and sign the application for admission. On request, the 
Borrower must furnish copies of all applications for admission to HUD.
    (b) Determination of eligibility and selection of tenants. The 
Borrower is responsible for determining whether applicants are eligible 
for admission and for the selection of families. To be eligible for 
admission, an applicant family must be a handicapped family (as defined 
in Sec. 891.505); meet any project occupancy requirements approved by 
HUD; meet the disclosure and verification requirements for Social 
Security Numbers, as provided by 24 CFR part 5, subpart B; and be a low-
income family, as defined in Sec. 813.102 of this chapter (as modified 
by Sec. 891.505). Under certain circumstances, HUD may permit the 
leasing of units (or residential space in a group home) to ineligible 
families under Sec. 891.720.
    (1) Local residency requirements are prohibited. Local residency 
preferences may be applied in selecting tenants only to the extent that 
they are not inconsistent with affirmative fair housing marketing 
objectives and the Borrower's HUD-approved affirmative fair housing 
marketing plan. Preferences may not be based on the length of time the 
applicant has resided in the jurisdiction. With respect to any residency 
preference, persons expected to reside

[[Page 220]]

in the community as a result of current or planned employment will be 
treated as residents.
    (2) If the Borrower determines that the family is eligible and is 
otherwise acceptable and units (or residential spaces in a group home) 
are available, the Borrower will assign the family a unit or residential 
space in a group home. If the family will occupy an assisted unit the 
Borrower will assign the family a unit of the appropriate size in 
accordance with HUD standards. If no suitable unit (or residential space 
in a group home) is available, the Borrower will place the family on a 
waiting list for the project and notify the family when a suitable unit 
or residential space may become available. If the waiting list is so 
long that the applicant would not be likely to be admitted within the 
next 12 months, the Borrower may advise the applicant that no additional 
applications for admission are being considered for that reason.
    (3) If the Borrower determines that an applicant is ineligible for 
admission or the Borrower is not selecting the applicant for other 
reasons, the Borrower will promptly notify the applicant in writing of 
the determination, the reasons for the determination, and that the 
applicant has a right to request a meeting to review the rejection, in 
accordance with HUD requirements. The review, if requested, may not be 
conducted by the member of the Borrower's staff who made the initial 
decision to reject the applicant. The applicant may also exercise other 
rights if the applicant believes the applicant is being discriminated 
against on the basis of race, color, creed, religion, sex, handicap, or 
national origin.
    (4) Records on applicants and approved eligible families, which 
provide racial, ethnic, gender and place of previous residency data 
required by HUD, must be maintained and retained for three years.
    (c) Reexamination of family income and composition--(1) Regular 
reexaminations. If the family occupies an assisted unit (or residential 
space in a group home), the Borrower must reexamine the income and 
composition of the family at least every 12 months. Upon verification of 
the information, the Borrower shall make appropriate adjustments in the 
total tenant payment in accordance with part 813 of this chapter, as 
modified by Sec. 891.505, and determine whether the family's unit size 
is still appropriate. The Borrower must adjust tenant rent and the 
project assistance payment and must carry out any unit transfer in 
accordance with HUD standards. At the time of the annual reexamination 
of family income and composition, the Borrower must require the family 
to meet the disclosure and verification requirements for Social Security 
Numbers, as provided by 24 CFR part 5, subpart B.
    (2) Interim reexamination. If the family occupies an assisted unit 
(or residential space in a group home) the family must comply with 
provisions in the lease regarding interim reporting of changes in 
income. If the Borrower receives information concerning a change in the 
family's income or other circumstances between regularly scheduled 
reexaminations, the Borrower must consult with the family and make any 
adjustments determined to be appropriate. Any change in the family's 
income or other circumstances that results in an adjustment in the total 
tenant payment, tenant rent, and project assistance payment must be 
verified.
    (3) Continuation of project assistance payment. (i) A family 
occupying an assisted unit (or residential space in a group home) shall 
remain eligible for project assistance payment until the total tenant 
payment equals or exceeds the gross rent (or a pro rata share of the 
gross rent in a group home). The termination of subsidy eligibility will 
not affect the family's other rights under its lease. Project assistance 
payment may be resumed if, as a result of changes in income, rent, or 
other relevant circumstances during the term of the PAC, the family 
meets the income eligibility requirements of part 813 of this chapter 
(as modified in Sec. 891.505) and project assistance is available for 
the unit or residential space under the terms of the PAC. The family 
will not be required to establish its eligibility for admission to the 
project under the remaining requirements of paragraph (b) of this 
section.

[[Page 221]]

    (ii) A family's eligibility for project assistance payment may also 
be terminated in accordance with HUD requirements for such reasons as 
failure to submit requested verification information, including failure 
to meet the disclosure and verification requirements for Social Security 
Numbers, or failure to sign and submit consent forms for the obtaining 
of wage and claim information from State Wage Information Collection 
Agencies, as provided by 24 CFR part 5, subpart B.

(Approved by the Office of Management and Budget under control number 
2502-0204 and 2505-0267)



Sec. 891.755  Obligations of the family.

    The obligations of the family are provided in Sec. 891.415.



Sec. 891.760  Overcrowded and underoccupied units.

    The requirements for overcrowded and underoccupied units are 
provided in Sec. 891.620.



Sec. 891.765  Lease requirements.

    The lease requirements are provided in Sec. 891.425.



Sec. 891.770  Denial of admission, termination of tenancy, and 
modification of lease.

    (a) The provisions of part 5, subpart I, of this title apply to 
Section 202 direct loan projects with Section 162 assistance for 
disabled families.
    (b) The provisions of part 247 of this title apply to all decisions 
by a Borrower to terminate the tenancy or modify the lease of a family 
residing in a unit (or residential space in a group home).

[66 FR 28798, May 24, 2001]



Sec. 891.775  Security deposits.

    The general requirements for security deposits on assisted units are 
provided in Sec. 891.435. For purposes of subpart E of this part, the 
additional requirements in Sec. 891.635 apply.



Sec. 891.780  Adjustment of rents.

    (a) Contract rents. HUD will calculate contract rent adjustments 
based on the sum of the project's operating costs and debt service (as 
calculated by HUD), with adjustments for vacancies, the project's 
nonrental income, and other factors that HUD deems appropriate. The 
calculation will be made on the basis of information provided by the 
Borrower on a form prescribed by HUD.
    (b) Rent for unassisted units. The rent payable by families 
occupying units or residential spaces that are not assisted under the 
PAC shall be equal to the contract rent computed under paragraph (a) of 
this section.



Sec. 891.785  Adjustment of utility allowances.

    In connection with adjustments of contract rents as provided in 
Sec. 891.780(a), the requirements for the adjustment of utility 
allowances provided in Sec. 891.440 apply.



Sec. 891.790  Conditions for receipt of vacancy payments for assisted units.

    (a) General. Vacancy payments under the PAC will not be made unless 
the conditions for receipt of these project assistance payments set 
forth in this section are fulfilled.
    (b) Vacancies during rent-up. For each unit (or residential space in 
a group home) that is not leased as of the effective date of the PAC, 
the Borrower is entitled to vacancy payments in the amount of 80 percent 
of the contract rent (or pro rata share of the contract rent for a group 
home) for the first 60 days of vacancy, if the Borrower:
    (1) Complied with Sec. 891.740;
    (2) Has taken and continues to take all feasible actions to fill the 
vacancy; and
    (3) Has not rejected any eligible applicant except for good cause 
acceptable to HUD.
    (c) Vacancies after rent-up. If an eligible family vacates an 
assisted unit (or residential space in a group home) the Borrower is 
entitled to vacancy payments in the amount of 80 percent of the contract 
rent (or pro rata share of the contract rent in a group home) for the 
first 60 days of vacancy if the Borrower:
    (1) Certifies that it did not cause the vacancy by violating the 
lease, the PAC, or any applicable law;
    (2) Notified HUD of the vacancy or prospective vacancy and the 
reasons

[[Page 222]]

for the vacancy immediately upon learning of the vacancy or prospective 
vacancy;
    (3) Has fulfilled and continues to fulfill the requirements 
specified in Sec. 891.740(a)(2) and (3), and in paragraphs (b)(2) and 
(3) of this section; and
    (4) For any vacancy resulting from the Borrower's eviction of an 
eligible family, certifies that it has complied with Sec. 891.770.
    (d) Vacancies for longer than 60 days. If an assisted unit (or 
residential space in a group home) continues to be vacant after the 60-
day period specified in paragraph (b) or (c) of this section, HUD may 
approve additional vacancy payments for 60-day periods up to a total of 
12 months in an amount equal to the principal and interest payments 
required to amortize that portion of the debt service attributable to 
the vacant unit (or, in the case of group homes, the residential space). 
Such payments may be approved if:
    (1) The unit was in decent, safe, and sanitary condition during the 
vacancy period for which payment is claimed;
    (2) The Borrower has fulfilled and continues to fulfill the 
requirements specified in paragraph (b) or (c) of this section, as 
appropriate; and
    (3) The Borrower has demonstrated to the satisfaction of HUD that:
    (i) For the period of vacancy, the project is not providing the 
Borrower with revenues at least equal to project expenses (exclusive of 
depreciation) and the amount of payments requested is not more than the 
portion of the deficiency attributable to the vacant unit (or 
residential space in a group home); and
    (ii) The project can achieve financial soundness within a reasonable 
time.
    (e) Prohibition of double compensation for vacancies. If the 
Borrower collects payments for vacancies from other sources (tenant 
rent, security deposits, payments under Sec. 891.435(c), or 
governmental payments under other programs), the Borrower shall not be 
entitled to collect vacancy payments to the extent these collections 
from other sources plus the vacancy payment exceed contract rent.



Subpart F_For-Profit Limited Partnerships and Mixed-Finance Development 
   for Supportive Housing for the Elderly or Persons With Disabilities

    Source: 68 FR 67321, Dec. 1, 2003, unless otherwise noted.



Sec. 891.800  Purpose.

    The purpose of this subpart is to establish rules allowing for, and 
regulating the participation of, for-profit limited partnerships, of 
which the sole general partner is a Nonprofit Organization meeting the 
requirements of 12 U.S.C. 1701q(k)(4) or 42 U.S.C. 8032(k)(6), in the 
development of supportive housing for the elderly and persons with 
disabilities using mixed-finance development methods. These rules are 
intended to develop more supportive housing for the elderly and persons 
with disabilities by using Federal assistance, private capital and 
expertise, and tax credits.



Sec. 891.802  Applicability of other provisions.

    The provisions of 24 CFR part 891, subparts A-D, apply to this 
subpart F unless otherwise stated.



Sec. 891.805  Definitions.

    In addition to the definitions at Sec. 891.105, the following 
definitions apply to this subpart:
    Mixed-finance owner, for the purpose of the mixed-finance 
development of supportive housing under this subpart, means a for-profit 
limited partnership of which a Single-Purpose Private Nonprofit 
Organization (in the case of supportive housing for the elderly), or a 
Single-Purpose Nonprofit Organization with a 501(c)(3) tax exemption (in 
the case of supportive housing for the disabled) is the sole general 
partner. The purpose of the mixed-finance owner must include the 
promotion of the welfare of the elderly or persons with disabilities, as 
appropriate.
    Single-Purpose Private Nonprofit Organization (in the case of 
supportive housing for the elderly) or Single-Purpose Nonprofit 
Organization (in the case of supportive housing for persons with 
disabilities) (for the purposes of this

[[Page 223]]

subpart, both types of organization are referred to as ``Nonprofit 
Organization''), for the purpose of this subpart, means any institution 
or foundation:
    (1) In the case of supportive housing for the elderly, that meets 
the requirements of the definition of ``private nonprofit organization'' 
found in Sec. 891.205 of this title; or
    (2) In the case of supportive housing for persons with disabilities, 
that meets the requirements of the definition of ``nonprofit 
organization'' in Sec. 891.305 of this title; and that
    (3) Is the general partner of a for-profit limited partnership, if 
the Nonprofit Organization meets the requirements of this definition and 
owns at least one-hundredth of one percent of the partnership assets, or 
is a nonprofit corporation wholly owned and controlled by a Nonprofit 
Organization meeting those requirements. If the project will include 
units financed with the use of Federal Low-Income Housing Tax Credits 
and the organization is a limited partnership, the limited partnership 
must meet the requirements of section 42 of the IRS code, including the 
requirements of section 42(h)(5).



Sec. 891.808  Capital advance funds.

    (a) HUD is authorized to provide capital advance funds to expand the 
supply of housing for the elderly and persons with disabilities in 
accordance with the rules and regulations of the Section 202 and 811 
supportive housing programs. For mixed-finance projects, HUD provides a 
capital advance funds reservation to the sponsor, which transfers the 
fund reservation to the Nonprofit Organization, which is general partner 
of a for-profit limited partnership meeting the requirements of this 
subpart. HUD then provides the capital advance funds to the Nonprofit 
Organization, which makes a non-amortizing loan to the mixed-finance 
owner to be repaid within 40 years at the 202 or 811 interest rate in 
effect on the date of the closing of the capital advance. The capital 
advance funds may be provided as a loan in the case of a mixed-finance 
project using a nine percent tax credit, and as a pass-through to the 
limited partnership in the case of mixed-finance projects using tax-
exempt bonds with four percent tax credit. The capital advance funds 
will be disbursed under a disbursement escrow agreement upon HUD 
approval of the mixed-finance draw down.
    (b) Developments built with mixed-finance funds may combine assisted 
supportive housing units with market rate units. However, the number of 
Section 202 or 811 units in the development funded with the capital 
advance must be not less than the number of units that could have been 
developed with the capital advance without the use of mixed funding 
sources. In the case of a Section 811 mixed-finance project, the 
additional units cannot cause the project to exceed the applicable 
Section 811 project size limit if they will also house persons with 
disabilities.



Sec. 891.809  Limitations on capital advance funds.

    Capital advances are not available in connection with:
    (a) Acquisition of facilities currently owned and operated by the 
sponsor as housing for the elderly, except with rehabilitation as 
defined in 24 CFR 891.105;
    (b) The financing or refinancing of federally assisted or insured 
projects;
    (c) Facilities currently owned and operated by the sponsor as 
housing for persons with disabilities, except with rehabilitation as 
defined in 24 CFR 891.105; or
    (d) Units in Section 202 direct loan projects previously refinanced 
under the provisions of Section 811 of the American Homeownership and 
Economic Opportunity Act of 2000, 12 U.S.C. 1701q note.



Sec. 891.810  Project rental assistance.

    Project Rental Assistance is defined in Sec. 891.105. Project 
Rental Assistance is provided for operating costs, not covered by tenant 
contributions, attributable to the number of units funded by capital 
advances under the Section 202 and 811 supportive housing programs, 
subject to the provisions of 24 CFR 891.445. The sponsor of a mixed-
finance development must obtain the necessary funds from a source other 
than project rental assistance funds for operating costs related to non-
202 or -811 units.

[[Page 224]]



Sec. 891.813  Eligible uses for assistance provided under this subpart.

    (a) Assistance under this subpart may be used to finance the 
construction, reconstruction, or rehabilitation of a structure or a 
portion of a structure; or the acquisition of a structure to be used as 
supportive housing for the elderly; or the acquisition of housing to be 
used as supportive housing for persons with disabilities. Such 
assistance may also cover the cost of real property acquisition, site 
improvement, conversion, demolition, relocation, and other expenses that 
the Secretary determines are necessary to expand the supply of 
supportive housing for the elderly and persons with disabilities.
    (b) Assistance under this subpart may not be used for excess 
amenities, as stated in 24 CFR 891.120(c). Such amenities may be 
included in a mixed-finance development only if:
    (1) The amenities are not financed with funds provided under the 
section 202 or 811 program;
    (2) The amenities are not maintained and operated with section 202 
or 811 funds;
    (3) The amenities are designed with appropriate safeguards for the 
residents' health and safety; and
    (4) The assisted residents are not required to use, participate in, 
or pay a fee for the use or maintenance of the amenities, although they 
are permitted to do so voluntarily. Any fee charged for the use, 
maintenance, or access to amenities by residents must be reasonable and 
affordable for all residents of the development.
    (c) Notwithstanding any other provision of this section, Sec. Sec. 
891.220 and 891.315 on ``prohibited facilities'' apply to mixed-finance 
projects containing units assisted under section 202 or 811.



Sec. 891.815  Developer's fee.

    (a) Developer's fee cap. No developer's fee shall be paid in excess 
of nine percent of the total project replacement costs.
    (b) Use of capital advance towards developer's fee. A maximum of 
eight percent of the capital advance may be used towards payment of the 
developer's fee.
    (c) Eligible and ineligible uses of developer's fee. (1) a 
developer's fee may be used to pay costs associated with developing the 
mixed-finance project, including, but not limited to:
    (A) Reasonable profit and overhead of up to six percent of the total 
construction cost;
    (B) The costs of necessary change orders approved by HUD prior to 
final project completion;
    (C) Housing consultant services;
    (D) Organizational expenses;
    (E) The owner's cash requirement prior to initial closing, except as 
stated in paragraph (c)(2) of this section;
    (F) Increased taxes and insurance caused by unavoidable delays in 
construction;
    (G) Increases in otherwise eligible non-construction line items;
    (H) Environmental studies;
    (I) Appraisal costs;
    (J) Capital expenditures, such as major moveable furnishings and 
equipment, including, but not limited to, office and maintenance 
equipment and furnishings for the public areas;
    (K) Costs directly related to the rent-up of the project, such as 
advertisement;
    (L) Accruals for taxes and insurance after completion of 
construction if current income from the project is insufficient to meet 
such accruals;
    (M) Project contingency items for which two percent of the 
developer's fee is withheld at HUD approval of the capital advance; and
    (N) Cost of obtaining a project cost estimate.
    (2) A developer's fee may not be used for the following:
    (A) Excess amenities;
    (B) Fees to the architect and attorney above those contractually 
agreed to;
    (C) Non-major equipment and furnishings;
    (D) Items with short life cycles, such as office and maintenance 
supplies;
    (E) Furnishings within the residential units; and
    (F) Motor vehicles.
    (d) Unused developer's fee. Amounts set aside from the 202 or 811 
capital advance funds for the developer's fee that remain unused after 
the completion of construction are deposited in the

[[Page 225]]

project's replacement reserve account at project completion.



Sec. 891.818  Firm commitment application.

    (a) New construction. The mixed-finance owner and the Nonprofit 
Organization shall submit an application for a firm commitment for 
capital advance funding. The application shall consist of the required 
application form HUD 92013 and additional materials, including:
    (1) Form HUD 92013-Supp, and any other supplementary forms or 
attachments to the application form that HUD requires;
    (2) Organizational documents of the mixed-finance owner, including 
the partnership documents and organizational documents of the Nonprofit 
Organization that will receive the capital advance, together with an 
incumbency certificate listing all duly qualified and sitting officers 
and directors by title and the beginning and ending dates of each 
person's term;
    (3) The name and address of the mixed-finance owner and the 
Nonprofit Organization, and the name, title, address, and telephone 
number of the respective officers to whom communications should be 
addressed;
    (4) A balance sheet showing that the mixed-finance owner is 
adequately capitalized;
    (5) Evidence that the sponsor, mixed-finance owner, or the Nonprofit 
Organization has control of the site of the proposed mixed-finance 
development, along with a legal description of the proposed site and a 
title report covering the site;
    (6) The mixed-finance owner's submission showing proposed amounts 
and uses of the developer's fee, demonstrating compliance with 24 CFR 
891.823;
    (7) Evidence that the zoning for the site of the proposed mixed-
finance project complies with existing zoning, or that any necessary 
zoning approvals or variances have been obtained;
    (8) Number of units (with bedroom count) for which funds have been 
reserved under section 202 or 811, and, in the case of section 811 
units, the population to be served in those units; the number of units 
(with bedroom count) funded or financed from sources other than section 
202 or 811, if any (if 811, the population to be served in the non-811 
units including the number of persons with disabilities, if applicable); 
the types and amounts of non-dwelling space to be provided; whether the 
assisted units will be floating or designated fixed units (Uniform 
Federal Accessibility Standards (UFAS) accessible units must always be 
designated fixed units); evidence demonstrating that the development 
will comply with all fair housing and accessibility requirements, 
including the design and construction requirements of the Fair Housing 
Act; evidence demonstrating that units serving persons with disabilities 
will be dispersed throughout the development in the most integrated 
environment possible and other requirements of section 504 of the 
Rehabilitation Act of 1973; evidence demonstrating that the project will 
comply with accessibility requirements, project standards, and site and 
neighborhood standards under 24 CFR 891.120, 891.125, 891.210, 891.310, 
and 891.320, as applicable; and evidence demonstrating that the project 
will comply with 24 CFR 8.4(b)(5), which prohibits the selection of a 
site or location which has the purpose or effect of excluding persons 
with disabilities from federally-assisted programs or activities;
    (9) The proposed development schedule for completion of the mixed-
finance development, including the estimated time to complete each major 
development stage. If a mixed-finance development proposal will be 
implemented in phases, the mixed-finance owner must include in its 
proposal a general description of each planned phase of development, 
including:
    (A) The overall number of phases;
    (B) The intended scope of each phase (including number of units);
    (C) The anticipated sources and uses of financing for each phase; 
and
    (D) A schedule (to be approved by HUD) for submission of a 
supplementary proposal for each phase;
    (10) A previous participation certificate for all officers and 
directors of the sponsor, mixed-finance owner, Nonprofit Organization, 
developer, housing

[[Page 226]]

consultant, general contractor, and management agent;
    (11) Identification of the housing consultant, if one is employed;
    (12) A mixed-finance owner-Architect Agreement;
    (13) Final Working drawings and specifications with the architect's 
certificate that the project design has been reviewed and approved by 
the local Building Department;
    (14) Topographic survey, surveyor's report, and soil test borings;
    (15) Life Cycle cost analysis of utility combinations;
    (16) Affirmative Fair Housing Marketing Plan;
    (17) Current resumes of general contractor's development experience 
and general contractor's financial statements for the last three years;
    (18) Contractor's cost breakdown and cost analysis;
    (19) Resume of resident manager or management agent, which includes 
qualifications and experience;
    (20) Schedule of capital expenditures such as furniture, supplies, 
equipment, and other items necessary to the basic operation of the 
project that will not be covered by proceeds from the capital advance, 
and a description of how the development will meet these costs;
    (21) Certification/disclosure of lobbying activities by the mixed-
finance owner and the Single-Purpose Nonprofit Organization;
    (22) Consolidated owner certifications for the mixed-finance owner, 
including the certification required by OMB circular A-129; Equal 
Employment Opportunity certification; certification of drug-free 
workplace; certification of compliance with design and cost standards; 
the Uniform Federal Accessibility Standards, section 504 of the 
Rehabilitation Act of 1973; and, for covered multifamily dwellings 
designed and constructed for first occupancy after March 13, 1991, the 
design and construction requirements of the Fair Housing Act and the 
Americans with Disabilities Act where applicable, and HUD's implementing 
regulations;
    (23) Certification of Compliance with Davis-Bacon prevailing wage 
requirements and related labor standards;
    (24) Flood Disaster Protection Act of 1973 Certification;
    (25) Certification of compliance with the National Environmental 
Policy Act and related environmental laws and authorities; and
    (26) Certification that the information in the firm commitment 
application is true and accurate.
    (b) Acquisition with rehabilitation. In the case of acquisition with 
rehabilitation, the mixed-finance owner must submit the documentation 
required in paragraph (a) of this section, as well as:
    (1) An authorization to inspect the project;
    (2) A description of the proposed rehabilitation and a description 
of any steps to be taken to make the development accessible to persons 
with disabilities;
    (3) Final drawings and specifications of the units as proposed to be 
rehabilitated, including any structural changes, changes in floor plans, 
locations of the fixed UFAS accessible units and other units serving 
persons with disabilities dispersed within the project, or other 
significant alterations;
    (4) A survey or site plan drawing of the development as built; and
    (5) Drawings and specifications of the existing facilities, if such 
drawings can be obtained.
    (c) Acquisition without rehabilitation. In the case of acquisition 
without rehabilitation, the mixed-finance owner must submit the 
documentation required in paragraph (a) of this section (except for 
paragraphs (a)(13) and (23)), as well as:
    (1) An authorization to inspect the project;
    (2) A narrative description of any repair work proposed, and the 
manner in which the project will be made accessible to persons with 
disabilities;
    (3) A survey or site plan drawing of the development as built;
    (4) Drawings and specifications of the existing facilities, if such 
drawings can be obtained.
    (d) Lead-based paint certification. In the case of acquired 
developments constructed before 1978 in which any child under six years 
of age resides or is expected to reside, the mixed-finance owner must 
also submit a certification of compliance with the Lead-Based

[[Page 227]]

Paint Poisoning Prevention Act and the Residential Lead-Based Paint 
Hazard Reduction Act of 1992.



Sec. 891.820  Mixed-finance proposal.

    The mixed-finance owner must submit a mixed-finance proposal along 
with the firm commitment application. Each mixed-finance development 
proposal shall be in the form prescribed by HUD and must contain the 
following information:
    (a) Development description. A description of the proposed project 
including: the number and types of units with bedroom count; the number 
of 202 or 811 units and the number of units to be financed from funds 
other than 202 or 811 funds; the types and amounts of non-dwelling space 
to be provided; schematic drawings and designs; the proposed building 
and unit plans including the location of the fixed UFAS accessible units 
and other units serving persons with disabilities dispersed within the 
project; and final plans and specifications.
    (b) Financing. A detailed description of all financing necessary for 
the implementation of the proposal, specifying the sources, together 
with a 5-year operating performance projection, known as a ``pro forma'' 
(pro forma), for the development, including all underlying assumptions. 
In addition, the mixed-finance owner is required to submit to HUD for 
approval all documents relating to the financing of the proposal, 
including, but not limited to, any loan agreements, financing 
commitments, notes, mortgages, or deeds of trust, use restrictions, 
operating pro formas relating to the viability of the development, and 
other agreements or documents pertaining to the financing of the 
proposal. If tax credits are being used, the mixed-finance owner must 
submit official confirmation of the award of tax credits from the State 
allocating agency. Any financing commitments must be firm and 
irrevocable in order to be approved by HUD.
    (c) Sources and uses. A statement of the sources and uses of 
financing; if a project is to be developed in phases, the sources and 
uses of financing for each phase;
    (d) Site information. An identification and description of the 
proposed site, site plan, and neighborhood.
    (e) Development construction cost estimate. A development 
construction cost estimate based on the schematic drawings and 
specifications and current construction costs prevailing in the area. In 
addition, a copy of the development schedule, including the architect or 
contractor estimate of the time required to complete each major 
development stage.
    (f) Life cycle analysis. For mixed-finance projects with new 
construction or rehabilitation, the criteria to be used in equipping the 
proposed development with heating and cooling systems, which shall 
include a life-cycle cost analysis of the installation, maintenance, and 
operating costs of such systems.
    (g) Relocation plan. Information concerning any displacement of 
current site occupants, including identification of each displacee, the 
distribution plan for notices, the anticipated cost and source for 
funding of relocation benefits, and compliance with 24 CFR 891.155(e).
    (h) Activities and relationship of participating parties. 
Identification of: (1) The participating parties, together with full 
information as to any conflict-of-interest or identity-of-interest 
between any of the parties, including the general partner, limited 
partners, mixed-finance owner, Nonprofit Organization, 202 or 811 
sponsors, and development team members;
    (2) The activities to be undertaken by each of the participating 
parties; the legal and business relationships among the participating 
parties; and
    (3) The rights and liabilities (financial and otherwise) and 
respective commitments of the parties with respect to the development;
    (i) Operating feasibility. A demonstration of the operating 
feasibility of the development, which must be accomplished by:
    (1) Showing that the estimated operating expenses of the development 
will not exceed its estimated operating income; and
    (2) Submitting a 5-year operating pro forma for the development, and 
including all underlying assumptions and, if

[[Page 228]]

the project is a tax-credit project, a pro forma showing how the project 
will continue to operate for the required period after the end of the 
tax-credit period;
    (j) Market analysis. An analysis of the projected market for the 
proposed mixed-finance development;
    (k) Management and occupancy policies. A summary of the proposed 
management and occupancy policies to be implemented for the assisted 
units at the development, consistent with Sec. 891.410, and a 
description of application and tenant selection procedures for the units 
without HUD funding;
    (l) Facilities. A statement addressing the adequacy of existing 
facilities and services for the prospective occupants of the development 
and a description of public improvements needed to ensure the viability 
of the proposed development with a description of the sources of funds 
available to carry out such improvements;
    (m) Environmental review. Any additional environmental information 
HUD deems necessary in completing its environmental review;
    (n) Certifications and assurances. (1) Certificates and assurances 
that the mixed-finance owner has authority under State and local law to 
develop housing for elderly persons or persons with disabilities and to 
enter into all agreements and provide all assurances required under this 
subpart. In addition, the Nonprofit Organization must certify that it 
has the legal authority to enter into the partnership agreement under 
which it acts as the sole general partner with for-profit limited 
partners and to fulfill all its obligations as partner. The Nonprofit 
Organization must also certify that it has obtained all necessary 
approvals for this purpose. The mixed-finance owner will be responsible 
to HUD for ensuring that the 202 or 811 units are developed and operated 
in accordance with all applicable HUD requirements. The mixed-finance 
owner must also warrant that it will provide for a mechanism to assure, 
to HUD's satisfaction, that the 202 or 811 units will remain available 
for use by very low-income families for 40 years;
    (2) A certification of the mixed-finance owner's previous 
participation as stated in 24 CFR part 200, subpart H, and shall ensure 
that all participating parties submit a similar certification to HUD.
    (o) Other. The mixed-finance owner must provide any other materials 
or information that HUD may from time to time require.

    Effective Date Note: At 68 FR 67321, Dec. 1, 2003, Sec. 891.820 was 
added. Paragraphs (a) through (e) and paragraphs (g) through (n) of this 
section contain information collection and recordkeeping requirements 
and will not become effective until approval has been given by the 
Office of Management and Budget.



Sec. 891.823  HUD review and approval.

    HUD will review the firm commitment application and mixed-finance 
proposal as follows.
    (a) Initial screening. HUD will perform an initial screening of the 
firm commitment application/mixed-finance proposal to determine that all 
required documentation and evidentiary materials have been submitted. 
HUD will advise the mixed-finance owner and Nonprofit Organization of 
any technical deficiencies in the application and proposal and indicate 
a date certain by which the remaining information must be submitted.
    (b) Firm commitment and proposal technical processing and approval. 
Upon determining that the firm commitment and proposal are complete, HUD 
will process the firm commitment application and mixed-finance proposal 
for approval. The firm commitment application will be reviewed in 
accordance with applicable firm commitment and technical review 
guidelines. Upon determining that a proposal is acceptable for technical 
processing, HUD will evaluate the proposal to determine:
    (1) Whether the mixed-finance owner has the legal capacity to enter 
into all necessary contracts and agreements to complete the development;
    (2) Whether the proposed sources and uses of funds are eligible and 
reasonable, and show an appropriate proration of supportive housing 
funds and funds from other sources, and whether the project, including 
the market-rate units, is financially feasible and is projected to 
remain feasible for the 40-year term of the very low-income use

[[Page 229]]

restrictions, given the available financing structure, firm financing 
commitments, and market for the project;
    (3) Whether the mixed-finance owner has the resources and capacity 
to develop and operate the project for the required time period;
    (4) Whether the HUD-assisted units are comparable in size, location, 
appearance, and design to any units without HUD assistance;
    (5) Whether the mixed-finance owner will develop and operate the 
Section 202 or 811 assisted units in accordance with all HUD program 
requirements, including program regulations governing those units;
    (6) Whether the documents include the required covenants and use 
restrictions, which must be recorded prior to release of HUD funds;
    (7) Whether the mixed-finance owner has obtained all necessary 
State, local, and Federal approvals, zoning changes, or variances;
    (8) Whether the design of the development meets applicable 
accessibility requirements;
    (9) Whether the supportive services to be provided for the Section 
202 or 811 units are at least equal to the services the sponsor proposed 
to provide in its 202 or 811 application for funding;
    (10) Whether the assistance to be provided under this part, taking 
into account all assistance to be received by the project, is no more 
than necessary to provide affordable housing, as required by section 
102(d) of the Department of Housing and Urban Development Reform Act of 
1989, 42 U.S.C. 3545(d);
    (11) Whether any other processing criteria that HUD may prescribe 
from time to time are satisfied;
    (12) Whether the mixed-finance owner has certified to compliance:
    (i) With all applicable Federal, State, or local civil rights laws 
and regulations;
    (ii) With all environmental regulations;
    (iii) With applicable wage rates determined in accordance with the 
Davis-Bacon Act and with related labor standards.



Sec. 891.825  Evidentiary materials.

    Any updates or amendments to materials submitted at the firm 
commitment/mixed-finance proposal stage must be submitted as part of the 
evidentiary materials, even if not specifically requested.
    (a) General. Except as otherwise expressly provided, a mixed-finance 
owner is required to submit for HUD review and approval prior to HUD's 
approval of the release or drawdown of capital advance funds all 
evidentiary materials required by HUD. Upon HUD approval of evidentiary 
materials, the evidentiary materials will be executed and recorded in 
the order required by HUD, along with other required documents. All the 
executed documents for the mixed-finance project will be made available 
for HUD's final review before drawdown of funds. The evidentiary 
materials must include:
    (1) Organizational documents. Updated organizational documents of 
the mixed-finance owner, nonprofit organization, and all participating 
parties in the partnership showing that:
    (i) One of the purposes of the mixed-finance owner is the promotion 
of the welfare of elderly persons or persons with disabilities;
    (ii) There is no prohibited conflict of interest or prohibited 
identity of interest involving the sponsor, the nonprofit organization, 
or the mixed-finance owner, and the mixed-finance owner is not 
controlled by or under the direction of persons or firms seeking to 
derive profit or gain from the mixed-finance owner. Individual conflict 
of interest and identity of interest and disclosure certifications must 
be submitted by all directors, officers, shareholders, trustees, and 
agents of the mixed-finance owner and the nonprofit organization and all 
development team members; and
    (iii) A partnership agreement has been entered into between the 
mixed-finance owner, its general partner, and any other participating 
entities that establishes the relationship of the partners with respect 
to implementation of the proposal.
    (2) Amendment to capital advance. A mixed-finance amendment to the 
capital advance agreement.

[[Page 230]]

    (3) Deed; declaration of covenants or deed restriction. A deed or 
ground lease to the mixed-finance owner with a declaration of covenants 
or deed restriction, and a pro forma title policy. The first recorded 
document must be a covenant running with the land, deed restriction, Use 
Agreement, or other document of public record in the form prescribed by 
HUD that will assure to HUD's satisfaction that the HUD-assisted units 
will be available for use by eligible very low-income elderly or 
disabled families in accordance with all applicable requirements for no 
less than 40 years, and that any party that subsequently acquires the 
mixed-finance development will be fully bound under these covenants and 
deed restrictions;
    (4) Zoning. Evidence that the zoning of the site permits 
construction of the mixed-finance development;
    (5) Site control. Evidence that the sponsor, nonprofit organization, 
or mixed-finance owner has control of the site for such period of time 
as may be required by HUD, and a title policy or report evidencing that 
the site is free of any encumbrances, restrictions, or reverters that 
could adversely affect use of the site for the proposed project;
    (6) Development agreement. Any development agreement or agreements, 
or other document showing the proposed development schedule; the 
respective responsibilities of each party for each development phase; 
the expected costs and financing for those costs; the allocation of risk 
of loss as between or among the parties; and guarantees of completion, 
insurance, and bonding requirements as applicable to regular 202 and 811 
projects;
    (7) Regulatory agreement. A regulatory or operating agreement that 
provides binding assurance that operation of the 202 or 811 units will 
be in accordance with the applicable Section 202 or 811 requirements;
    (8) Management agreement. Any agreement relating to management of 
the Section 202 or 811 development by an entity other than the mixed-
finance owner or the nonprofit organization, requiring that the 
management of the project will be in accordance with Section 202 or 811 
requirements;
    (9) Financing documents. Any updates to the financing and firm 
commitment documents required under the mixed-Finance Proposal;
    (10) Federal subsidies. A description of the amount and source of 
any housing assistance that the project will receive from a state, unit 
of local government, or the Federal government, as required by section 
102(d) of the HUD Reform Act of 1989, 42 U.S.C. 3545(d);
    (11) Certification of compliance with approved proposal. The mixed-
finance owner's certification that it will develop and operate the 
number of 202 or 811 units approved by HUD, in the configuration and 
with the bedroom sizes approved by HUD, within the approved cost limits; 
and comply with all applicable statutory, regulatory, and Executive 
Order requirements for the 40-year period required by law and in 
accordance with the HUD-approved proposal;
    (12) Legal opinion. A legal opinion supporting the legal capacity of 
the mixed-finance owner and its affiliates to enter into all necessary 
agreements to develop and operate the mixed-finance project, as well as 
the validity and priority of the covenants and restrictions of the 
mixed-finance documents. The legal opinion must attest that the counsel 
has examined the availability of the participating parties' financing, 
the amounts and sources of financing committed to the mixed-finance 
project by the participating parties, and that such financing has been 
irrevocably committed for use in carrying out the project;
    (13) No assignment. A statement by the mixed-finance owner and the 
nonprofit organization, which must be included in all agreements and 
contracts with participating parties, that a transfer of 202 or 811 
capital advance funds or rental assistance to the mixed-finance owner 
shall not be deemed an assignment of the funds, and the transferee shall 
not succeed to any rights or benefits of the nonprofit organization 
under the capital advance agreement;
    (14) No third-party beneficiary relationship. A statement to be 
included in the capital advance agreement and the mixed-finance 
amendment to the capital advance agreement that nothing in the capital 
advance agreement or

[[Page 231]]

mixed-finance amendment to the capital advance agreement shall be deemed 
to create a relationship of third party beneficiary, principal-agent, or 
any relationship involving HUD.
    (15) Additional certifications. The owner's certification to:
    (i) Compliance with all applicable Federal, State, or local civil 
rights requirements;
    (ii) Compliance with all deed conditions and covenants running with 
the land, including the requirement not to dispose of the development 
without the prior written approval of HUD for the entire period that the 
use restrictions for the assisted housing remain in effect;
    (b) Other. The mixed-finance owner must submit such other 
evidentiary materials as HUD may require.

    Effective Date Note: At 68 FR 67321, Dec. 1, 2003, Sec. 891.825 was 
added. This section contains information collection and recordkeeping 
requirements and will not become effective until approval has been given 
by the Office of Management and Budget.



Sec. 891.828  Loan of capital advance funds to mixed-finance owner.

    Upon issuance of the firm commitment for capital advance financing, 
the nonprofit organization to which has been transferred the fund 
reservation by the sponsor, shall execute a capital advance agreement 
and an agreement to enter into a Project Rental Assistance Contract with 
HUD. Upon approval of the mixed-finance proposal and the evidentiary 
materials, the mixed-finance owner shall provide a Note evidencing a 
non-amortizing loan of the capital advance funds for a period of not 
less than 40 years at the program interest rate in effect on the date of 
the Note. The mixed-finance owner shall execute and record a use 
agreement, which shall include a complete legal description of the 
project site and which shall be accompanied by a title insurance policy 
or commitment insuring the validity and priority of the use agreement. 
Capital advance funds can be drawn down under a disbursement and escrow 
agreement in accordance with Sec. 891.830.



Sec. 891.830  Drawdown.

    (a) Upon its approval of the executed evidentiary materials and 
other documents submitted and upon determining that such documents are 
satisfactory, HUD may approve the drawdown of capital advance funds in 
accordance with the HUD-approved drawdown schedule.
    (b) The capital advance funds may only be drawn down in an approved 
ratio to other funds, in accordance with a drawdown schedule approved by 
HUD. The nonprofit organization and the mixed-finance owner shall 
certify, in a form prescribed by HUD, prior to the initial drawdown of 
capital advance funds, that they will not draw down more capital advance 
funds than necessary to meet the pro rata share of the development costs 
for the 202 or 811 units. The nonprofit organization and the mixed-
finance owner shall draw down capital advance funds only when payment is 
due and after inspection and acceptance of work covered by the draw.
    (c) Each drawdown of funds constitutes a certification by the mixed-
finance owner and the nonprofit organization that:
    (1) All the representations and warranties submitted in accordance 
with this subpart continue to be valid, true, and in full force and 
effect;
    (2) All parties are in compliance with their obligations pursuant to 
this subpart which, by their terms, are applicable at the time of the 
drawdown of funds;
    (3) All conditions precedent to the drawdown of the funds by the 
nonprofit organization and the mixed-finance owner have been satisfied;
    (4) The capital advance funds drawn down will be used only for 
eligible costs actually incurred in accordance with the provisions of 
this subpart and the approved proposal; and
    (5) The amount of the drawdown is consistent with the ratio of 202 
or 811 units to other units.



Sec. 891.833  Monitoring and review.

    HUD shall monitor and review the development during the construction 
and operational phases in accordance

[[Page 232]]

with the requirements that HUD prescribes in the mixed-finance amendment 
to the capital advance agreement. In order for units assisted under the 
202 and 811 programs to continue to receive project rental assistance, 
they must be operated in accordance with the mixed-finance amendment to 
the capital advance agreement and all other HUD regulations and 
requirements. It is the responsibility of the mixed-finance owner and 
nonprofit organization to ensure compliance with the preceding sentence.



Sec. 891.835  Eligible uses of project rental assistance.

    (a) Section 202 or 811 project rental assistance may be used to pay 
the necessary and reasonable operating costs, as defined in 24 CFR 
891.105 and approved by HUD, not met from project income and attributed 
to Section 202 or 811 units. Operating cost standards under 24 CFR 
891.150 apply to developments under this part.
    (b) Section 202 or 811 project rental assistance may not be used to 
pay for:
    (1) Debt service on construction or permanent financing, or any 
refinancing thereof, for any units in the development, including the 202 
or 811 units;
    (2) Cash flow distributions to owners; or
    (3) Creation of reserves for non-202 or -811 units.
    (c) HUD-approved operating costs attributable to common areas or to 
the development as a whole, such as groundskeeping costs and general 
administrative costs, may be paid from project rental assistance on a 
pro-rata basis according to the percentage of 202 or 811 assisted units 
as compared to the total number of units.



Sec. 891.840  Site and neighborhood standards.

    For Section 202 or 811 mixed-finance developments, the site and 
neighborhood standards described at Sec. 891.125 and Sec. 891.320 
apply to the entire mixed-finance development.



Sec. 891.848  Project design and cost standards.

    The project design and cost standards at Sec. 891.120, with the 
exception of sub-section (c), apply to mixed-finance developments under 
this subpart. Sections 891.220 and 891.315 on prohibited facilities 
shall apply to mixed-finance developments under this subpart.



Sec. 891.853  Development cost limits.

    The Development cost limits for development activities, as 
established at Sec. 891.140, apply to Section 202 or 811 units in 
mixed-finance developments under this subpart.



Sec. 891.855  Replacement reserves.

    (a) The mixed-finance owner shall establish and maintain a 
replacement reserve account for section 202 or 811 units. This account 
must meet all the requirements of 24 CFR 891.405.
    (b) The mixed-finance owner may obtain a disbursement from the 
reserve only if the funds will be used to pay for capital replacement 
costs for the Section 202 or 811 units in the mixed-finance development 
and in accordance with the terms of the regulatory and operating 
agreement. In the event of a disposition of the mixed-finance 
development, or the dissolution of the owner, any Section 202 or 811 
funds remaining in the replacement reserve account must remain dedicated 
to the Section 202 or 811 units to ensure their long-term viability, or 
as otherwise agreed by HUD.
    (c) Subject to HUD's approval, reserves may be used to reduce the 
number of dwelling units in the development for the purpose of 
retrofitting units that are obsolete or unmarketable.



Sec. 891.860  Operating reserves.

    (a) The mixed-finance owner shall maintain an operating reserve 
account in an amount sufficient to cover the operating expenses of the 
development for a three-month period.
    (b) Project income and tax credit equity may be used to fund the 
operating reserve account.



Sec. 891.863  Maintenance as supportive housing units for elderly persons 
and persons with disabilities.

    (a) The mixed-finance owner must develop and continue to operate the 
same number of supportive housing units for

[[Page 233]]

elderly persons or persons with disabilities, as stated in the mixed-
finance amendment to the capital advance agreement, for a 40-year 
period.
    (b) If a mixed-finance development proposal provides that the 
Section 202 or 811 supportive housing units will be floating units, the 
mixed-finance owner must operate the HUD-approved percentage of Section 
202 or 811 supportive housing units, and maintain the percentage 
distribution of bedroom sizes of Section 202 or 811 supportive housing 
units, for the entire term of the very low-income use restrictions on 
the development. Any foreclosure, sale, or other transfer of the 
development must be subject to a covenant running with the land 
requiring the continued adherence to the very low-income use 
restrictions for the Section 202 or 811 supportive housing units.
    (c) The Owner must ensure that Section 202 or 811 units in the 
development are and continue to be comparable to unassisted units in 
terms of location, size, appearance, and amenities.



Sec. 891.865  Sanctions.

    In the event that Section 202 or 811 units are not developed and 
operated in accordance with all applicable Federal requirements, HUD may 
impose sanctions on the participating parties and seek legal or 
equitable relief in enforcing all requirements under section 202, the 
Housing Act of 1959, or section 811 of the National Affordable Housing 
Act, all implementing regulations and requirements and contractual 
obligations under the mixed-finance documents.

[[Page 235]]



CHAPTER IX--OFFICE OF ASSISTANT SECRETARY FOR PUBLIC AND INDIAN HOUSING, 
               DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT




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


  Editorial Note: For nomenclature changes to chapter IX, see 59 FR 
14090, Mar. 25, 1994.
Part                                                                Page
901             Public Housing Management Assessment Program         237
902             Public Housing Assessment System............         266
903             Public housing agency plans.................         295
904             Low rent housing homeownership opportunities         308
905             The Public Housing Capital Fund Program.....         354
906             Public housing homeownership programs.......         360
908             Electronic transmission of required family 
                    data for public housing, indian housing, 
                    and the section 8 rental certificate, 
                    rental voucher, and moderate 
                    rehabilitation programs.................         372
941             Public housing development..................         373
943             Public housing agency consortia and joint 
                    ventures................................         397
945             Designated housing--public housing 
                    designated for occupancy by disabled, 
                    elderly, or disabled and elderly 
                    families................................         402
954             Indian home program.........................         411
960             Admission to, and occupancy of, public 
                    housing.................................         437
963             Public Housing--Contracting with resident-
                    owned businesses........................         452
964             Tenant participation and tenant 
                    opportunities in public housing.........         455
965             PHA-owned or leased projects--general 
                    provisions..............................         472
966             Public housing lease and grievance procedure         484
968             Public housing modernization................         497
969             PHA-owned projects--continued operation as 
                    low-income housing after completion of 
                    debt service............................         535
970             Public housing program--demolition or 
                    disposition of public housing projects..         537

[[Page 236]]

971             Assessment of the reasonable revitalization 
                    potential of certain public housing 
                    required by law.........................         552
972             Conversion of public housing to tenant-based 
                    assistance..............................         559
982             Section 8 tenant based assistance: housing 
                    choice voucher program..................         571
983             Section 8 project-based certificate program.         653
984             Section 8 and public housing family self-
                    sufficiency program.....................         676
985             Section 8 management assessment program 
                    (SEMAP).................................         691
990             Annual contributions for operating subsidy..         702
1000            Native American housing activities..........         727
1001-1002       [Reserved]
1003            Community development block grants for 
                    Indian tribes and Alaska native villages         769
1004            [Reserved]
1005            Loan guarantees for Indian housing..........         805
1006            Native Hawaiian Housing Block Grant Program.         809
1007            Section 184A loan guarantees for Native 
                    Hawaiian housing........................         825
1008-1699       [Reserved]

[[Page 237]]



PART 901_PUBLIC HOUSING MANAGEMENT ASSESSMENT PROGRAM--Table of Contents




Sec.
901.1 Purpose, program scope and applicability.
901.5 Definitions.
901.10 Indicator 1, vacancy rate and unit turnaround time.
901.15 Indicator 2, modernization.
901.20 Indicator 3, rents uncollected.
901.25 Indicator 4, work orders.
901.30 Indicator 5, annual inspection of units and systems.
901.35 Indicator 6, financial management.
901.40 Indicator 7, resident services and community building.
901.45 Indicator 8, security.
901.100 Data collection.
901.105 Computing assessment score.
901.110 PHA request for exclusion or modification of an indicator or 
          component.
901.115 PHA score and status.
901.120 State/Area Office functions.
901.125 PHA right of appeal.
901.130 Incentives.
901.135 Memorandum of Agreement.
901.140 Removal from troubled status and mod-troubled status.
901.145 Improvement Plan.
901.150 PHAs troubled with respect to the program under section 14 (mod-
          troubled PHAs).
901.155 PHMAP public record.
901.200 Events or conditions that constitute substantial default.
901.205 Notice and response.
901.210 Interventions.
901.215 Contracting and funding.
901.220 Resident participation in competitive proposals to manage the 
          housing of a PHA.
901.225 Resident petitions for remedial action.
901.230 Receivership.
901.235 Technical assistance.

    Authority: 42 U.S.C. 1437d(j); 42 U.S.C. 3535(d).

    Source: 61 FR 68933, Dec. 30, 1996, unless otherwise noted.



Sec. 901.1  Purpose, program scope and applicability.

    (a) Purpose. This part establishes the Public Housing Management 
Assessment Program (PHMAP) to implement and augment section 6(j) of the 
1937 Act. PHMAP provides policies and procedures to identify public 
housing agency (PHA), resident management corporation (RMC), and 
alternative management entity (AME) management capabilities and 
deficiencies, recognize high-performing PHAs, designate criteria for 
defining troubled PHAs and PHAs that are troubled with respect to the 
program under section 14 (Public Housing Modernization Program), and 
improve the management practices of troubled PHAs and mod-troubled PHAs.
    (b) Program scope. The PHMAP reflects only one aspect of PHA 
operations, i.e., the results of its management performance in specific 
program areas. The PHMAP should not be viewed by PHAs, the Department or 
other interested parties as an all-inclusive and encompassing view of 
overall PHA operations. When viewing overall PHA operations, other 
criteria, including but not limited to, the quality of a PHA's housing 
stock, compliance issues, Fair Housing and Equal Opportunity issues, 
Board knowledge and oversight of PHA operation, etc., even though not 
covered under the PHMAP, are necessary in order to determine the 
adequacy of overall PHA operations. The PHMAP can never be designed to 
be the sole method of viewing a PHA's overall operations. A PHA should 
not manipulate the PHMAP system in the short-term in order to achieve a 
higher PHMAP score, thereby delaying or negating long-term improvement. 
Making a correct and viable long-term decision (doing the right thing) 
may hurt a PHA in the short-term (i.e., lower PHMAP score), but will 
result in improved housing stock and better overall management of a PHA 
over the long-term and a higher sustainable PHMAP score.
    (c) Applicability. (1)(i) The provisions of this part remain 
applicable to PHAs and RMC/AMEs as described in paragraph (c)(1)(ii) 
until September 30, 1999.
    (ii) The provisions of this part apply to PHAs and RMC/AMEs as noted 
in the sections of this part. The management assessment of an RMC/AME 
differs from that of a PHA. Because an RMC/AME enters into a contract 
with a PHA to perform specific management functions on a development-by-
development or program basis, and because the scope of the management 
that is undertaken varies, not every indicator that applies to a PHA 
would be applicable to each RMC/AME.

[[Page 238]]

    (2) Due to the fact that the PHA and not the RMC/AME is ultimately 
responsible to the Department under the ACC, a PHA's score will be based 
on all of the developments covered by the ACC, including those with 
management functions assumed by an RMC or AME (pursuant to a court 
ordered receivership agreement, if applicable). This is necessary 
because of the limited nature of an RMC/AME's management functions and 
the regulatory and contractual relationships among the Department, PHAs 
and RMC/AMEs.
    (3) A significant feature of RMC management is that 24 CFR 
Sec. Sec. 964.225 (d) and (h) provide that a PHA may enter into a 
management contract with an RMC, but a PHA may not contract for 
assumption by the RMC of the PHA's underlying responsibilities to the 
Department under the Annual Contributions Contract (ACC).
    (4) When a PHA's management functions have been assumed by an AME:
    (i) If the AME assumes only a portion of the PHA's management 
functions, the provisions of this part that apply to RMCs apply to the 
AME (pursuant to a court ordered receivership agreement, if applicable); 
or
    (ii) If the AME assumes all, or substantially all, of the PHA's 
management functions, the provisions of this part that apply to PHAs 
apply to the AME (pursuant to a court ordered receivership agreement, if 
applicable).
    (5) To ensure quality management results from a contract between an 
AME and a PHA, or between an AME and HUD, minimum performance criteria 
that relate to the PHMAP indicators, as applicable, should be included 
in such contract. Failure to meet the performance criteria would be a 
basis for termination of the contract. However, even in the absence of 
explicit contractual provisions, this part applies to AMEs in accordance 
with paragraph (b)(4) of this section, above.

[61 FR 68933, Dec. 30, 1996, as amended at 63 FR 46617, Sept. 1, 1998]



Sec. 901.5  Definitions.

    Actual vacancy rate is the vacancy rate calculated by dividing the 
total number of vacancy days in the fiscal year by the total number of 
unit days available in the fiscal year.
    Adjusted vacancy rate is the vacancy rate calculated after excluding 
the vacancy days that are exempted for any of the eligible reasons. It 
is calculated by dividing the total number of adjusted vacancy days in 
the fiscal year by the total number of unit days available in the fiscal 
year.
    Alternative management entity (AME) is a receiver, private 
contractor, private manager, or any other entity that is under contract 
with a PHA, or that is otherwise duly appointed or contracted (for 
example, by court order, pursuant to a court ordered receivership 
agreement, if applicable, or agency action), to manage all or part of a 
PHA's operations. Depending upon the scope of PHA management functions 
assumed by the AME, in accordance with Sec. 901.1(b)(2), the AME is 
treated as a PHA or an RMC for purposes of this part and, as 
appropriate, the terms PHA and RMC include AME.
    Assessed fiscal year is the PHA fiscal year that has been reviewed 
for management performance using the PHMAP indicators. Unless otherwise 
indicated, the assessed fiscal year is the immediate past fiscal year of 
a PHA.
    Assistant Secretary means the Assistant Secretary for Public and 
Indian Housing of the Department.
    Available units are dwelling units, (occupied or vacant) under a 
PHA's Annual Contributions Contract, that are available for occupancy, 
after excluding or adjusting for units approved for non-dwelling use, 
employee-occupied units, and vacant units approved for deprogramming 
(units approved for demolition, disposition or units that have been 
combined).
    Average number of days for non-emergency work orders to be completed 
is calculated by dividing the total of the:
    (1) Number of days in the assessed fiscal year it takes to close 
active non-emergency work orders carried over from the previous fiscal 
year;
    (2) The number of days it takes to complete non-emergency work 
orders issued and closed during the assessed fiscal year; and
    (3) The number of days all active non-emergency work orders are open 
in the assessed fiscal year, but not completed, by the total number of 
non-

[[Page 239]]

emergency work orders used in the calculation of paragraphs (1), (2) and 
(3), of this definition.
    Average turnaround time is the annual average of the total number of 
turnaround days between the latter of the legal expiration date of the 
immediate past lease or the actual move-out date of the former tenant 
(whenever that occurred, including in some previous fiscal year) and the 
date a new lease takes effect. Each time an individual unit is re-
occupied (turned around) during the fiscal year, the turnaround days for 
that unit shall be counted in the turnaround time. Average turnaround 
time is calculated by dividing the total turnaround days for all units 
re-occupied during the assessed fiscal year by the total number of units 
re-occupied during the assessed fiscal year.
    Cash reserve is the amount of cash available for operations at the 
end of an annual reporting period after all necessary expenses of a PHA 
or development have been paid or funds have been set-aside for such 
payment. The cash reserve computation takes into consideration both 
short-term accounts receivable and accounts payable.
    Confirmatory review is an on-site review for the purposes of State/
Area Office verification of the performance level of a PHA, the accuracy 
of the data certified to by a PHA, and the accuracy of the data derived 
from State/Area Office files.
    Correct means to improve performance in an indicator to a level of 
grade C or better.
    Cyclical work orders are work orders issued for the performance of 
routine maintenance work that is done in the same way at regular 
intervals. Examples of cyclical work include, but are not limited to, 
mopping hallways; picking up litter; cleaning a trash compactor; 
changing light bulbs in an entryway; etc. (Cyclical work orders should 
not be confused with preventive maintenance work orders.)
    Deficiency means any grade below C in an indicator or component.
    Down time is the number of calendar days a unit is vacant between 
the later of the legal expiration date of the immediate past lease or 
the actual move-out date of the former resident, and the date the work 
order is issued to maintenance.
    Dwelling rent refers to the resident dwelling rent charges reflected 
in the monthly rent roll(s) and excludes utility reimbursements, 
retroactive rent charges, and any other charges not specifically 
identified as dwelling rent, such as maintenance charges, excess utility 
charges and late charges.
    Dwelling rent to be collected means dwelling rent owed by residents 
in possession at the beginning of the assessed fiscal year, plus 
dwelling rent charged to residents during the assessed fiscal year.
    Dwelling rent uncollected means unpaid resident dwelling rent owed 
by any resident in possession during the assessed fiscal year, but not 
collected by the last day of the assessed fiscal year.
    Dwelling unit is a unit that is either leased or available for lease 
to eligible low-income residents.
    Effective lease date is the date when the executed lease contract 
becomes effective and rent is due and payable and all other provisions 
of the lease are enforceable.
    Emergency means physical work items that pose an immediate threat to 
life, health, safety, or property, or that are related to fire safety.
    Emergency status abated means that an emergency work order is either 
fully completed, or the emergency condition is temporarily eliminated 
and no longer poses an immediate threat. If the work cannot be 
completed, emergency status can be abated by transferring the resident 
away from the emergency situation.
    Emergency work order is a work order, from any source, that involves 
a circumstance that poses an immediate threat to life, health, safety or 
property, or that is related to fire safety.
    Employee occupied units refers to units that are occupied by 
employees who are required to live in public housing as a condition of 
their job, rather than the occupancy being subject to the normal 
resident selection process.
    HQS means Housing Quality Standards as set forth at Sec. 982.401 of 
this title, except that Sec. 982.401(j) of this title

[[Page 240]]

does not apply and instead part 35, subparts A, B, L, and R of this 
title apply.
    Improvement Plan is a document developed by a PHA, specifying the 
actions to be taken, including timetables, that may be required to 
correct deficiencies where the grade for an indicator is a grade D or E, 
and shall be required to correct deficiencies of failed indicators, 
identified as a result of the PHMAP assessment when an MOA is not 
required.
    Indicators means the major categories of PHA management functions 
that are examined under this program for assessment purposes. The list 
of individual indicators and the way they are graded is provided in 
Sec. 901.10 through Sec. 901.45.
    Lease up time is the number of calendar days between the time the 
repair of a unit is completed and a new lease takes effect.
    Local occupancy/housing codes are the minimum standards for human 
occupancy, if any, as defined by the local ordinance(s) of the 
jurisdiction in which the housing is located.
    Maintenance plan is a comprehensive annual plan of a PHA's 
maintenance operation that contains the fiscal year's estimated work 
schedule and which is supported by a staffing plan, contract schedule, 
materials and procurement plan, training, and approved budget. The plan 
should establish a strategy for meeting the goals and time frames of the 
facilities management planning and execution, capital improvements, 
utilities, and energy conservation activities.
    Major systems include, but are not limited to, structural/building 
envelopes which include roofing, walls, windows, hardware, flashing and 
caulking; mechanical systems which include heating, ventilation, air 
conditioning, plumbing, drainage, underground utilities (gas, electrical 
and water), and fuel storage tanks; electrical systems which include 
underground systems, above ground systems, elevators, emergency 
generators, door bells, electronic security devices, fire alarms, smoke 
alarms, outdoor lighting, and indoor lighting (halls, stairwells, public 
areas and exit signs); and transformers.
    Make ready time is the number of calendar days between the date the 
unit is referred to maintenance for repair by a work order and occupancy 
is notified that the unit is ready for re-occupancy.
    Memorandum of Agreement (MOA) is a binding contractual agreement 
between a PHA and HUD that is required for each PHA designated as 
troubled and/or mod-troubled. The MOA sets forth target dates, 
strategies and incentives for improving management performance; and 
provides sanctions if performance does not result.
    Move-out date is the actual date when the resident vacates the unit, 
which may or may not coincide with the legal expiration of the lease 
agreement.
    Non-emergency work order is any work order that covers a situation 
that is not an immediate threat to life, health, safety, or property, or 
that is unrelated to fire safety.
    Percent of dwelling rent uncollected is calculated by dividing the 
amount of dwelling rent uncollected by the total dwelling rent to be 
collected.
    PHA means a public housing agency. As appropriate in accordance with 
Sec. 901.1(b)(2), PHA also includes AME.
    Percentage of emergency work orders completed within 24 hours is the 
ratio of emergency work orders completed in 24 hours to the total number 
of emergency work orders. The formula for calculating this ratio is: 
total emergency work orders completed (or emergency status abated) in 24 
hours or less, divided by the total number of emergency work orders.
    PHA-generated work order is any work order that is issued in 
response to a request from within the PHA administration.
    Preventive maintenance program is a program under which certain 
maintenance procedures are systematically performed at regular intervals 
to prevent premature deterioration of buildings and systems. The program 
is developed and regularly updated by the PHA, and fully documents what 
work is to be performed and at what intervals. The program includes a 
system for tracking the performance of preventive maintenance work.
    Preventive maintenance work order is any work done on a regularly 
scheduled basis in order to prevent deterioration or breakdowns in 
individual units or major systems.

[[Page 241]]

    Reduced actual vacancy rate within the previous three years is a 
comparison of the vacancy rate in the PHMAP assessment year (the 
immediate past fiscal year) with the vacancy rate of that fiscal year 
which is two years previous to the assessment year. It is calculated by 
subtracting the vacancy rate in the assessment year from the vacancy 
rate in the earlier year. If a PHA elects to certify to the reduction of 
the vacancy rate within the previous three years, the PHA shall retain 
justifying documentation to support its certification for HUD post 
review.
    Reduced the average time it took to complete non-emergency work 
orders during the previous three years is a comparison of the average 
time it took to complete non-emergency work orders in the PHMAP 
assessment year (the immediate past fiscal year) with the average time 
it took to complete non-emergency work orders of that fiscal year which 
is two years previous to the assessment year. It is calculated by 
subtracting the average time it took to complete non-emergency work 
orders in the PHMAP assessment year from the average time it took to 
complete non-emergency work orders in the earlier year. If a PHA elects 
to certify to the reduction of the average time it took to complete non-
emergency work orders during the previous three years, the PHA shall 
retain justifying documentation to support its certification for HUD 
post review.
    Resident-generated work order is a work order issued by a PHA in 
response to a request from a lease holder or family member of a lease 
holder.
    Resident management corporation (RMC) means the entity that proposes 
to enter into, or that enters into, a management contract with a PHA in 
accordance with 24 CFR 964.120. As appropriate in accordance with Sec. 
901.1(b)(2), RMC also includes AME.
    Routine operating expenses are all expenses which are normal, 
recurring fiscal year expenditures. Routine expenses exclude those 
expenditures that are not normal fiscal year expenditures and those that 
clearly represent work of such a substantial nature that the expense is 
clearly not a routine occurrence.
    Standards equivalent to HQS are housing/occupancy inspection 
standards that are equal to HUD's Section 8 HQS.
    Substantial default means a PHA is determined by the Department to 
be in violation of statutory, regulatory or contractual provisions or 
requirements, whether or not these violations would constitute a 
substantial default or a substantial breach under explicit provisions of 
the relevant Annual Contributions Contract (ACC) or a Memorandum of 
Agreement.
    Unit days available are the number of days that the available units 
were available for occupancy in a PHA fiscal year. Unit days available 
are calculated by adding the number of days that each unit was available 
for occupancy in the year.
    Units approved for non-dwelling use refers to units approved for 
non-dwelling status for use in the provision of social services, 
charitable purposes, public safety activities and resident services, or 
used in the support of economic self-sufficiency and anti-drug 
activities.
    Units vacant due to circumstances and actions beyond the PHA's 
control are dwelling units that are vacant due to circumstances and 
actions that prohibit the PHA from occupying, selling, demolishing, 
rehabilitating, reconstructing, consolidating or modernizing the units. 
For purposes of this definition, circumstances and actions beyond the 
PHA's control are limited to:
    (1) Litigation. The effect of court litigation such as a court order 
or settlement agreement that is legally enforceable. An example would be 
units that are required to remain vacant because of fire/police 
investigations, coroner's seal, or as part of a court-ordered or HUD-
approved desegregation effort.
    (2) Laws. Federal or State laws of general applicability, or their 
implementing regulations. This category does not include units vacant 
only because they do not meet minimum housing and building code 
standards pertaining to construction or habitability under Federal, 
State, or local laws or regulations, except when these code violations 
are caused for reasons beyond the control of the PHA, rather than as a 
result of management and/or

[[Page 242]]

maintenance failures by the PHA. Examples of exempted units under this 
category are: vacant units that are documented to be uninhabitable for 
reasons beyond the PHA's control due to high/unsafe levels of hazardous/
toxic materials (e.g., lead-based paint or asbestos), by order of the 
local health department or directive of the Environmental Protection 
Agency, where the conditions causing the order are beyond the control of 
the PHA, and units kept vacant because they became structurally unsound 
(e.g., buildings damaged by shrinking/swelling subsoil or similar 
situations). Other examples are vacant units in which resident property 
has been abandoned, but only if State law requires the property to be 
left in the unit for some period of time, and only for the period stated 
in the law and vacant units required to remain vacant because of fire/
police investigations, coroner's seal, or court order.
    (3) Changing market conditions. Example of units in this category 
are small PHAs that are located in areas experiencing population loss or 
economic dislocations that face a lack of demand in the foreseeable 
future, even after the PHA has taken aggressive marketing and outreach 
measures. Where a PHA claims extraordinary market conditions, the PHA 
will be expected to document the market conditions to which it refers 
(the examples of changing population base and competing projects are the 
simplest), the explicit efforts that the PHA has made to address those 
conditions, the likelihood that those conditions will be mitigated or 
eliminated in the near term, and why the market conditions are such that 
the PHA is prevented from occupying, selling, demolishing, 
rehabilitating, reconstructing, consolidating or modernizing the vacant 
units. In order to justify the adjustment, the PHA will need to document 
the specific market conditions that exist and document marketing and 
outreach efforts. The PHA will need to describe when the downturn in 
market conditions occurred, the location(s) of the unit(s) effected, the 
likelihood that these circumstances will be mitigated or eliminated in 
the near term and why the market conditions are such that they are 
preventing the PHA from occupying, selling, demolishing, rehabilitating, 
reconstructing, consolidating, or modernizing the vacant units.
    (4) Natural disasters. These are vacant units that are documented to 
be uninhabitable because of damaged suffered as a result of natural 
disasters such as floods, earthquakes, hurricanes, tornadoes, etc. In 
the case of a ``natural disaster'' claim, the PHA would be expected to 
point to a proclamation by the President or the Governor that the county 
or other local area in question has, in fact, been declared a disaster 
area.
    (5) Insufficient funding. Lack of funding for otherwise approvable 
applications made for Comprehensive Improvement Assistance Program 
(CIAP) funds (only PHAs with less than 250 units are eligible to apply 
and compete for CIAP funds). This definition will cease to be used if 
CIAP is replaced by a formula grant.
    (6) Casualty Losses. Vacant units that have sustained casualty 
damage and are pending resolution of insurance claims or settlements, 
but only until the insurance claim is adjusted, i.e., funds to repair 
the unit are received. The vacancy days exempted are those included in 
the period of time between the casualty loss and the receipt of funds 
from the insurer to cover the loss in whole or in part.
    Vacancy day is a day when an available unit is not under lease by an 
eligible low-income resident. The maximum number of vacancy days for any 
unit is the number of days in the year, regardless of the total amount 
of time the unit has been vacant. Vacancy days are calculated by adding 
the total number of days vacant from all available units that were 
vacant for any reason during the PHA's fiscal year.
    Vacant unit is an available unit that is not under lease to an 
eligible low-income family.
    Vacant unit turnaround work order is a work order issued that 
directs a vacant unit to be made ready to lease to a new resident and 
reflects all work items to prepare the unit for occupancy.

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    Vacant unit undergoing modernization as defined in 24 CFR Sec. 
990.102. In addition, the following apply when computing time periods 
for a vacant unit undergoing modernization:
    (1) If a unit is vacant prior to being included in a HUD-approved 
modernization budget, those vacancy days that had accumulated prior to 
the unit being included in the modernization budget must be included as 
non-exempted vacancy days in the calculation.
    (2) The calculation of turnaround time for newly modernized units 
starts when the unit in turned over to the PHA from the contractor and 
ends when the lease is effective for the new or returning resident. 
Thus, the total turnaround time would be the sum of the pre-
modernization vacancy time, and the post-modernization vacancy time.
    (3) Unit-by-unit documentation, showing when a vacant unit was 
included in a HUD-approved modernization budget, when it was released to 
the PHA by the contractor, and when a new lease is effective for the new 
or returning resident, must be maintained by the PHA.
    (4) Units remaining vacant more than two FFYs after the FFY in which 
the modernization funds are approved, may no longer be exempted from the 
calculation of the adjusted vacancy rate if the construction contract 
has not been let. These units may be exempted again, but only after a 
contract is let.
    Vacant units approved for deprogramming exist when a PHA's 
application for the demolition and/or disposition of public housing 
units has received written approval from HUD; or when a PHA's 
application to combine/convert has received written approval from HUD.
    Work order is a directive, containing one or more tasks issued to a 
PHA employee or contractor to perform one or more tasks on PHA property. 
This directive describes the location and the type of work to be 
performed; the date and time of receipt; date and time issued to the 
person or entity performing the work; the date and time the work is 
satisfactorily completed; the parts used to complete the repairs and the 
cost of the parts; whether the damage was caused by the resident; and 
the charges to the resident for resident-caused damage. The work order 
is entered into a log which indicates at all times the status of all 
work orders as to type (emergency, non-emergency), when issued, and when 
completed.
    Work order completed during the immediate past fiscal year is any 
work order that is completed during the PHA's fiscal year regardless of 
when it may have been received.
    Work order deferred for modernization is any work order that is 
combined with similar work items and completed within the current PHMAP 
assessment year, or will be completed in the following year if there are 
less than three months remaining before the end of the PHA fiscal year 
when the work order was generated, under the PHA's modernization program 
or other PHA capital improvements program.

[61 FR 68933, Dec. 30, 1996, as amended at 64 FR 50228, Sept. 15, 1999]



Sec. 901.10  Indicator #1, vacancy rate and unit turnaround time.

    This indicator examines the vacancy rate, a PHA's progress in 
reducing vacancies, and unit turnaround time. Implicit in this indicator 
is the adequacy of the PHA's system to track the duration of vacancies 
and unit turnaround, including down time, make ready time, and lease up 
time. This indicator has a weight of x2.
    (a) For the calculation of the actual and adjusted vacancy rate 
(and, if applicable, unit turnaround time), the following three 
categories of units (as defined in the rule at Sec. 901.5), that are 
not considered available for occupancy, will be completely excluded from 
the computation:
    (1) Units approved for non-dwelling use.
    (2) Employee occupied units.
    (3) Vacant units approved for deprogramming (i.e., demolition, 
disposition or units that have been combined).
    (b) For the calculation of the adjusted vacancy rate and turnaround 
time, the vacancy days for units in the following categories (fully 
defined in the rule at Sec. 901.5) shall be exempted:

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    (1) Vacant units undergoing modernization as defined in Sec. 901.5.
    (i) Only vacancy days associated with a vacant unit that meets the 
conditions of being a unit undergoing modernization will be exempted 
when calculating the adjusted vacancy rate or, if necessary, the unit 
turnaround time. Neither vacancy days associated with a vacant unit 
prior to that unit meeting the conditions of being a unit undergoing 
modernization nor vacancy days associated with a vacant unit after 
construction work has been completed or after the time period for 
placing the vacant unit under construction has expired shall be 
exempted.
    (ii) A PHA must maintain the following documentation to support its 
determination of vacancy days associated with a vacant unit that meets 
the conditions of being a unit undergoing modernization:
    (A) The date on which the unit met the conditions of being a vacant 
unit undergoing modernization: and
    (B) The date on which construction work was completed or the time 
period for placing the vacant unit under construction expired.
    (2) Units vacant due to circumstances and actions beyond the PHA's 
control as defined in Sec. 901.5. Such circumstances and actions may 
include:
    (i) Litigation, such as a court order or settlement agreement that 
is legally enforceable.
    (ii) Federal or, when not preempted by Federal requirements, State 
law of general applicability or their implementing regulations.
    (iii) Changing market conditions.
    (iv) Natural disasters.
    (v) Insufficient funding for otherwise approvable applications made 
for CIAP funds. This definition will cease to be used if CIAP is 
replaced by a formula grant.
    (vi) Vacant units that have sustained casualty damage and are 
pending resolution of insurance claims or settlements, but only until 
the insurance claim is adjusted. A PHA must maintain at least the 
following documentation to support its determination of vacancy days 
associated with units vacant due to circumstances and actions beyond the 
PHA's control:
    (A) The date on which the unit met the conditions of being a unit 
vacant due to circumstances and actions beyond the PHA's control;
    (B) Documentation identifying the specific conditions that 
distinguish the unit as a unit vacant due to circumstances and actions 
beyond the PHA's control as defined in Sec. 901.5;
    (C) The actions taken by the PHA to eliminate or mitigate these 
conditions; and
    (D) The date on which the unit ceased to meet such conditions and 
became an available unit.
    (E) This supporting documentation is subject to review and may be 
requested for verification purposes at any time by HUD.
    (c) Component 1, vacancy percentage and progress in 
reducing vacancies. A PHA may choose whether to use the actual vacancy 
rate, the adjusted vacancy rate or a reduction in the actual vacancy 
rate within the past three years. This component has a weight of x2.
    (1) Grade A: The PHA is in one of the following categories:
    (i) An actual vacancy rate of 3% or less; or
    (ii) An adjusted vacancy rate of 2% or less.
    (2) Grade B: The PHA is in one of the following categories:
    (i) An actual vacancy rate of greater than 3% and less than or equal 
to 5%; or
    (ii) An adjusted vacancy rate of greater than 2% and less than or 
equal to 3%.
    (3) Grade C: The PHA is in one of the following categories:
    (i) An actual vacancy rate of greater than 5% and less than or equal 
to 7%; or
    (ii) An adjusted vacancy rate of greater than 3% and less than or 
equal to 4%; or
    (iii) The PHA has reduced its actual vacancy rate by at least 15 
percentage points within the past three years and has an adjusted 
vacancy rate of greater than 4% and less than or equal to 5%.
    (4) Grade D: The PHA is in one of the following categories:
    (i) An actual vacancy rate of greater than 7% and less than or equal 
to 9%; or

[[Page 245]]

    (ii) An adjusted vacancy rate of greater than 4% and less than or 
equal to 5%; or
    (iii) The PHA has reduced its actual vacancy rate by at least 10 
percentage points within the past three years and has an adjusted 
vacancy rate of greater than 5% and less than or equal to 6%.
    (5) Grade E: The PHA is in one of the following categories:
    (i) An actual vacancy rate of greater than 9% and less than or equal 
to 10%; or
    (ii) An adjusted vacancy rate of greater than 5% and less than or 
equal to 6%; or
    (iii) The PHA has reduced its actual vacancy rate by at least five 
percentage points within the past three years and has an adjusted 
vacancy rate of greater than 6% and less than or equal to 7%.
    (6) Grade F: The PHA is in one of the following categories:
    (i) An actual vacancy rate greater than 10%; or
    (ii) An adjusted vacancy rate greater than 7%; or
    (iii) An adjusted vacancy rate of greater than 6% and less than or 
equal to 7% and the PHA has not reduced its actual vacancy rate by at 
least five percentage points within the past three years.
    (d) Component 2, unit turnaround time. This component is to 
be completed only by PHAs scoring below a grade C on component 
1. This component has a weight of x1.
    (1) Grade A: The average number of calendar days between the time 
when a unit is vacated and a new lease takes effect for units re-
occupied during the PHA's assessed fiscal year, is less than or equal to 
20 calendar days.
    (2) Grade B: The average number of calendar days between the time 
when a unit is vacated and a new lease takes effect for units re-
occupied during the PHA's assessed fiscal year, is greater than 20 
calendar days and less than or equal to 25 calendar days.
    (3) Grade C: The average number of calendar days between the time 
when a unit is vacated and a new lease takes effect for units re-
occupied during the PHA's assessed fiscal year, is greater than 25 
calendar days and less than or equal to 30 calendar days.
    (4) Grade D: The average number of calendar days between the time 
when a unit is vacated and a new lease takes effect for units re-
occupied during the PHA's assessed fiscal year, is greater than 30 
calendar days and less than or equal to 40 calendar days.
    (5) Grade E: The average number of calendar days between the time 
when a unit is vacated and a new lease takes effect for units re-
occupied during the PHA's assessed fiscal year, is greater than 40 
calendar days and less than or equal to 50 calendar days.
    (6) Grade F: The average number of calendar days between the time 
when a unit is vacated and a new lease takes effect for units re-
occupied during the PHA's assessed fiscal year, is greater than 50 
calendar days.



Sec. 901.15  Indicator #2, modernization.

    This indicator is automatically excluded if a PHA does not have a 
modernization program. This indicator examines the amount of unexpended 
funds over three Federal fiscal years (FFY) old, the timeliness of fund 
obligation, the adequacy of contract administration, the quality of the 
physical work, and the adequacy of budget controls. All components apply 
to both the Comprehensive Grant Program (CGP), the Comprehensive 
Improvement Assistance Program (CIAP) and lead based paint risk 
assessment funding (1992-1995), and any successor program(s) to the CGP 
or the CIAP. Only components 3, 4 and 5 apply 
to funding under the Hope VI Program and the Vacancy Reduction Program 
for the assessment of this indicator. This indicator has a weight of 
x1.5.
    (a) Component 1, unexpended funds over three Federal fiscal 
years (FFYs) old. This component has a weight of x1.
    (1) Grade A: The PHA has no unexpended funds over three FFYs old or 
is able to demonstrate one of the following:
    (i) The unexpended funds are leftover funds and will be recaptured 
after audit;
    (ii) There are no unexpended funds past the original HUD-approved 
implementation schedule deadline that allowed longer than three FFYs; or

[[Page 246]]

    (iii) The PHA has extended the time within 30 calendar days after 
the expenditure deadline and the time extension is based on reasons 
outside of the PHA's control, such as need to use leftover funds, 
unforeseen delays in contracting or contract administration, litigation, 
material shortages, or other non-PHA institutional delay.
    (2) Grade F: The PHA has unexpended funds over three FFYs old and is 
unable to demonstrate any of the above three conditions; or the PHA 
requests HUD approval of a time extension based on reasons within the 
PHA's control.
    (b) Component 2, timeliness of fund obligation. This 
component has a weight of x2.
    (1) Grade A: The PHA has no unobligated funds over two FFYs old or 
is able to demonstrate one of the following:
    (i) There are no unobligated funds past the original HUD-approved 
implementation schedule deadline that allowed longer than two FFYs; or
    (ii) The PHA has extended the time within 30 calendar days after the 
obligation deadline and the time extension is based on reasons outside 
of the PHA's control, such as need to use leftover funds, unforeseen 
delays in contracting or contract administration, litigation, material 
shortages, or other non-PHA institutional delay.
    (2) Grade F: The PHA has unobligated funds over two FFYs old and is 
unable to demonstrate any of the above two conditions; or the PHA 
requests HUD approval of a time extension based on reasons within the 
PHA's control.
    (c) Component 3, adequacy of contract administration. For 
the purposes of this component, the term ``findings'' means a violation 
of a statute, regulation, Annual Contributions Contract or other HUD 
requirement in the area of contract administration. This component has a 
weight of x1.5.
    (1) Grade A: Based on HUD's latest on-site inspection and/or audit, 
where a written report was provided to the PHA at least 75 calendar days 
before the end of the PHA's fiscal year, there were no findings related 
to contract administration or the PHA has corrected all such findings.
    (2) Grade C: Based on HUD's latest on-site inspection and/or audit, 
where a written report was provided to the PHA at least 75 calendar days 
before the end of the PHA's fiscal year, there were findings related to 
contract administration and the PHA is in the process of correcting all 
such findings.
    (3) Grade F: Based on HUD's latest on-site inspection and/or audit, 
where a written report was provided to the PHA at least 75 calendar days 
before the end of the PHA's fiscal year, there were findings related to 
contract administration and the PHA has failed to initiate corrective 
actions for all such findings or those actions which have been initiated 
have not resulted in progress toward remedying all of the findings.
    (d) Component 4, quality of the physical work. For the 
purposes of this component, the term ``findings'' means a violation of a 
statute, regulation, Annual Contributions Contract or other HUD 
requirement in the area of physical work quality. This component has a 
weight of x3.
    (1) Grade A: Based on HUD's latest on-site inspection, where a 
written report was provided to the PHA at least 75 calendar days before 
the end of the PHA's fiscal year, there were no findings related to the 
quality of the physical work or the PHA has corrected all such findings.
    (2) Grade C: Based on HUD's latest on-site inspection, where a 
written report was provided to the PHA at least 75 calendar days before 
the end of the PHA's fiscal year, there were findings related to the 
quality of the physical work and the PHA is in the process of correcting 
all such findings.
    (3) Grade F: Based on HUD's latest on-site inspection, where a 
written report was provided to the PHA at least 75 calendar days before 
the end of the PHA's fiscal year, there were findings related to the 
quality of the physical work and the PHA has failed to initiate 
corrective actions for all such findings or those actions which have 
been initiated have not resulted in progress toward remedying all of the 
findings.
    (e) Component 5, adequacy of budget controls. This 
component has a weight of x1.

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    (1) Grade A: The CGP PHA has expended modernization funds only on 
work in HUD-approved CGP Annual Statements, CGP Five-Year Action Plan, 
excluding emergencies, or CIAP Budgets, or has obtained prior HUD 
approval for required budget revisions. The CIAP PHA has expended 
modernization funds only on work in HUD-approved CIAP Budgets or related 
to originally approved work or has obtained prior HUD approval for 
required budget revisions.
    (2) Grade F: The CGP PHA has expended modernization funds on work 
that was not in HUD-approved CGP Annual Statements, CGP Five-Year Action 
Plan, excluding emergencies, or CIAP Budgets, and did not obtain prior 
HUD approval for required budget revisions. The CIAP PHA has expended 
modernization funds on work that was not in HUD-approved CIAP Budgets or 
was unrelated to originally approved work and did not obtain prior HUD 
approval for required budget revisions.



Sec. 901.20  Indicator #3, rents uncollected.

    This indicator examines the PHA's ability to collect dwelling rent 
owed by residents in possession during the immediate past fiscal year by 
measuring the balance of dwelling rents uncollected as a percentage of 
total dwelling rents to be collected. This indicator has a weight of 
x1.5.
    (a) Grade A: The percent of dwelling rent uncollected in the 
immediate past fiscal year is less than or equal to 2% of total dwelling 
rent to be collected.
    (b) Grade B: The percent of dwelling rent uncollected in the 
immediate past fiscal year is greater than 2% and less than or equal to 
4% of total dwelling rent to be collected.
    (c) Grade C: The percent of dwelling rent uncollected in the 
immediate past fiscal year is greater than 4% and less than or equal to 
6% of total dwelling rent to be collected.
    (d) Grade D: The percent of dwelling rent uncollected in the 
immediate past fiscal year is greater than 6% and less than or equal to 
8% of total dwelling rent to be collected.
    (e) Grade E: The percent of dwelling rent uncollected in the 
immediate past fiscal year is greater than 8% and less than or equal to 
10% of total dwelling rent to be collected.
    (f) Grade F: The percent of dwelling rent uncollected in the 
immediate past fiscal year is greater than 10% of total dwelling rent to 
be collected.



Sec. 901.25  Indicator #4, work orders.

    This indicator examines the average number of days it takes for a 
work order to be completed, and any progress a PHA has made during the 
preceding three years to reduce the period of time required to complete 
maintenance work orders. Implicit in this indicator is the adequacy of 
the PHA's work order system in terms of how a PHA accounts for and 
controls its work orders, and its timeliness in preparing/issuing work 
orders. This indicator has a weight of x1.
    (a) Component 1, emergency work orders completed within 24 
hours or less. All emergency work orders should be tracked. This 
component has a weight of x1.
    (1) Grade A: At least 99% of emergency work orders were completed or 
the emergency was abated within 24 hours or less during the PHA's 
immediate past fiscal year.
    (2) Grade B: At least 98% of emergency work orders were completed or 
the emergency was abated within 24 hours or less during the PHA's 
immediate past fiscal year.
    (3) Grade C: At least 97% of emergency work orders were completed or 
the emergency was abated within 24 hours or less during the PHA's 
immediate past fiscal year.
    (4) Grade D: At least 96% of emergency work orders were completed or 
the emergency was abated within 24 hours or less during the PHA's 
immediate past fiscal year.
    (5) Grade E: At least 95% of emergency work orders were completed or 
the emergency was abated within 24 hours or less during the PHA's 
immediate past fiscal year.
    (6) Grade F: Less than 95% of emergency work orders were completed 
or the emergency was abated within 24 hours or less during the PHA's 
immediate past fiscal year.
    (b) Component 2, average number of days for non-emergency 
work orders to be

[[Page 248]]

completed. All non-emergency work orders that were active during the 
assessed fiscal year should be tracked (including preventive maintenance 
work orders), except non-emergency work orders from the date they are 
deferred for modernization, issued to prepare a vacant unit for re-
rental, or issued for the performance of cyclical maintenance. This 
component has a weight of x2.
    (1) Grade A: All non-emergency work orders are completed within an 
average of 25 calendar days.
    (2) Grade B: All non-emergency work orders are completed within an 
average of greater than 25 calendar days and less than or equal to 30 
calendar days.
    (3) Grade C: The PHA is in one of the following categories:
    (i) All non-emergency work orders are completed within an average of 
greater than 30 calendar days and less than or equal to 40 calendar 
days; or
    (ii) The PHA has reduced the average time it takes to complete non-
emergency work orders by at least 15 days during the past three years.
    (4) Grade D: The PHA is in one of the following categories:
    (i) All non-emergency work orders are completed within an average of 
greater than 40 calendar days and less than or equal to 50 calendar 
days; or
    (ii) The PHA has reduced the average time it takes to complete non 
emergency work orders by at least 10 days during the past three years.
    (5) Grade E: The PHA is in one of the following categories:
    (i) All non-emergency work orders are completed within an average of 
greater than 50 calendar days and less than or equal to 60 calendar 
days; or
    (ii) The PHA has reduced the average time it takes to complete non-
emergency work orders by at least 5 days during the past three years.
    (6) Grade F: The PHA is in one of the following categories:
    (i) All non-emergency work orders are completed within an average of 
greater than 60 calendar days; or
    (ii) The PHA has not reduced the average time it takes to complete 
non-emergency work orders by at least 5 days during the past three 
years.



Sec. 901.30  Indicator #5, annual inspection of units and systems.

    This indicator examines the percentage of units that a PHA inspects 
on an annual basis in order to determine short-term maintenance needs 
and long-term modernization needs. Implicit in this indicator is the 
adequacy of the PHA's inspection program in terms of the quality of a 
PHA's inspections, and how a PHA tracks both inspections and needed 
repairs. All occupied units are required to be inspected. This indicator 
has a weight of x1.
    (a) Units in the following categories are exempted and not included 
in the calculation of the total number of units, and the number and 
percentage of units inspected. Systems that are a part of individual 
dwelling units that are exempted, or a part of a building where all of 
the dwelling units in the building are exempted, are also exempted from 
the calculation of this indicator:
    (1) Occupied units where the PHA has made two documented attempts to 
inspect, but only if the PHA can document that appropriate legal action 
(up to and including eviction of the legal or illegal occupant(s)), has 
been taken under provisions of the lease to ensure that the unit can be 
subsequently inspected.
    (2) Units vacant for the full immediate past fiscal year for the 
following reasons, as defined at Sec. 901.5:
    (i) Vacant units undergoing modernization; and
    (ii) Vacant units that are documented to be uninhabitable for 
reasons beyond a PHA's control due to:
    (A) High/unsafe levels of hazardous/toxic materials;
    (B) By order of the local health department or a directive of the 
Environmental Protection Agency;
    (C) Natural disasters; and
    (D) Units kept vacant because they became structurally unsound.
    (b) Component 1, annual inspection of units. This component 
refers to an inspection using either the local housing and/or occupancy 
code, or HUD HQS if there is no local code or the local code is less 
stringent that HQS. This component has a weight of x1.

[[Page 249]]

    (1) Grade A: The PHA inspected 100% of its units and, if repairs 
were necessary for local code or HQS compliance, either completed the 
repairs during the inspection; issued work orders for the repairs; or 
referred similar work items to the current year's modernization program, 
or to next year's modernization program if there are less than three 
months remaining before the end of the PHA fiscal year when the 
inspection was completed.
    (2) Grade B: The PHA inspected less than 100% but at least 97% of 
its units and, if repairs were necessary for local code or HQS 
compliance, either completed the repairs during the inspection; issued 
work orders for the repairs; or referred similar work items to the 
current year's modernization program, or to next year's modernization 
program if there are less than three months remaining before the end of 
the PHA fiscal year when the inspection was completed.
    (3) Grade C: The PHA inspected less than 97% but at least 95% of its 
units and, if repairs were necessary for local code or HQS compliance, 
either completed the repairs during the inspection; issued work orders 
for the repairs; or referred similar work items to the current year's 
modernization program, or to next year's modernization program if there 
are less than three months remaining before the end of the PHA fiscal 
year when the inspection was completed.
    (4) Grade D: The PHA inspected less than 95% but at least 93% of its 
units and, if repairs were necessary for local code or HQS compliance, 
either completed the repairs during the inspection; issued work orders 
for the repairs; or referred similar work items to the current year's 
modernization program, or to next year's modernization program if there 
are less than three months remaining before the end of the PHA fiscal 
year when the inspection was completed.
    (5) Grade E: The PHA inspected less than 93% but at least 90% of its 
units and, if repairs were necessary for local code or HQS compliance, 
either completed the repairs during the inspection; issued work orders 
for the repairs; or referred similar work items to the current year's 
modernization program, or to next year's modernization program if there 
are less than three months remaining before the end of the PHA fiscal 
year when the inspection was completed.
    (6) Grade F: The PHA has failed to inspect at least 90% of its 
units; or failed to correct deficiencies during the inspection or issue 
work orders for the repairs; or failed to refer similar work items to 
the current year's modernization program, or to next year's 
modernization program if there are less than three months remaining 
before the end of the PHA fiscal year when the inspection was completed.
    (c) Component 2, annual inspection of systems. This 
component examines the inspection of buildings and sites according to 
the PHA's maintenance plan, including performing the required 
maintenance on structures and systems in accordance with manufacturer's 
specifications and established local/PHA standards, or issuing work 
orders for maintenance/repairs, or including identified deficiencies in 
this year's modernization program, or in next year's modernization 
program if there are less than three months remaining before the end of 
the PHA fiscal year when the inspection was performed. This component 
has a weight of x1.
    (1) Grade A: The PHA inspected all major systems at 100% of its 
buildings and sites, according to its maintenance plan. The inspection 
included performing the required maintenance on structures and systems 
in accordance with manufacturer's specifications and established local/
PHA standards, or issuing work orders for maintenance/repairs, or 
including identified deficiencies in the current year's modernization 
program, or in next year's modernization program if there are less than 
three months remaining before the end of the PHA fiscal year when the 
inspection was performed.
    (2) Grade B: The PHA inspected all major systems of at least a 
minimum of 90% but less than 100% of its buildings and sites, according 
to its maintenance plan. The inspection included performing the required 
maintenance

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on structures and systems in accordance with manufacturer's 
specifications and established local/PHA standards, or issuing work 
orders for maintenance/ repairs, or including identified deficiencies in 
the current year's modernization program, or in next year's 
modernization program if there are less than three months remaining 
before the end of the PHA fiscal year when the inspection was performed.
    (3) Grade C: The PHA inspected all major systems of at least a 
minimum of 80% but less than 90% of its buildings and sites, according 
to its maintenance plan. The inspection included performing the required 
maintenance on structures and systems in accordance with manufacturer's 
specifications and established local/PHA standards, or issuing work 
orders for maintenance/ repairs, or including identified deficiencies in 
the current year's modernization program, or in next year's 
modernization program if there are less than three months remaining 
before the end of the PHA fiscal year when the inspection was performed.
    (4) Grade D: The PHA inspected all major systems of at least a 
minimum of 70% but less than 80% of its buildings and sites, according 
to its maintenance plan. The inspection included performing the required 
maintenance on structures and systems in accordance with manufacturer's 
specifications and established local/PHA standards, or issuing work 
orders for maintenance/ repairs, or including identified deficiencies in 
the current year's modernization program, or in next year's 
modernization program if there are less than three months remaining 
before the end of the PHA fiscal year when the inspection was performed.
    (5) Grade E: The PHA inspected all major systems of at least a 
minimum of 60% but less than 70% of its buildings and sites, according 
to its maintenance plan. The inspection included performing the required 
maintenance on structures and systems in accordance with manufacturer's 
specifications and established local/PHA standards, or issuing work 
orders for maintenance/ repairs, or including identified deficiencies in 
the current year's modernization program, or in next year's 
modernization program if there are less than three months remaining 
before the end of the PHA fiscal year when the inspection was performed.
    (6) Grade F: The PHA failed to inspect all major systems of at least 
60% of its buildings and sites and perform the required maintenance on 
these systems in accordance with manufacturers specifications and 
established local/PHA standards, or did not issue work orders for 
maintenance/repairs, or did not include identified deficiencies in the 
current year's modernization program, or in next year's modernization 
program if there are less than three months remaining before the end of 
the PHA fiscal year when the inspection was performed.



Sec. 901.35  Indicator #6, financial management.

    This indicator examines the amount of cash reserves available for 
operations and, for PHAs scoring below a grade C on cash reserves, 
energy/ utility consumption expenses. This indicator has a weight of x1.
    (a) Component 1, cash reserves. This component has a weight 
of x2.
    (a) Grade A: Cash reserves available for operations are greater than 
or equal to 15% of total actual routine expenditures, or the PHA has 
cash reserves of $3 million or more.
    (2) Grade B: Cash reserves available for operations are greater than 
or equal to 12.5%, but less than 15% of total actual routine 
expenditures.
    (3) Grade C: Cash reserves available for operations are greater than 
or equal to 10%, but less than 12.5% of total actual routine 
expenditures.
    (4) Grade D: Cash reserves available for operations are greater than 
or equal to 7.5%, but less than 10% of total actual routine 
expenditures.
    (5) Grade E: Cash reserves are greater than or equal to 5%, but less 
than 7.5% of total actual routine expenditures.
    (6) Grade F: Cash reserves available for operations are less than 5% 
of total actual routine expenditures.
    (b) Component 2, energy consumption. Either option A or 
option B of this component is to be completed only by

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PHAs that score below a grade C on component 1. Regardless of a 
PHA's score on component 1, it will not be scored on component 
2 if all its units have tenant paid utilities. Annual energy/
utility consumption expenses includes water and sewage usage. This 
component has a weight of x1.
    (1) Option A, annual energy/utility consumption expenses.
    (i) Grade A: Annual energy/utility consumption expenses, as compared 
to the average of the three years' rolling base consumption expenses, 
have not increased.
    (ii) Grade B: Annual energy/utility consumption expenses, as 
compared to the average of the three years' rolling base consumption 
expenses, have not increased by more than 3%.
    (iii) Grade C: Annual energy/utility consumption expenses, as 
compared to the average of the three years' rolling base consumption 
expenses, have increased by more than 3% and less than or equal to 5%.
    (iv) Grade D: Annual energy/utility consumption expenses, as 
compared to the average of the three years' rolling base consumption 
expenses, have increased by more than 5% and less than or equal to 7%.
    (v) Grade E: Annual energy/utility consumption expenses, as compared 
to the average of the three years' rolling base consumption expenses, 
have increased by more than 7% and less than or equal to 9%.
    (vi) Grade F: Annual energy/utility consumption expenses, as 
compared to the average of the three years' rolling base consumption 
expenses, have increased by more than 9%.
    (2) Option B, energy audit.
    (i) Grade A: The PHA has completed or updated its energy audit 
within the past five years and has implemented all of the 
recommendations that were cost effective.
    (ii) Grade C: The PHA has completed or updated its energy audit 
within the past five years, has developed an implementation plan and is 
on schedule with the implementation plan, based on available funds. The 
implementation plan identifies at a minimum, the items from the audit, 
the estimated cost, the planned funding source, and the anticipated date 
of completion for each item.
    (iii) Grade F: The PHA has not completed or updated its energy audit 
within the past five years, or has not developed an implementation plan 
or is not on schedule with its implementation plan, or has not 
implemented all of the recommendations that were cost effective, based 
on available funds.



Sec. 901.40  Indicator #7, resident services and community building.

    This indicator examines the PHA's efforts to deliver quality 
customer services and to encourage partnerships with residents, resident 
organizations, and the local community, including non-PHA service 
providers, that help improve management operations at the PHA; and to 
encourage programs that promote individual responsibility, self 
improvement and community involvement among residents and assist them to 
achieve economic uplift and develop self-sufficiency. Also, if 
applicable, this indicator examines PHA performance under any special 
HUD grant(s) administered by the PHA. PHAs can get credit for 
performance under non-HUD funded programs if they choose to be assessed 
for these programs. PHAs with fewer than 250 units or with 100% elderly 
developments will not be assessed under this indicator unless they 
request to be assessed at the time of PHMAP certification submission. 
This indicator has a weight of x1.
    (a) Component #1, economic uplift and self-improvement. PHAs will be 
assessed for all the programs that the PHA has HUD funding to implement. 
Also, PHAs can get credit for implementation of programs through 
partnerships with non-PHA providers, even if the programs are not funded 
by HUD or the PHA, if they choose to be assessed for them. PHAs must 
select either to be assessed for all or none of the non-HUD funded 
programs. This component has a weight of x1.
    (1) Grade A: The PHA Board of Commissioners, by resolution, has 
adopted one or more economic uplift and self-improvement programs, 
examples include but are not limited to, the Section 3 program, 
homeownership, PHA

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support for resident education, training, child-care, job-placement 
programs, Head Start, etc., and the PHA can document that it has 
implemented these programs in developments covering at least 90% of its 
family occupied units, either directly or through partnerships with non-
PHA providers, and the PHA monitors performance under the programs and 
issues reports concerning progress, including residents receiving 
services and residents employed, under these programs.
    (2) Grade C: The PHA Board of Commissioners, by resolution, has 
adopted one or more economic uplift and self-improvement programs, 
including but not limited to, the programs described in grade A, above, 
and the PHA can document that it has implemented these programs in 
developments covering at least 60% of its family occupied units, either 
directly or through partnerships with non-PHA providers, and the PHA 
staff monitors performance under the programs and issues reports to the 
Board concerning progress, including residents receiving services and 
residents employed, under these programs.
    (3) Grade F: The PHA Board of Commissioners, by resolution, has not 
adopted one or more economic uplift and self-improvement programs, 
including but not limited to, the programs described in grade A, above, 
or the PHA has not implemented these programs in developments covering 
at least 60% of its family occupied units, either directly or through 
partnerships with non-PHA providers.
    (b) Component #2, resident organization. This component has a weight 
of x1.
    (1) Grade A: The PHA can document formal recognition of, a system of 
communication and collaboration with, and support for resident councils 
where these exist, and where no resident council exists, the PHA can 
document its encouragement for the formation of such councils.
    (2) Grade F: The PHA cannot document formal recognition of, or a 
system of communication and collaboration with, or document its support 
for resident councils where these exist, or where no resident council 
exists, the PHA cannot document its encouragement for the formation of 
such councils.
    (c) Component #3, resident involvement. Implicit in this component 
is the need to ensure a PHA's delivery of quality customer services to 
residents. This component has a weight of x1.
    (1) Grade A: The PHA Board of Commissioners, by resolution, provides 
for resident representation on the Board and committees, and the PHA has 
implemented measures that ensure the opportunity for regular resident 
input into plans and the evaluation for ongoing quality of life and 
housing management conditions, including but not limited to, 
modernization and development programs, screening and other occupancy 
matters, relocation, the operating budget, resident programs, security 
and maintenance programs.
    (2) Grade C: The PHA Board of Commissioners, by resolution, provides 
for resident representation on the Board and committees, and the PHA has 
implemented measures that ensure the opportunity for regular resident 
input into plans and the evaluation for ongoing quality of life and 
housing management conditions in the modernization and development 
programs and at least three of the remaining six areas described in 
grade A, above.
    (3) Grade F: The PHA Board of Commissioners, by resolution, did not 
provide for resident representation on the Board and committees, or the 
PHA has not implemented measures that ensure the opportunity for regular 
resident input into plans and the evaluation for ongoing quality of life 
and housing management conditions in the modernization and development 
programs and at least three of the remaining six areas described in 
grade A, above.
    (d) Component 4, resident programs management. This 
component examines a PHA's management of HUD funded resident programs. 
However, PHAs can also get credit for performance under non-HUD funded 
programs if they choose to be assessed for them. PHAs must select either 
to be assessed for all or none of the non-HUD funded programs. This 
component has a weight of x1.
    (1) Grade A: If the PHA has any HUD funded special programs that 
benefit the residents, including but not limited

[[Page 253]]

to, the Family Investment Center (FIC), Youth Sports (YS), Food Banks, 
Health Clinics, Youth Apprenticeship Program (YAP), Family Self-
Sufficiency (FSS), or a Resident Management (RM) or Tenant Opportunity 
Programs (TOP) where the PHA is the contract administrator, the PHA can 
document that it is meeting at least 90% of its goals under the 
implementation plan for any and all of these programs.
    (2) Grade C: If the PHA has any HUD-funded special programs that 
benefit the residents, including but not limited to, the programs 
described in grade A, above, the PHA can document that it is meeting at 
least 60% of its goals under the implementation plan for any and all of 
these programs.
    (3) Grade F: If the PHA has any HUD-funded special programs that 
benefit the residents, including but not limited to, the programs 
described in grade A, above, the PHA cannot document that it is meeting 
at least 60% of its goals under the implementation plan for all of these 
programs.



Sec. 901.45  Indicator #8, security.

    This indicator evaluates the PHAs performance in tracking crime 
related problems in their developments, reporting incidence of crime to 
local law enforcement agencies, the adoption and implementation of tough 
applicant screening and resident eviction policies and procedures, and, 
as applicable, PHA performance under any HUD drug prevention or crime 
reduction grant(s). PHAs can get credit for performance under non-HUD 
funded programs if they choose to be assessed for these programs. PHAs 
with fewer than 250 units will not be assessed under this indicator 
unless they request to be assessed at the time of PHMAP certification 
submission. This indicator has a weight of x1.
    (a) Component 1, Tracking and Reporting Crime Related 
Problems. This component has a weight of x1.
    (1) Grade A: The PHA Board, by resolution, has adopted policies and 
the PHA has implemented procedures and can document that it (1) tracks 
crime and crime-related problems in at least 90% of its developments, 
and (2) has a cooperative system for tracking and reporting incidents of 
crime to local police authorities to improve law enforcement and crime 
prevention.
    (2) Grade C: The PHA Board, by resolution, has adopted policies and 
the PHA has implemented procedures and can document that it (1) tracks 
crime and crime-related problems in at least 60% of its developments, 
and (2) reports incidents of crime to local police authorities to 
improve law enforcement and crime prevention.
    (3) Grade F: The PHA Board, by resolution, has not adopted policies 
and the PHA has not implemented procedures or cannot document that it 
(1) tracks crime and crime-related problems in at least 60% of its 
developments, or (2) reports incidents of crime to local police 
authorities to improve law enforcement and crime prevention.
    (b) Component 2, Screening of Applicants. This component 
has a weight of x1.
    (1) Grade A: The PHA Board, by resolution, has adopted policies and 
the PHA has implemented procedures and can document that it successfully 
screens out and denies admission to a public housing applicant who:
    (i) Has a recent history of criminal activity involving crimes to 
persons or property and/or other criminal acts that would adversely 
affect the health, safety or welfare of other residents or PHA 
personnel;
    (ii) Was evicted, because of drug-related criminal activity, from 
housing assisted under the U.S. Housing Act of 1937, for a minimum of a 
three year period beginning on the date of such eviction, unless the 
applicant has successfully completed, since the eviction, a 
rehabilitation program approved by the public housing agency;
    (iii) The PHA has reasonable cause to believe is illegally using a 
controlled substance; or
    (iv) The PHA has reasonable cause to believe abuses alcohol in a way 
that causes behavior that may interfere with the health, safety, or 
right to peaceful enjoyment of the premises by other residents or PHA 
personnel.
    (2) Grade C: The PHA Board, by resolution, has adopted policies and 
the PHA has implemented procedures, but cannot document results in 
successfully screening out and denying admission to a public housing 
applicant who

[[Page 254]]

meets the criteria as described in grade A, above.
    (3) Grade F: The PHA has not adopted policies or has not implemented 
procedures that result in screening out and denying admission to a 
public housing applicant who meets the criteria as described in grade A, 
above, or the screening procedures do not result in the denial of 
admission to a public housing applicant who meets the criteria as 
described in grade A, above.
    (c) Component 3, Lease Enforcement. This component has a 
weight of x1.
    (1) Grade A: The PHA Board, by resolution, has adopted policies and 
the PHA has implemented procedures and can document that it 
appropriately evicts any public housing resident who:
    (i) The PHA has reasonable cause to believe engages in any criminal 
activity that threatens the health, safety, or right to peaceful 
enjoyment of the premises by other residents or PHA personnel;
    (ii) The PHA has reasonable cause to believe engages in any drug-
related criminal activity (as defined at section 6(l) of the 1937 Act 
(42 U.S.C. 1437d(l)) on or off the PHA's property; or
    (iii) The PHA has reasonable cause to believe abuses alcohol in such 
a way that causes behavior that may interfere with the health, safety, 
or right to peaceful enjoyment of the premises by other residents or PHA 
personnel.
    (2) Grade C: The PHA Board, by resolution, has adopted policies and 
the PHA has implemented procedures, but cannot document results in 
appropriately evicting any public housing resident who meets the 
criteria as described in grade A, above.
    (3) Grade F: The PHA has not adopted policies or has not implemented 
procedures that document results in the eviction of any public housing 
resident who meets the criteria as described in grade A, above, or the 
eviction procedures do not result in the eviction of public housing 
residents who meet the criteria as described in grade A, above.
    (d) Component 4, Grant Program Goals. This component 
examines a PHA's management of HUD-funded drug prevention or crime 
reduction programs. However, PHAs can also get credit for performance 
under non-HUD funded programs if they choose to be assessed for them. 
PHAs must select either to be assessed for all or none of the non-HUD 
funded programs. This component has a weight of x1.
    (1) Grade A: If the PHA has any special drug prevention program or 
crime reduction program funded by any HUD funds, the PHA can document 
that the goals are related to drug and crime rates, and it is meeting at 
least 90% of its goals under the implementation plan for any and all of 
these programs.
    (2) Grade C: If the PHA has any special drug prevention program or 
crime reduction program funded by any HUD funds, the PHA can document 
that the goals are related to drug and crime rates, and it is meeting at 
least 60% of its goals under the implementation plan for any and all of 
these programs.
    (3) Grade F: If the PHA has any special drug prevention program or 
crime reduction program funded by any HUD funds, the PHA does not have a 
system for documenting or cannot document that the goals are related to 
drug and crime rates, or cannot document that it is meeting 60% or more 
of its goals under the implementation plan for any and all of these 
programs.



Sec. 901.100  Data collection.

    (a) Information on some of the indicators will be derived by the 
State/Area Office from existing reporting and data forms.
    (b) A PHA shall provide certification as to data on indicators not 
collected according to paragraph (a) of this section, by submitting a 
certified questionnaire within 60 calendar days after the end of the 
fiscal year covered by the certification:
    (1) The certification shall be approved by PHA Board resolution, and 
signed and attested to by the Executive Director.
    (2) PHAs shall maintain documentation for three years verifying all 
certified indicators for HUD on-site review.
    (3) A PHA may include along with its certification submission, 
rather than through an exclusion or modification request, any 
information bearing on the accuracy or completeness of the data used by 
HUD (corrected data, late reports, previously omitted required reports, 
etc.) in grading an indicator.

[[Page 255]]

HUD will consider this assertion in grading the affected indicator.
    (4) If a PHA does not submit its certification, or submits its 
certification late, appropriate sanctions may be imposed, including a 
presumptive rating of failure in all of the PHMAP indicators, which may 
result in troubled and mod-troubled designations.
    (5) A PHA that cannot provide justifying documentation to HUD during 
the conduct of a confirmatory review, or other verification review(s), 
for any indicator(s) or component(s) certified to, shall receive a 
failing grade in that indicator(s) or component(s), and its overall 
PHMAP score shall be lowered.
    (6) If the data for any indicator(s) or component(s) that a PHA 
certified to cannot be verified by HUD during the conduct of a 
confirmatory review, or any other verification review(s), the State/Area 
Office shall change a PHA's grade for any indicator(s) or component(s), 
and its overall PHMAP score, as appropriate, to reflect the verified 
data obtained during the conduct of such review.
    (7) A PHA that cannot provide justifying documentation to the 
independent auditor for the indicator(s) or component(s) that the PHA 
certified to, as reflected in the audit report, shall receive a grade of 
F for that indicator(s) or component(s), and its overall PHMAP score 
shall be lowered.
    (8) A PHA's PHMAP score for individual indicators or components, or 
its overall PHMAP score, may be changed by the State/Area Office 
pursuant to the data included in the independent audit report, as 
applicable.
    (9) A PHA's certification and supporting documentation will be post-
reviewed by HUD during the next on-site review as determined by risk 
management, but is subject to verification at any time. Appropriate 
sanctions for intentional false certification will be imposed, including 
suspension or debarment of the signatories, the loss of high performer 
designation, a lower grade for individual indicators and a lower PHMAP 
total weighted score.
    (c) For those developments of a PHA where management functions have 
been assumed by an RMC, the PHA's certification shall identify the 
development and the management functions assumed by the RMC. The PHA 
shall obtain a certified questionnaire from the RMC as to the management 
functions undertaken by the RMC. The PHA shall submit the RMC's 
certified questionnaire along with its own. The RMC's certification 
shall be approved by its Executive Director or Chief Executive Officer 
of whatever title.



Sec. 901.105  Computing assessment score.

    (a) Grades within indicators and components have the following point 
values:
    (1) Grade A = 10.0 points;
    (2) Grade B = 8.5 points;
    (3) Grade C = 7.0 points;
    (4) Grade D = 5.0 points;
    (5) Grade E = 3.0 point; and
    (6) Grade F = 0.0 points.
    (b) If indicators or components are designated as having additional 
weight (e.g., x1.5 or x2), the points in each grade will be multiplied 
times the additional weight.
    (c) Indicators will be graded individually. Components within an 
indicator will be graded individually, and then will be used to 
determine a single grade for the indicator, by dividing the total number 
of component points by the total number of component weights and 
rounding off to two decimal places. The total number of component 
weights for this purpose includes a one for components that are 
unweighted (i.e., they are weighted x1, rather than x1.5 or x2).
    (d) Adjustment for physical condition and neighborhood environment. 
The overall PHMAP score will be adjusted by adding additional points 
that reflect the adjustment to be given to the differences in the 
difficulty of managing developments that result from physical condition 
and neighborhood environment:
    (1) Adjustments shall apply to the following three indicators only:
    (i) Indicator 1, vacancy rate and unit turnaround;
    (ii) Indicator 4, work orders; and
    (iii) Indicator 5, annual inspection and condition of units 
and systems.
    (2) Definitions of physical condition and neighborhood environment 
are:
    (i) Physical condition: refers to units located in developments over 
ten years

[[Page 256]]

old that require major capital investment in order to meet local codes 
or minimum HQS standards, whichever is applicable. This excludes 
developments that have been comprehensively modernized.
    (ii) Neighborhood environment: refers to units located within 
developments where the immediate surrounding neighborhood (that is a 
majority of the census tracts or census block groups on all sides of the 
development) has at least 51% of families with incomes below the poverty 
rate as documented by the latest census data.
    (3) Any PHA with 5% or more of its units subject to either or both 
of the above conditions shall, if they so choose, be issued an adjusted 
PHMAP score in addition to the regular score based solely upon the 
certification of the PHA. The adjusted score shall be calculated as 
follows:

------------------------------------------------------------------------
     Percent of units subject to physical condition and/or        Extra
                   neighborhood  environment                      points
------------------------------------------------------------------------
At least 5% but less than 10%..................................       .5
At least 10% but less than 20%.................................       .6
At least 20% but less than 30%.................................       .7
At least 30% but less than 40%.................................       .8
At least 40% but less than 50%.................................       .9
At least 50%...................................................      1.0
------------------------------------------------------------------------

    (i) These extra points will be added to the score (grade) of the 
indicator(s) to which these conditions may apply. A PHA is required to 
certify on form HUD-50072, PHMAP Certification, the extent to which the 
conditions apply, and to which of the indicators the extra scoring 
points should be added.
    (ii) Units in developments that have received substantial 
rehabilitation within the past ten years are not eligible to be included 
in the calculation of total PHA units due to physical condition only.
    (iii) A PHA that receives a grade of A under indicators 4 
and/or 5 may not claim the additional adjustment for indicator 
1 based on physical condition of its developments, but may 
claim additional adjustment based on neighborhood environment.
    (iv) A PHA that receives the maximum potential weighted points on 
indicators 1, 4 and/or 5 may not claim any 
additional adjustment for physical condition and/or neighborhood 
environment for the respective indicator(s).
    (v) A PHA's score for indicators 1, 4 and/or 
5, after any adjustment(s) for physical condition and/or 
neighborhood environment, may not exceed the maximum potential weighted 
points assigned to the respective indicator(s).
    (4) If only certain units or developments received substantial 
rehabilitation, the additional adjustment shall be prorated to exclude 
the units or developments with substantial rehabilitation.
    (5) The Date of Full Availability (DOFA) shall apply to scattered 
site units, where the age of units and buildings vary, to determine 
whether the units have received substantial rehabilitation within the 
past ten years and are eligible for a adjusted score for the physical 
condition factor.
    (6) PHAs shall maintain supporting documentation to show how they 
arrived at the number and percentage of units out of their total 
inventory that are subject to adjustment.
    (i) If the basis was neighborhood environment, the PHA shall have on 
file the appropriate maps showing the census tracts or census block 
groups surrounding the development(s) in question with supporting census 
data showing the level of poverty. Units that fall into this category 
but which have already been removed from consideration for other reasons 
(permitted exemptions and modifications and/or exclusions) shall not be 
counted in this calculation.
    (ii) For the physical condition factor, a PHA would have to maintain 
documentation showing the age and condition of the units and the record 
of capital improvements, indicating that these particular units have not 
received modernization funds.
    (iii) PHAs shall also document that in all cases, units that were 
exempted for other reasons were not included in the calculation.



Sec. 901.110  PHA request for exclusion or modification of an indicator 
or component.

    (a) A PHA shall have the right to request the exclusion or 
modification of any indicator or component in its management assessment, 
thereby excluding

[[Page 257]]

or modifying the impact of those indicator's or component's grades in 
its PHMAP total weighted score.
    (b) Exclusion and modification requests shall be submitted by a PHA 
at the time of its PHMAP certification submission to the State/Area 
Office along with supporting documentary justification, rather than 
during the appeal process.
    (c) Requests for exclusions and modifications that do not include 
supporting documentary justification will not be considered.
    (d) Indicator 2, modernization, shall be automatically 
excluded by the State/Area Office if a PHA does not have an open 
modernization program.
    (e) Indicator 7, resident services and community building, 
shall be automatically excluded by the State/Area Office for PHAs with 
fewer than 250 units, or with 100% elderly developments, unless they 
request to be assessed at the time of the PHMAP certification 
submission.
    (f) Indicator 8, security, shall be automatically excluded 
by the State/Area Office for PHAs with fewer than 250 units unless they 
request to be assessed at the time of the PHMAP certification 
submission.



Sec. 901.115  PHA score and status.

    (a) PHAs that achieve a total weighted score of 90% or greater shall 
be designated high performers. A PHA shall not be designated as a high 
performer if it scores below a grade of C for any indicator. High 
performers will be afforded incentives that include relief from 
reporting and other requirements, as described in Sec. 901.130.
    (b) PHAs that achieve a total weighted score of 90% or greater on 
its overall PHMAP score and on indicator 2, modernization, 
shall be designated mod-high performers.
    (c) PHAs that achieve a total weighted score of less than 90% but 
not less than 60% shall be designated standard. Standard performers will 
be afforded incentives that include relief from reporting and other 
requirements, as described in Sec. 901.130.
    (d) PHAs that achieve a total weighted score of less than 60% shall 
be designated as troubled.
    (e) PHAs that achieve 60% of the maximum calculation for indicator 
2, modernization, shall be designated as mod-troubled.
    (f) Each PHA shall post a notice of its final PHMAP score and status 
in appropriate conspicuous and accessible locations in its offices 
within two weeks of receipt of its final score and status. In addition, 
HUD will publish every PHA's score and status in the Federal Register.
    (g) A PHA that cannot provide justifying documentation to HUD during 
the conduct of a confirmatory review, or other verification review(s), 
for any indicator(s) or component(s) certified to, shall receive a 
failing grade in that indicator(s) or component(s), and its overall 
PHMAP score shall be lowered.
    (h) If the data for any indicator(s) or component(s) that a PHA 
certified to cannot be verified by HUD during the conduct of a 
confirmatory review, or any other verification review(s), the State/Area 
Office shall change a PHA's grade for any indicator(s) or component(s), 
and its overall PHMAP score, as appropriate, to reflect the verified 
data obtained during the conduct of such review.
    (i) A PHA that cannot provide justifying documentation to the 
independent auditor for the indicator(s) or component(s) that the PHA 
certified to, as reflected in the audit report, will receive a grade of 
F for that indicator(s), and its overall PHMAP score will be lowered.
    (j) A PHA's PHMAP score for individual an indicator(s), component(s) 
or its overall PHMAP score may be changed by the State/Area Office 
pursuant to the data included in the independent audit report, as 
applicable.
    (k) In exceptional circumstances, even though a PHA has satisfied 
all of the indicators for high or standard performer designation, the 
State/Area Office may conduct any review as necessary, including a 
confirmatory review, and deny or rescind incentives or high performer 
status, as described in paragraphs (a) and (b) of this section in the 
case of a PHA that:
    (1) Is operating under a special agreement with HUD;

[[Page 258]]

    (2) Is involved in litigation that bears directly upon the 
management of a PHA;
    (3) Is operating under a court order;
    (4) Demonstrates substantial evidence of fraud or misconduct, 
including evidence that the PHA's certification of indicators is not 
supported by the facts, resulting from such sources as a confirmatory 
review, routine reports and reviews, an Office of Inspector General 
investigation/audit, an independent auditor's audit or an investigation 
by any appropriate legal authority; or
    (5) Demonstrates substantial noncompliance in one or more areas 
(including areas not assessed by the PHMAP). Areas of substantial 
noncompliance include, but are not limited to, noncompliance with 
statutes (e.g., Fair Housing and Equal Opportunity statutes); 
regulations (e.g., 24 CFR Sec. 85); or the Annual Contributions 
Contract (ACC) (e.g., the ACC, form HUD-53012A, Section 4, Mission of 
the PHA). Substantial noncompliance would cast doubt on the PHA's 
capacity to preserve and protect its public housing developments and 
operate them consistent with Federal law and regulations.
    (l) When a State/Area Office Public Housing Director acts for any of 
the reasons stated in paragraph (k) of this section, the State/Area 
Office will send written notification to the PHA with a specific 
explanation of the reasons. An information copy will be forwarded to the 
Assistant Secretary for Public and Indian Housing.
    (m) A PHA may appeal denial of high performer status in accordance 
with Sec. 901.125.



Sec. 901.120  State/Area Office functions.

    (a) The State/Area Office will assess each PHA within its 
jurisdiction on an annual basis:
    (1) The State/Area Office will make determinations for high-
performing, standard, troubled PHAs and mod-troubled PHAs in accordance 
with a PHA's PHMAP weighted score.
    (2) The State/Area Office will also make determinations for 
exclusion and modification requests.
    (b) Each State/Area Office will notify each PHA of the PHA's grade 
and the grade of the RMC (if any) assuming management functions at any 
of the PHA's developments, in each indicator; the PHA's management 
assessment total weighted score and status, and if applicable; its 
adjustment for physical condition and neighborhood environment; any 
determinations concerning exclusion and modification requests; and any 
deadline date by which appeals must be received. PHA notification should 
include offers of pertinent technical assistance in problem areas, 
suggestions for means of improving problem areas, and areas of relief 
and incentives as a result of high performer status. The PHA must notify 
the RMC (if any) in writing, immediately upon receipt of the State/Area 
Office notification, of the RMC's grades.
    (c) An on-site confirmatory review may be conducted of a PHA by HUD. 
The purpose of the on-site confirmatory review is to verify those 
indicators for which a PHA provides certification, as well as the 
accuracy of the information received in the State/Area Office pertaining 
to the remaining indicators.
    (1) Whenever practicable, a confirmatory review should be conducted 
by HUD prior to the issuance of a PHA's initial notification letter. The 
results of the confirmatory review shall be included in the PHA's 
initial notification letter.
    (2) If, in an exceptional circumstance, a confirmatory review is 
conducted after the State/Area Office issues the initial notification 
letter, the State/Area Office shall explain the results of the 
confirmatory review in writing, correct the PHA's total weighted score, 
as appropriate, and reissue the initial notification letter to the PHA.
    (3) The State/Area Office shall conduct a confirmatory review of a 
PHA with 100 or more units under management that scores less than 60% 
for its total weighted score, or less than 60% on indicator 2, 
modernization, before initially designating the PHA as troubled or mod-
troubled. The results of the confirmatory review shall be included in 
the PHA's initial notification letter.
    (4) The State/Area Office shall conduct a confirmatory review on a 
yearly

[[Page 259]]

basis of all troubled and mod-troubled PHAs.
    (5) The State/Area Office shall conduct a confirmatory review of a 
PHA with 100 or more units under management prior to the removal of 
troubled or mod-troubled designation.
    (6) Independent confirmatory reviews (team members from other State/ 
Area Offices) shall be conducted of troubled PHAs with 1250 or more 
units under management prior to the removal of troubled designation.
    (d) A PHA that cannot provide justifying documentation to HUD during 
the conduct of a confirmatory review, or other verification review(s), 
for any indicator(s) or component(s) certified to, shall receive a 
failing grade in that indicator(s) or component(s), and its overall 
PHMAP score shall be lowered by the State/Area Office. The State/Area 
Office shall explain to the PHA the reason(s) for the change(s) in 
writing, correct the PHA's grade for an individual component(s) and/or 
indicator(s) and total weighted score, as appropriate, and reissue the 
initial notification letter to the PHA.
    (e) If the data for any indicator(s) or component(s) that a PHA 
certified to cannot be verified by HUD during the conduct of a 
confirmatory review, or any other verification review(s), the State/Area 
Office shall change a PHA's grade for any indicator(s) or component(s), 
and its overall PHMAP score, as appropriate, to reflect the verified 
data obtained during the conduct of such review. The State/Area Office 
shall explain to the PHA the reason(s) for the change(s) in writing, 
correct the PHA's grade for an individual component(s) and/or 
indicator(s) and total weighted score, as appropriate, and reissue the 
initial notification letter to the PHA.
    (f) A PHA that cannot provide justifying documentation to the 
independent auditor for the indicator(s) or component(s) that the PHA 
certified to, as reflected in the audit report, will receive a grade of 
F for that indicator(s), and its overall PHMAP score will be lowered by 
the State/Area Office. The State/Area Office shall explain to the PHA 
the reason(s) for the change(s) in writing, correct the PHA's grade for 
an individual component(s) and/or indicator(s) and total weighted score, 
as appropriate, and reissue the initial notification letter to the PHA.
    (g) A PHA's PHMAP score for an individual indicator(s), component(s) 
or its overall PHMAP score may be changed by the Area/State Office 
pursuant to the data included in the independent audit report, as 
applicable. The State/Area Office shall explain to the PHA the reason(s) 
for the change(s) in writing, correct the PHA's grade for an individual 
component(s) and/or indicator(s) and total weighted score, as 
appropriate, and reissue the initial notification letter to the PHA.
    (h) Determinations on appeals and on petitions to remove troubled or 
mod-troubled status will be made by the State/Area Office.
    (i) Determinations of intentional false certifications will be made 
by the State/Area Office. State/Area Offices shall consult with the 
local Office of Inspector General for guidance in cases of 
determinations of intentional false certification.
    (j) In exceptional circumstances, the State/Area Office may deny or 
rescind a PHA's status as a standard or high performer, in accordance 
with Sec. 901.115(i), so that it will not be entitled to any of the 
areas of relief and incentives.
    (k) The State/Area Office will maintain PHMAP files for public 
inspection in accordance with Sec. 901.155.



Sec. 901.125  PHA right of appeal.

    (a) A PHA has the right to appeal its PHMAP score to the State/Area 
Office, including a troubled designation or a mod-troubled designation. 
A PHA may appeal its management assessment rating on the basis of data 
errors (any dispute over the accuracy, calculation, or interpretation of 
data employed in the grading process that would affect a PHA's PHMAP 
score), the denial of exclusion or modification requests when their 
denial affects a PHA's total weighted score, the denial of an adjustment 
based on the physical condition and neighborhood environment of a PHA's 
developments, or a determination of intentional false certification:
    (1) A PHA may appeal its management assessment rating to the State/

[[Page 260]]

Area Office only for the reasons stated in paragraph (a) of this 
section:
    (i) A PHA may not appeal its PHMAP score to the State/Area Office 
unless it has submitted its certification to the State/Area Office.
    (ii) A PHA may not appeal its PHMAP score to the State/Area Office 
if the reason the PHA received a deficient grade in any indicator or 
component was due to the fact the PHA did not submit a required report 
in a timely manner or without an approved time extension.
    (iii) A PHA may not appeal its PHMAP score to the State/Area Office 
if the reason the PHA received a failing grade in any indicator or 
component was due to the fact that the PHA did not provide justifying 
documentation to the independent auditor for any indicator(s) or 
component(s) the PHA certified to.
    (2) The appeal shall be submitted to the State/Area Office and shall 
include supporting documentary justification of the reasons for the 
appeal.
    (3) The State/Area Office will make determinations on initial 
appeals and will transmit the determination of the appeal to the PHA in 
a notification letter that will also include the date and place for 
submitting any further appeal.
    (4) Appeals submitted to the State/Area Office without appropriate 
documentation will not be considered and will be returned to the PHA.
    (b) Appeals of rescission of high performer designation shall be 
made directly to the Assistant Secretary for Public and Indian Housing.
    (c) A PHA may appeal the denial of an initial appeal by the State/
Area Office to the Assistant Secretary for Public and Indian Housing for 
the following reasons:
    (1) Initial appeals denying high performer designation;
    (2) Initial appeals denying the removal of troubled designation;
    (3) Initial appeals denying the removal of mod-troubled designation;
    (4) The denial of an appeal of a determination of intentional false 
certification;
    (5) Data errors;
    (6) The denial of exclusion or modification requests when their 
denial affects a PHA's total weighted score;
    (7) The denial of an adjustment based on the physical condition and 
neighborhood environment of a PHA's developments;
    (8) The refusal of a petition in accordance with Sec. 901.140 to 
remove troubled or mod-troubled designations.
    (d) A PHA may appeal its management assessment rating to the 
Assistant Secretary for Public and Indian Housing only for the reasons 
stated in paragraph (c) of this section.
    (e) A PHA may not appeal its PHMAP score to the Assistant Secretary 
unless it has submitted its certification to the State/Area Office.
    (f) Appeals submitted to the Assistant Secretary for Public and 
Indian Housing without appropriate documentation will not be considered 
and will be returned to the PHA.
    (g) The date and place by which any appeal must be submitted will be 
specified in the letter from the State/Area Office notifying the PHA of 
any determination or action. For example, the State/Area Office initial 
notification letter or denial of initial appeal letter will specify the 
date and place by which appeals must be received. The date specified 
will be the 15th calendar day after the letter is mailed, not counting 
the day the letter is mailed. If the 15th day falls on a weekend or 
holiday, the date specified will be the next day that is not on a 
weekend or a holiday. Any appeal not received by the specified time and 
place will not be considered.



Sec. 901.130  Incentives.

    (a) A PHA that is designated high performer or standard performer 
will be relieved of specific HUD requirements, effective upon 
notification of high or standard performer designation.
    (b) A PHA shall not be designated a mod-high performer and be 
entitled to the applicable incentives unless it has been designated an 
overall high performer.
    (c) High-performing PHAs, and RMCs that receive a grade of A on each 
of the indicators for which they are assessed,

[[Page 261]]

will receive a Certificate of Commendation from the Department as well 
as special public recognition.
    (d) Representatives of high-performing PHAs may be requested to 
serve on Departmental working groups that will advise the Department in 
such areas as troubled PHAs and performance standards for all PHAs.
    (e) State/Area Offices may award incentives to PHAs on an individual 
basis for a specific reason(s), such as a PHA making the right decision 
that impacts long-term overall management or the quality of a PHA's 
housing stock, with prior concurrence from the Assistant Secretary.
    (f) Relief from any standard procedural requirements does not mean 
that a PHA is relieved from compliance with the provisions of Federal 
law and regulations or other handbook requirements. For example, 
although a high or standard performer may be relieved of requirements 
for prior HUD approval for certain types of contracts for services, it 
must still comply with all other Federal and State requirements that 
remain in effect, such as those for competitive bidding or competitive 
negotiation (see 24 CFR 85.36):
    (1) PHAs will still be subject to regular independent auditor (IA) 
audits.
    (2) Office of Inspector General (OIG) audits or investigations will 
continue to be conducted as circumstances may warrant.
    (g) In exceptional circumstances, the State/Area Office will have 
discretion to subject a PHA to any requirement that would otherwise be 
omitted under the specified relief, in accordance with Sec. 901.115(i).



Sec. 901.135  Memorandum of Agreement.

    (a) After consulting the independent assessment team and reviewing 
the report identified in section 6(j)(2)(b) of the 1937 Act, a 
Memorandum of Agreement (MOA), a binding contractual agreement between 
HUD and a PHA, shall be required for each PHA designated as troubled 
and/or mod-troubled. The scope of the MOA may vary depending upon the 
extent of the problems present in the PHA, but shall include:
    (1) Baseline data, which should be raw data but may be the PHA's 
score in each of the indicators identified as a problem, or other 
relevant areas identified as problematic;
    (2) Annual and quarterly performance targets, which may be the 
attainment of a higher grade within an indicator that is a problem, or 
the description of a goal to be achieved, for example, the reduction of 
rents uncollected to 6% or less by the end of the MOA annual period;
    (3) Strategies to be used by the PHA in achieving the performance 
targets within the time period of the MOA;
    (4) Technical assistance to the PHA provided or facilitated by the 
Department, for example, the training of PHA employees in specific 
management areas or assistance in the resolution of outstanding HUD 
monitoring findings;
    (5) The PHA's commitment to take all actions within its control to 
achieve the targets;
    (6) Incentives for meeting such targets, such as the removal of 
troubled or mod-troubled designation and Departmental recognition for 
the most improved PHAs;
    (7) The consequences of failing to meet the targets, including such 
sanctions as the imposition of budgetary limitations, declaration of 
substantial default and subsequent actions, limited denial of 
participation, suspension, debarment, or the imposition of operating 
funding and modernization thresholds; and
    (8) A description of the involvement of local public and private 
entities, including PHA resident leaders, in carrying out the agreement 
and rectifying the PHA's problems. A PHA shall have primary 
responsibility for obtaining active local public and private entity 
participation, including the involvement of public housing resident 
leaders, in assisting PHA improvement efforts. Local public and private 
entity participation should be premised upon the participant's knowledge 
of the PHA, ability to contribute technical expertise with regard to the 
PHA's specific problem areas and authority to make preliminary/tentative 
commitments of support, financial or otherwise.
    (b) A MOA shall be executed by:
    (1) The PHA Board Chairperson and accompanied by a Board resolution, 
or

[[Page 262]]

a receiver (pursuant to a court ordered receivership agreement, if 
applicable) or other AME acting in lieu of the PHA Board;
    (2) The PHA Executive Director, or a designated receiver (pursuant 
to a court ordered receivership agreement, if applicable) or other AME-
designated Chief Executive Officer;
    (3) The Director, State/Area Office of Public Housing, except as 
stated in (d) of this section; and
    (4) The appointing authorities of the Board of Commissioners, unless 
exempted by the State/Area Office.
    (c) The Department encourages the inclusion of the resident 
leadership in MOA negotiations and the execution of the MOA.
    (d) Upon designation of a large PHA (1250 or more units under 
management) as troubled, the State/Area Office shall make a referral to 
HUD Headquarters for appropriate recovery intervention and the execution 
of an MOA by the Assistant Secretary for Public and Indian Housing.
    (e) A PHA will monitor MOA implementation to ensure that performance 
targets are met in terms of quantity, timeliness and quality.



Sec. 901.140  Removal from troubled status and mod-troubled status.

    (a) A PHA has the right to petition the State/Area Office for the 
removal of a designation as troubled or mod-troubled.
    (b) A PHA may appeal any refusal to remove troubled and mod-troubled 
designation to the Assistant Secretary for Public and Indian Housing in 
accordance with Sec. 901.125.
    (c) A PHA with fewer that 1250 units under management will be 
removed from troubled status by the State/Area Office upon a 
determination by the State/Area Office that the PHA's assessment 
reflects an improvement to a level sufficient to remove the PHA from 
troubled status, or mod-troubled, i.e., a total weighted management 
assessment score of 60% or more, and upon the conduct of a confirmatory 
review for PHAs with 100 or more units under management.
    (d) A PHA with 1250 units or more under management will be removed 
from troubled status by the Assistant Secretary for Public and Indian 
Housing upon a recommendation by the State/Area Office when a PHA's 
assessment reflects an improvement to a level sufficient to remove the 
PHA from troubled or mod-troubled status, i.e., a total weighted 
management assessment score of 60% or more, and upon the conduct of an 
independent confirmatory review (team members from other State/Area 
Offices).



Sec. 901.145  Improvement Plan.

    (a) After receipt of the State/Area Office notification letter in 
accordance with Sec. 901.120(b) or receipt of a final resolution of an 
appeal in accordance with Sec. 901.125 or, in the case of an RMC, 
notification of its indicator grades from a PHA, a PHA or RMC shall 
correct any deficiency indicated in its management assessment within 90 
calendar days.
    (b) A PHA shall notify the State/Area Office of its action to 
correct a deficiency. A PHA shall also forward to the State/Area Office 
an RMC's report of its action to correct a deficiency.
    (c) If the State/Area Office determines that a PHA or RMC has not 
corrected a deficiency as required within 90 calendar days after receipt 
of its final notification letter, the State/Area Office may require a 
PHA, or a RMC through the PHA, to prepare and submit to the State/Area 
Office an Improvement Plan within an additional 30 calendar days:
    (1) The State/Area Office shall require a PHA or RMC to submit an 
Improvement Plan, which includes the information stated in (d) of this 
section, for each indicator that a PHA or RMC scored a grade of F.
    (2) The State/Area Office may require, on a risk management basis, a 
PHA or RMC to submit an Improvement Plan, which includes the information 
stated in paragraph (d) of this section, for each indicator that a PHA 
scored a grade D or E, as well as other performance and/or compliance 
deficiencies as may be identified as a result of an on-site review of 
the PHA's operations.
    (d) An Improvement Plan shall:
    (1) Identify baseline data, which should be raw data but may be the 
PHA's score in each of the indicators identified as a problem in a PHA's 
or

[[Page 263]]

RMC's management assessment, or other relevant areas identified as 
problematic;
    (2) Describe the procedures that will be followed to correct each 
deficiency; and
    (3) Provide a timetable for the correction of each deficiency.
    (e) The State/Area Office will approve or deny a PHA's or RMC's 
Improvement Plan, and notify the PHA of its decision. A PHA must notify 
the RMC in writing, immediately upon receipt of the State/Area Office 
notification, of the State/Area Office approval or denial of the RMC's 
Improvement Plan.
    (f) An Improvement Plan that is not approved will be returned to the 
PHA with recommendations from the State/Area Office for revising the 
Improvement Plan to obtain approval. A revised Improvement Plan shall be 
resubmitted by the PHA or RMC within 30 calendar days of its receipt of 
the State/Area Office recommendations.
    (g) If a PHA or RMC fails to submit an acceptable Improvement Plan, 
or to correct deficiencies within the time specified in an Improvement 
Plan or such extensions as may be granted by HUD, the State/Area Office 
will notify the PHA of its or the RMC's noncompliance. The PHA, or the 
RMC through the PHA, will provide HUD its reasons for lack of progress 
in submitting or carrying out the Improvement Plan within 30 calendar 
days of its receipt of the noncompliance notification. HUD will advise 
the PHA as to the acceptability of its reasons for lack of progress and, 
if unacceptable, will notify the PHA that it will be subject to 
sanctions provided for in the ACC and HUD regulations.



Sec. 901.150  PHAs troubled with respect to the program under section 
14 (mod-troubled PHAs).

    (a) PHAs that achieve a total weighted score of less than 60% on 
indicator 2, modernization, may be designated as mod-troubled.
    (b) PHAs designated as mod-troubled may be subject, under the 
Comprehensive Grant Program, to a reduction of formula allocation or 
other sanctions (24 CFR Sec. 968, Subpart C) or under the Comprehensive 
Improvement Assistance Program to disapproval of new funding or other 
sanctions (24 CFR Sec. 968, Subpart B).



Sec. 901.155  PHMAP public record.

    The State/Area Office will maintain PHMAP files, including 
certifications, the records of exclusion and modification requests, 
appeals, and designations of status based on physical condition and 
neighborhood environment, as open records, available for public 
inspection for three years consistent with the Freedom of Information 
Act (5 U.S.C. 552) and in accordance with any procedures established by 
the State/Area Office to minimize disruption of normal office 
operations.



Sec. 901.200  Events or conditions that constitute substantial default.

    (a) The Department may determine that events have occurred or that 
conditions exist that constitute a substantial default if a PHA is 
determined to be in violation of Federal statutes, including but not 
limited to, the 1937 Act, or in violation of regulations implementing 
such statutory requirements, whether or not such violations would 
constitute a substantial breach or default under provisions of the 
relevant ACC.
    (b) The Department may determine that a PHA's failure to satisfy the 
terms of a Memorandum of Agreement entered into in accordance with Sec. 
901.135 of this part, or to make reasonable progress to meet time frames 
included in a Memorandum of Agreement, are events or conditions that 
constitute a substantial default.
    (c) The Department shall determine that a PHA that has been 
designated as troubled and does not show significant improvement (10 
percentage point increase) in its PHMAP score within one year after 
final notification of its PHMAP score are events or conditions that 
constitute a substantial default:
    (1) A PHA shall be notified of such a determination in accordance 
with Sec. 901.205(c).
    (2) A PHA may waive, in writing, receipt of explicit notice from the 
Department as to a finding of substantial default, and voluntarily 
consent to a determination of substantial default. The PHA must concur 
on the existence of substantial default conditions which

[[Page 264]]

can be remedied by technical assistance, and the PHA shall provide the 
Department with written assurances that all deficiencies will be 
addressed by the PHA. The Department will then immediately proceed with 
interventions as provided in Sec. 901.210.
    (d) The Department may declare a substantial breach or default under 
the ACC, in accordance with its terms and conditions.
    (e) The Department may determine that the events or conditions 
constituting a substantial default are limited to a portion of a PHA's 
public housing operations, designated either by program, by operational 
area, or by development(s).



Sec. 901.205  Notice and response.

    (a) If information from an annual assessment, as described in Sec. 
901.100, a management review or audit, or any other credible source 
indicates that there may exist events or conditions constituting a 
substantial breach or default, the Department shall advise a PHA of such 
information. The Department is authorized to protect the confidentiality 
of the source(s) of such information in appropriate cases. Before taking 
further action, except in cases of apparent fraud or criminality, and/or 
in cases where emergency conditions exist posing an imminent threat to 
the life, health, or safety of residents, the Department shall afford 
the PHA a timely opportunity to initiate corrective action, including 
the remedies and procedures available to PHAs designated as ``troubled 
PHAs,'' or to demonstrate that the information is incorrect.
    (b) In any situation determined to be an emergency, or in any case 
where the events or conditions precipitating the intervention are 
determined to be the result of criminal or fraudulent activity, the 
Assistant Secretary is authorized to intercede to protect the residents' 
and the Department's interests by causing the proposed interventions to 
be implemented without further appeals or delays.
    (c) Upon a determination or finding that events have occurred or 
that conditions exist that constitute a substantial default, the 
Assistant Secretary shall provide written notification of such 
determination or finding to the affected PHA. Written notification shall 
be transmitted to the Executive Director, the Chairperson of the Board, 
and the appointing authority(s) of the Board, and shall include, but 
need not necessarily be limited to:
    (1) Identification of the specific covenants, conditions, and/or 
agreements under which the PHA is determined to be in noncompliance;
    (2) Identification of the specific events, occurrences, or 
conditions that constitute the determined noncompliance;
    (3) Citation of the communications and opportunities to effect 
remedies afforded pursuant to paragraph (a) of this section;
    (4) Notification to the PHA of a specific time period, to be not 
less than 10 calendar days, except in cases of apparent fraud or other 
criminal behavior, and/or under emergency conditions as described in 
paragraph (a) of this section, nor more than 30 calendar days, during 
which the PHA shall be required to demonstrate that the determination or 
finding is not substantively accurate; and
    (5) Notification to the PHA that, absent a satisfactory response in 
accordance with paragraph (d) of this section, the Department will take 
control of the PHA, using any or all of the interventions specified in 
Sec. 901.210, and determined to be appropriate to remedy the 
noncompliance, citing Sec. 901.210, and any additional authority for 
such action.
    (d) Upon receipt of the notification described in paragraph (c) of 
this section, the PHA must demonstrate, within the time period permitted 
in the notification, factual error in the Department's description of 
events, occurrences, or conditions, or show that the events, 
occurrences, or conditions do not constitute noncompliance with the 
statute, regulation, or covenants or conditions to which the PHA is 
cited in the notification.



Sec. 901.210  Interventions.

    (a) Interventions under this part (including an assumption of 
operating responsibilities) may be limited to one or more of a PHA's 
specific operational

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areas (e.g., maintenance, modernization, occupancy, or financial 
management) or to a single development or a group of developments. Under 
this limited intervention procedure, the Department could select, or 
participate in the selection of, an AME to assume management 
responsibility for a specific development, a group of developments in a 
geographical area, or a specific operational area, while permitting the 
PHA to retain responsibility for all programs, operational areas, and 
developments not so designated.
    (b) Upon determining that a substantial default exists under this 
part, the Department may initiate any interventions deemed necessary to 
maintain decent, safe, and sanitary dwellings for residents. Such 
intervention may include:
    (1) Providing technical assistance for existing PHA management 
staff;
    (2) Selecting or participating in the selection of an AME to provide 
technical assistance or other services up to and including contract 
management of all or any part of the public housing developments 
administered by a PHA;
    (3) Assuming possession and operational responsibility for all or 
any part of the public housing administered by a PHA; and
    (4) The provision of intervention and assistance necessary to remedy 
emergency conditions.
    (c) HUD may take the actions described in this part sequentially or 
simultaneously in any combination.



Sec. 901.215  Contracting and funding.

    (a) Upon a declaration of substantial default or breach, and 
subsequent assumption of possession and operational responsibility, the 
Department may enter into agreements, arrangements, and/or contracts for 
or on behalf of a PHA, or to act as the PHA, and to expend or authorize 
expenditure of PHA funds, irrespective of the source of such funds, to 
remedy the events or conditions constituting the substantial default.
    (b) In entering into contracts or other agreements for or on behalf 
of a PHA, the Department shall comply with requirements for competitive 
procurement consistent with 24 CFR 85.36, except that, upon 
determination of public exigency or emergency that will not permit a 
delay, the Department can enter into contracts or agreements on a 
noncompetitive basis, consistent with the standards of 24 CFR 
85.36(d)(4).



Sec. 901.220  Resident participation in competitive proposals to manage 
the housing of a PHA.

    (a) When a competitive proposal to manage the housing of a PHA in 
substantial default is solicited in a Request for Proposals (RFP) 
pursuant to section 6(j)(3)(A)(i) of the 37 Act, the RFP, in addition to 
publishing the selection criteria, will:
    (1) Include a requirement for residents to notify the Department if 
they want to be involved in the selection process; and
    (2) Include a requirement for the PHA that is the subject of the RFP 
to post a notice and a copy of the RFP in a prominent location on the 
premises of each housing development that would be subject to the 
management chosen under the RFP, for the purposes of notifying affected 
residents that:
    (i) Invites residents to participate in the selection process; and
    (ii) Provides information, to be specified in the RFP, on how to 
notify the Department of their interest.
    (b) Residents must notify the Department by the RFP's application 
due date of their interest in participating in the selection process. In 
order to participate, the total number of residents that notify the 
Department must equal at least 20 percent of the residents, or the 
notification of interest must be from an organization or organizations 
of residents whose membership must equal at least 20 percent of the 
PHA's residents.
    (c) If the required percentage of residents notify the Department, a 
minimum of one resident may be invited to serve as an advisory member on 
the evaluation panel that will review the applications in accordance 
with applicable procurement procedures. Resident advisory members are 
subject to all applicable confidentiality and disclosure restrictions.

[[Page 266]]



Sec. 901.225  Resident petitions for remedial action.

    The total number of residents that petition the Department to take 
remedial action pursuant to sections 6(j)(3)(A)(i) through (iv) of the 
1937 Act must equal at least 20 percent of the residents, or the 
petition must be from an organization or organizations of residents 
whose membership must equal at least 20 percent of the PHA's residents.



Sec. 901.230  Receivership.

    (a) Upon a determination that a substantial default has occurred and 
without regard to the availability of alternate remedies, the Department 
may petition the court for the appointment of a receiver to conduct the 
affairs of the PHA in a manner consistent with statutory, regulatory, 
and contractual obligations of the PHA and in accordance with such 
additional terms and conditions that the court may provide. The court 
shall have authority to grant appropriate temporary or preliminary 
relief pending final disposition of any petition by HUD.
    (b) The appointment of a receiver pursuant to this section may be 
terminated upon the petition to the court by the PHA, the receiver, or 
the Department, and upon a finding by the court that the circumstances 
or conditions that constituted substantial default by the PHA no longer 
exist and that the operations of the PHA will be conducted in accordance 
with applicable statutes and regulations, and contractual covenants and 
conditions to which the PHA and its public housing programs are subject.



Sec. 901.235  Technical assistance.

    (a) The Department may provide technical assistance to a PHA that is 
in substantial default.
    (b) The Department may provide technical assistance to a troubled or 
non-troubled PHA if the assistance will enable the PHA to achieve 
satisfactory performance on any PHMAP indicator. The Department may 
provide such assistance if a PHA demonstrates a commitment to undertake 
improvements appropriate with the given circumstances, and executes an 
Improvement Plan in accordance with Sec. 901.145.
    (c) The Department may provide technical assistance to a PHA if 
without abatement of prevailing or chronic conditions, the PHA can be 
projected to be designated as troubled by its next PHMAP assessment.
    (d) The Department may provide technical assistance to a PHA that is 
in substantial default of the ACC.
    (e) The Department may provide technical assistance to a PHA whose 
troubled designation has been removed and where such assistance is 
necessary to prevent the PHA from being designated as troubled within 
the next two years.



PART 902_PUBLIC HOUSING ASSESSMENT SYSTEM--Table of Contents




                      Subpart A_General Provisions

Sec.
902.1 Purpose and general description.
902.3 Scope.
902.5 Applicability.
902.7 Definitions.
902.9 Frequency of PHAS scoring for small PHAs.

             Subpart B_PHAS Indicator #1: Physical Condition

902.20 Physical condition assessment.
902.23 Physical condition standards for public housing--decent, safe, 
          and sanitary housing in good repair (DSS/GR).
902.24 Physical inspection of PHA properties.
902.25 Physical condition scoring and thresholds.
902.26 Physical Inspection Report.
902.27 Physical condition portion of total PHAS points.

            Subpart C_PHAS Indicator #2: Financial Condition

902.30 Financial condition assessment.
902.33 Financial reporting requirements.
902.35 Financial condition scoring and thresholds.
902.37 Financial condition portion of total PHAS points.

           Subpart D_PHAS Indicator #3: Management Operations

902.40 Management operations assessment.
902.43 Management operations performance standards.
902.45 Management operations scoring and thresholds.

[[Page 267]]

902.47 Management operations portion of total PHAS points.

     Subpart E_PHAS Indicator #4: Resident Service and Satisfaction

902.50 Resident service and satisfaction assessment.
902.51 Updating of public housing unit address information.
902.52 Distribution of survey to residents.
902.53 Resident service and satisfaction scoring and thresholds.
902.55 Resident service and satisfaction portion of total PHAS points.

                         Subpart F_PHAS Scoring

902.60 Data collection.
902.63 PHAS scoring.
902.67 Score and designation status.
902.68 Technical review of results of PHAS Indicators 1 or 
          4.
902.69 PHA right of petition and appeal.

                 Subpart G_PHAS Incentives and Remedies

902.71 Incentives for high performers.
902.73 Referral to an Area HUB/Program Center.
902.75 Referral to a Troubled Agency Recovery Center (TARC).
902.77 Referral to the Departmental Enforcement Center (DEC).
902.79 Substantial default.
902.83 Interventions.
902.85 Resident petitions for remedial action.

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

    Source: 65 FR 1738, Jan. 11, 2000, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 902.1  Purpose and general description.

    (a) Purpose. The purpose of the Public Housing Assessment System 
(PHAS) is to improve the delivery of services in public housing and 
enhance trust in the public housing system among public housing agencies 
(PHAs), public housing residents, HUD and the general public by 
providing a management tool for effectively and fairly measuring the 
performance of a public housing agency in essential housing operations, 
including rewards for high performers and consequences for poor 
performers.
    (b) Responsible office for PHAS assessments. The Real Estate 
Assessment Center (REAC) is responsible for assessing and scoring the 
performance of PHAs.
    (c) PHAS indicators of a PHA's performance. REAC will assess and 
score a PHA's performance based on the following four indicators:
    (1) PHAS Indicator 1--the physical condition of a PHA's 
properties (addressed in subpart B of this part);
    (2) PHAS Indicator 2--the financial condition of a PHA 
(addressed in subpart C of this part);
    (3) PHAS Indicator 3--the management operations of a PHA 
(addressed in subpart D of this part); and
    (4) PHAS Indicator 4--the resident service and satisfaction 
feedback on a PHA's operations (addressed in subpart E of this part).
    (d) Assessment tools. REAC will make use of uniform and objective 
protocols for the physical inspection of properties and the financial 
assessment of the PHA, and will gather relevant data from the PHA and 
the PHA's public housing residents to assess management operations and 
resident services and satisfaction, respectively. On the basis of this 
data, REAC will assess and score the results, advise PHAs of their 
scores and identify low scoring and failing PHAs so that these PHAs will 
receive the appropriate attention and assistance.
    (e) Limitation of change of PHA's fiscal year. To allow for a period 
of consistent assessment of the PHAS indicators, a PHA is not permitted 
to change its fiscal year for the first three full fiscal years 
following October 1, 1998, unless such change is approved by HUD.



Sec. 902.3  Scope.

    The PHAS is a strategic measure of a PHA's essential housing 
operations. The PHAS, however, does not evaluate a PHA's compliance with 
or response to every Department-wide or program specific requirement or 
objective. Although not specifically referenced in this part, PHAs 
remain responsible for complying with such requirements as fair housing 
and equal opportunity requirements, requirements under section 504 of 
the Rehabilitation Act of 1973 (29 U.S.C. 794) and requirements of 
programs under which the PHA is receiving assistance. A PHA's adherence

[[Page 268]]

to these requirements will be monitored in accordance with the 
applicable program regulations and the PHA's Annual Contributions 
Contract (ACC).



Sec. 902.5  Applicability.

    (a) PHAs, RMCs, AMEs. (1) Scoring of RMCs and AMEs. This part 
applies to PHAs, Resident Management Corporations (RMCs) and Alternate 
Management Entities (AMEs), as described in this section. As described 
in this section, this part is also applicable to RMCs that receive 
direct funding from HUD in accordance with section 20 of the 1937 Act 
(DF-RMCs).
    (i) RMCs and DF-RMCs will be assessed and issued their own numeric 
scores under the PHAS based on the public housing developments or 
portions of public housing developments that they manage and the 
responsibilities they assume which can be scored under PHAS. References 
in this part to PHAs include RMCs and this part is applicable to RMCs 
unless stated otherwise. References in this part to RMCs include DF-RMCs 
and this part is applicable to DF-RMCs unless otherwise stated.
    (ii) AMEs are not issued PHAS scores. The performance of the AME 
contributes to the PHAS score of the PHA or PHAs for which they assumed 
management responsibilities.
    (2) PHA ultimate responsible entity under ACC, except where DF-RMC 
assumes management operations. (i) Because the PHA and not the RMC/AME 
is ultimately responsible to HUD under the ACC, the PHAS score of a PHA 
will be based on all of the developments covered by the ACC, including 
those with management operations assumed by an RMC or AME (including a 
court ordered receivership agreement, if applicable).
    (ii) A PHA's PHAS score will not be based on developments managed by 
a DF-RMC.
    (b) Implementation of PHAS. The regulations in this part are 
applicable to PHAs with fiscal years ending on and after June 30, 2000, 
unless HUD, through Federal Register, notice revises the implementation 
date to later date.
    (1) For PHAs that are not issued PHAS scores. Under certain 
circumstances, PHAs may not be issued PHAS scores. For these PHAs, in 
lieu of a PHAS score, HUD will issue the following:
    (i) PHAS Advisory Score. A PHA will be issued a PHAS advisory score 
for all PHAS indicators--Indicators 1 (Physical), 2 
(Financial), 3 (Management Operations), and 4 
(Resident Service and Satisfaction). The PHA must comply with the 
requirements of this part so that HUD may issue the advisory score. 
Physical inspections required to be conducted by PHAs under the 
Management Operations Indicator will be conducted using HUD uniform 
physical inspection protocol, unless HUD provides, through Federal 
Register notice, that PHAs may use HUD's Housing Quality Standards.
    (ii) Management Assessment Score. A PHA will receive an assessment 
score on the basis of HUD's assessment of the PHA's management 
operations in accordance with subpart D of this part.

[65 FR 36044, June 6, 2000]



Sec. 902.7  Definitions.

    As used in this part:
    Act means the U.S. Housing Act of 1937 (42 U.S.C. 1437 et seq.)
    Adjustment for physical condition (development age) and neighborhood 
environment is a total of three additional points added to PHAS 
Indicator 1 (Physical Condition). The three additional points, 
however, shall not result in a total point value exceeding the total 
points available for PHAS Indicator 1 (established in subpart B 
of this part).
    Alternative management entity (AME) is a receiver, private 
contractor, private manager, or any other entity that is under contract 
with a PHA, under a Regulatory and Operating Agreement with a PHA, or 
that is otherwise duly appointed or contracted (for example, by court 
order or agency action), to manage all or part of a PHA's operations.
    Assessed fiscal year is the PHA fiscal year that has been assessed 
under the PHAS.
    Average number of days nonemergency work orders were active is 
calculated:
    (1) By dividing the total of--

[[Page 269]]

    (i) The number of days in the assessed fiscal year it takes to close 
active nonemergency work orders carried over from the previous fiscal 
year;
    (ii) The number of days it takes to complete nonemergency work 
orders issued and closed during the assessed fiscal year; and
    (iii) The number of days all active nonemergency work orders are 
open in the assessed fiscal year, but not completed;
    (2) By the total number of nonemergency work orders used in the 
calculation of paragraphs (1)(i), (ii) and (iii) of this definition.
    Days in this part, unless otherwise specified, refer to calendar 
days.
    Deficiency means any PHAS score below 60 percent of the available 
points in any indicator, sub-indicator or component. (In the context of 
physical condition and physical inspection, deficiency refers to a 
physical condition and is defined for purposes of subpart B of this part 
in Sec. 902.24)
    Improvement plan is a document developed by a PHA, specifying the 
actions to be taken, including timetables, that shall be required to 
correct deficiencies identified under any of the sub-indicators and 
components within the indicator(s), identified as a result of the PHAS 
assessment when a Memorandum of Agreement (MOA) is not required.
    Occupancy loss is the sum of the number one (1) minus the unit 
months leased divided by unit months available (or Occupancy loss = 1-
(unit months leased/unit months available).
    Property is a project/development with a separate identifying 
project number.
    Reduced actual vacancy rate within the previous three years is a 
comparison of the vacancy rate in the PHAS assessed fiscal year (the 
immediate past fiscal year) to the vacancy rate of that fiscal year two 
years prior to the assessed fiscal year. It is calculated by subtracting 
the vacancy rate in the assessed fiscal year from the vacancy rate in 
the earlier year. If a PHA elects to certify to the reduction of the 
vacancy rate within the previous three years, the PHA shall retain 
justifying documentation to support its certification for HUD post 
review. Reduced actual vacancy rate within the previous three years only 
applies to PHAs with fiscal years ending September 30, 1999, and 
December 31, 1999.
    Reduced average time nonemergency work orders were active during the 
previous three years is a comparison of the average time nonemergency 
work orders were active in the PHAS assessment year (the immediate past 
fiscal year) to the average time nonemergency work orders were active in 
that fiscal year two years prior to the assessment year. It is 
calculated by subtracting the average time nonemergency work orders were 
active in the PHAS assessment year from the average time nonemergency 
work orders were active in the earlier year. If a PHA elects to certify 
to the reduction of the average time nonemergency work orders were 
active during the previous three years, the PHA shall retain justifying 
documentation to support its certification for HUD post review.
    Tenant Receivable Outstanding is defined in Sec. 902.35(b)(3).
    Unit months available is the total number of units managed by a PHA 
multiplied by 12 (adjusted by new units entering a PHA's public housing 
stock during the fiscal year) exclusive of unit months vacant due to: 
demolition; conversion; ongoing modernization; and units approved for 
non-dwelling purposes.
    Unit months leased is the actual number of months each unit was 
rented during the fiscal year based on the PHA's tenant rent rolls or 
Housing Assistance Payments records.
    Work order deferred to the Capital Fund Program is any work order 
that is combined with similar work items and completed within the 
current PHAS assessment year, or will be completed in the following year 
when there are less than three months remaining before the end of the 
PHA fiscal year from the time the work order was generated, under the 
PHA's Capital Fund Program or other PHA capital improvements program.



Sec. 902.9  Frequency of PHAS scoring for small PHAs.

    REAC will assess and score the performance of a PHA with less than 
250

[[Page 270]]

public housing units every other PHA fiscal year, unless the small PHA:
    (a) Elects to have its performance assessed on an annual basis; or
    (b) Is designated as troubled, in accordance with Sec. 902.67.

[68 FR 37671, June 24, 2003]



             Subpart B_PHAS Indicator #1: Physical Condition



Sec. 902.20  Physical condition assessment.

    (a) Objective. The objective of the Physical Condition Indicator is 
to determine whether a PHA is meeting the standard of decent, safe, 
sanitary, and in good repair (DSS/GR), as this standard is defined in 
Sec. 902.23 (a standard that provides acceptable basic housing 
conditions) and the level to which the PHA is maintaining its public 
housing in accordance with this standard.
    (b) Physical inspection under PHAS Indicator 1. (1) To 
achieve the objective of paragraph (a) of this section, REAC will 
provide for an independent physical inspection of a PHA's property or 
properties that includes, at minimum, a statistically valid sample of 
the units in the PHA's public housing portfolio to determine the extent 
of compliance with the DSS/GR standard.
    (2) Only occupied units will be inspected as dwelling units (except 
units approved by HUD for non-dwelling purposes, e.g., daycare or 
meetings, which are inspected as common areas). Vacant units that are 
not under lease at the time of the physical inspection will not be 
inspected, but vacant units are assessed under the Financial Condition 
Indicator 2 (Sec. 902.35(b)(4)). The categories of vacant 
units not under lease that are exempted from physical inspection are as 
follows:
    (i) Units undergoing vacant unit turnaround--vacant units that are 
in the routine process of turn over; i.e., the period between which one 
resident has vacated a unit and a new lease takes effect;
    (ii) Units undergoing rehabilitation--vacant units that have 
substantial rehabilitation needs already identified, and there is an 
approved implementation plan to address the identified rehabilitation 
needs and the plan is fully funded;
    (iii) Off-line units--vacant units that have repair requirements 
such that the units cannot be occupied in a normal period of time 
(considered to be between 5 and 7 days) and which are not included under 
an approved rehabilitation plan;
    (c) PHA physical inspection requirement. The HUD-conducted physical 
inspections required by this part do not relieve the PHA of the 
responsibility to inspect public housing units as provided in section 
6(f)(3) of the Act (42 U.S.C. 1437d(f)(3)), and Sec. 902.43(a).
    (d) Compliance with State and local codes. The physical condition 
standards in this subpart do not supersede or preempt State and local 
building and maintenance codes with which the PHA's public housing must 
comply. PHAs must continue to adhere to these codes.

[65 FR 1738, Jan. 11, 2000, as amended at 65 FR 36044, June 6, 2000]



Sec. 902.23  Physical condition standards for public housing--decent, 
safe, and sanitary housing in good repair (DSS/GR).

    (a) General. Public housing must be maintained in a manner that 
meets the physical condition standards set forth in this part in order 
to be considered decent, safe, sanitary and in good repair (standards 
that constitute acceptable basic housing conditions). These standards 
address the major physical areas of public housing: site; building 
exterior; building systems; dwelling units; and common areas (see 
paragraph (b) of this section). These standards also identify health and 
safety considerations (see paragraph (c) of this section). These 
standards address acceptable basic housing conditions, not the 
adornment, decor or other cosmetic appearance of the housing.
    (b) Major inspectable areas. The five major inspectable areas of 
public housing are the following:
    (1) Site. The site includes components, such as fencing and 
retaining walls, grounds, lighting, mailboxes, signs (such as those 
identifying the development or areas of the development), parking lots/
driveways, play areas and equipment, refuse disposal,

[[Page 271]]

roads, storm drainage and walkways. The site must be free of health and 
safety hazards and be in good repair. The site must not be subject to 
material adverse conditions, such as abandoned vehicles, dangerous walks 
or steps, poor drainage, septic tank back-ups, sewer hazards, excess 
accumulations of trash, vermin or rodent infestation or fire hazards.
    (2) Building exterior. Each building on the site must be 
structurally sound, secure, habitable, and in good repair. The 
building's exterior components such as doors, fire escapes, foundations, 
lighting, roofs, walls, and windows, where applicable, must be free of 
health and safety hazards, operable, and in good repair.
    (3) Building systems. The building's systems include components such 
as domestic water, electrical system, elevators, emergency power, fire 
protection, HVAC, and sanitary system. Each building's systems must be 
free of health and safety hazards, functionally adequate, operable, and 
in good repair.
    (4) Dwelling units. (i) Each dwelling unit within a building must be 
structurally sound, habitable, and in good repair. All areas and aspects 
of the dwelling unit (for example, the unit's bathroom, call-for-aid, 
ceiling, doors, electrical systems, floors, hot water heater, HVAC 
(where individual units are provided), kitchen, lighting, outlets/
switches, patio/porch/balcony, smoke detectors, stairs, walls, and 
windows) must be free of health and safety hazards, functionally 
adequate, operable, and in good repair.
    (ii) Where applicable, the dwelling unit must have hot and cold 
running water, including an adequate source of potable water.
    (iii) If the dwelling unit includes its own sanitary facility, it 
must be in proper operating condition, usable in privacy, and adequate 
for personal hygiene and the disposal of human waste.
    (iv) The dwelling unit must include at least one battery-operated or 
hard-wired smoke detector, in proper working condition, on each level of 
the unit.
    (5) Common areas. The common areas must be structurally sound, 
secure, and functionally adequate for the purposes intended. The common 
areas include components such as basement/garage/carport, restrooms, 
closets, utility, mechanical, community rooms, day care, halls/
corridors, stairs, kitchens, laundry rooms, office, porch, patio, 
balcony, and trash collection areas, if applicable. The common areas 
must be free of health and safety hazards, operable, and in good repair. 
All common area ceilings, doors, floors, HVAC, lighting, outlets/
switches, smoke detectors, stairs, walls, and windows, to the extent 
applicable, must be free of health and safety hazards, operable, and in 
good repair.
    (c) Health and safety concerns. All areas and components of the 
housing must be free of health and safety hazards. These areas include, 
but are not limited to, air quality, electrical hazards, elevators, 
emergency/fire exits, flammable materials, garbage and debris, handrail 
hazards, infestation, and lead-based paint. For example, the buildings 
must have fire exits that are not blocked and have hand rails that are 
undamaged and have no other observable deficiencies. The housing must 
have no evidence of infestation by rats, mice, or other vermin, or of 
garbage and debris. The housing must have no evidence of electrical 
hazards, natural hazards, or fire hazards. The dwelling units and common 
areas must have proper ventilation and be free of mold, odor (e.g., 
propane, natural gas, methane gas), or other observable deficiencies. 
The housing must comply with all regulations and requirements related to 
the ownership of pets, and the evaluation and reduction of lead-based 
paint hazards and have available proper certifications of such (see 24 
CFR part 35).



Sec. 902.24  Physical inspection of PHA properties.

    (a) The inspection, generally. The score for PHAS Indicator 
1 is based upon an independent physical inspection of a PHA's 
properties provided by REAC and using HUD's uniform physical inspection 
protocols.
    (1) During the physical inspection of a property, an inspector looks 
for deficiencies for each inspectable item within the inspectable areas, 
such as holes (deficiencies) in the walls (item) of a dwelling unit 
(area). The dwelling

[[Page 272]]

units inspected in a property are a randomly selected, statistically 
valid sample of the units in the property, excluding vacant units not 
under lease at the time of the physical inspection, as provided in Sec. 
902.20(b)(2).
    (2) To ensure prompt correction of health and safety deficiencies 
before leaving the site, the inspector gives the property representative 
the list of every observed exigent/fire safety health and safety 
deficiency that calls for immediate attention or remedy. The property 
representative acknowledges receipt of the deficiency report by 
signature.
    (3) After the inspection is completed, the inspector transmits the 
results to REAC where the results are verified for accuracy and then 
scored in accordance with the procedures in this subpart.
    (b) Definitions. The following definitions apply to the physical 
condition scoring process in this subpart:
    Criticality means one of five levels that reflect the relative 
importance of the deficiencies for an inspectable item.
    (1) Based on the importance of the deficiency, reflected in its 
criticality value, points are deducted from the score for an inspectable 
area.

------------------------------------------------------------------------
                          Criticality                             Level
------------------------------------------------------------------------
Critical......................................................        5
Very important................................................        4
Important.....................................................        3
Contributes...................................................        2
Slight contribution...........................................        1
------------------------------------------------------------------------

    (2) The Item Weights and Criticality Levels document lists all 
deficiencies with their designated levels, which vary from 1 to 5, with 
5 as the most critical, and the point values assigned to them.
    Deficiencies means the specific problems, comparable to problems 
noted under Housing Quality Standards (HQS), such as a hole in a wall or 
a damaged refrigerator in the kitchen, that can be recorded for 
inspectable items.
    Dictionary of Deficiency Definitions refers to the Dictionary of 
Deficiency Definitions document which is included as an appendix to the 
PHAS Notice on the Physical Condition Scoring Process and contains 
specific definitions of each severity level for deficiencies under this 
subpart. HUD will publish for comment any significant proposed 
amendments to this document. After comments have been considered HUD 
will publish a notice adopting the final Dictionary of Deficiency 
Definitions document or the amendments to the document. The Dictionary 
of Deficiency Definitions that is currently in effect can be found at 
the REAC Internet site at http://www.hud.gov/reac or obtained from 
REAC's Technical Assistance Center at 888-245-4860 (this is a toll free 
number).
    Inspectable areas (or area) means any of the five major components 
of the property that are inspected, which are: site; building exteriors; 
building systems; dwelling units; and common areas.
    Inspectable item means the individual parts, such as walls, 
kitchens, bathrooms, and other things, to be inspected in an inspectable 
area. The number of inspectable items varies for each area. Weights are 
assigned to each item as shown in the Item Weights and Criticality 
Levels document.
    Item Weights and Criticality Levels Document refers to the Item 
Weights and Criticality Levels document which is included as an appendix 
to the PHAS Notice on the Physical Condition Scoring Process and 
contains a listing of the inspectable items, item weights, observable 
deficiencies, criticality levels and values, and severity levels and 
values that apply to this subpart. HUD will publish for comment any 
significant proposed amendments to this document. After comments have 
been considered HUD will publish a notice adopting the final Item 
Weights and Criticality Levels document or the amendments to the 
document. The Item Weights and Criticality Levels document that is 
currently in effect can be found at the REAC Internet site at http://
www.hud.gov/reac or obtained from REAC's Technical Assistance Center at 
888-245-4860 (this is a toll free number).
    Normalized weights mean weights adjusted to reflect the inspectable 
items or areas that are present to be inspected.
    Score means a number on a scale of 0 to 100 that reflects the 
physical condition of a property, inspectable area, or

[[Page 273]]

sub-area. To record a health or safety deficiency, a specific 
designation (such as a letter--a, b, or c) is added to the property 
score that highlights that a health or safety deficiency (or 
deficiencies) exists. If smoke detectors are noted as inoperable or 
missing, another designation (such as an asterisk (*)) is added to the 
property score. Although inoperable or missing smoke detectors do not 
reduce the score, they are included in the health and safety 
deficiencies list that the inspector gives the PHA's property 
representative. The PHA is expected to promptly address all health and 
safety deficiencies.
    Severity means one of three levels, level 1 (minor), level 2 
(major), and level 3 (severe), that reflect the extent of the damage or 
problem associated with each deficiency. The Item Weights and 
Criticality Levels document shows the severity levels for each 
deficiency. Based on the severity of each deficiency, the score is 
reduced. Points deducted are calculated as the product of the item 
weight and the values for criticality and severity. For specific 
definitions of each severity level, see REAC's ``Dictionary of 
Deficiency Definitions''.
    Sub-area means an inspectable area for one building. For example, if 
a property has more than one building, each inspectable area for each 
building in the property is treated as a sub-area.
    (c) Compliance with civil rights/nondiscrimination requirements. HUD 
will review certain elements during the physical inspection to determine 
possible indications of noncompliance with the Fair Housing Act (42 
U.S.C. 3601-19) and section 504 of the Rehabilitation Act of 1973 (29 
U.S.C. 794). A PHA will not be scored on those elements. Any indication 
of possible noncompliance will be referred to HUD's Office of Fair 
Housing and Equal Opportunity.
    (d) HUD access to PHA properties. PHAs are required by the ACC to 
provide the Government with full and free access to all facilities 
contained in the development. PHAs are required to provide HUD or its 
representative with access to the development, all units and 
appurtenances thereto in order to permit physical inspections under this 
part. Access to the units must be provided whether or not the resident 
is home or has installed additional locks for which the PHA did not 
obtain keys. In the event that the PHA fails to provide access as 
required by HUD or its representative, the PHA will be given ``0'' 
points for the development or developments involved which will be 
reflected in the physical condition and overall PHAS score.



Sec. 902.25  Physical condition scoring and thresholds.

    (a) Scoring. Under PHAS Indicator 1, REAC will calculate a 
score for the overall condition of a PHA's public housing portfolio 
following the procedures described in the PHAS Notice on the Physical 
Condition Scoring Process (PHAS PASS Notice 3), which will be published 
in the Federal Register. HUD may revise this notice in the future, but 
HUD will publish for comment any significant proposed amendments to this 
notice. After comments have been considered, HUD will publish a notice 
adopting a final notice or amendment. The PHAS Notice on the Physical 
Condition Scoring Process that is currently in effect can be found at 
the REAC Internet site at http://www.hud.gov/reac or obtained from 
REAC's Technical Assistance Center at 888-245-4860 (this is a toll free 
number).
    (b) Adjustment for physical condition (property age) and 
neighborhood environment. In accordance with section 6(j)(1)(I)(2) of 
the Act (42 U.S.C. 1437d(j)(1)(I)(2)), the overall physical score for a 
property will be adjusted upward to the extent that negative conditions 
are caused by situations outside the control of the PHA. These 
situations are related to the poor physical condition of the property or 
the overall depressed condition of the immediately surrounding 
neighborhood. The intent of this adjustment is to avoid penalizing the 
PHA through appropriate application of the adjustment. (See paragraph 
(c) of this section which provides for further adjustments of physical 
condition score under certain circumstances.)
    (1) Adjustments in three areas. Adjustments to the PHA physical 
condition score will be made in three factually observed and assessed 
areas (inspectable areas):

[[Page 274]]

    (i) Physical condition of the site;
    (ii) Physical condition of the common areas on the property; and
    (iii) Physical condition of the building exteriors.
    (2) Definitions. Definitions and application of physical condition 
and neighborhood environment factors are:
    (i) Physical condition applies to properties over 10 years old and 
that have not received substantial rehabilitation in the last 10 years.
    (ii) Neighborhood environment applies to properties located where 
the immediate surrounding neighborhood (that is a majority of the 
population that resides in the census tracts or census block groups on 
all sides of the development) has at least 51 percent of families with 
incomes below the poverty rate as documented by the most recent census 
data.
    (3) Adjustment for physical condition (property age) and 
neighborhood environment. HUD will adjust the physical score of a PHA's 
property subject to both the physical condition (property age) and 
neighborhood environment conditions. The adjustments will be made to the 
scores assigned to the applicable inspectable areas so as to reflect the 
difficulty in managing. In each instance where the actual physical 
condition of the inspectable area (site, common areas, building 
exterior) is rated below the maximum score for that area, 1 point will 
be added, but not to exceed the maximum number of points available to 
that inspectable area.
    (i) These extra points will be added to the score of the specific 
inspectable area, by property, to which these conditions may apply. A 
PHA is required to certify in the manner prescribed by HUD, the extent 
to which the conditions apply, and to which inspectable area the extra 
scoring point should be added.
    (ii) A PHA that receives the maximum potential weighted points on 
the inspectable areas may not claim any additional adjustments for 
physical condition and/or neighborhood environments for the respective 
inspectable area(s). In no circumstance shall a property's score for the 
inspectable area, after any adjustment(s) for physical condition and/or 
neighborhood environments, exceed the maximum potential weighted points 
assigned to the respective property's inspectable area(s).
    (4) Scattered site properties. The Date of Full Availability (DOFA) 
shall apply to scattered site properties, where the age of units and 
buildings vary, to determine whether the properties have received 
substantial rehabilitation within the past 10 years and are eligible for 
an adjusted score for the Physical Condition Indicator.
    (5) Maintenance of supporting documentation. PHAs shall maintain 
supporting documentation to show how they arrived at the determination 
that the property's score is subject to adjustment under this section.
    (i) If the basis was neighborhood environments, the PHA shall have 
on file the appropriate maps showing the census block groups surrounding 
the development(s) in question with supporting census data showing the 
level of poverty. Properties that fall into this category but which have 
already been removed from consideration for other reasons (permitted 
exemptions and modifications and/or exclusions) shall not be counted in 
this calculation.
    (ii) For the Physical Condition Indicator, a PHA would have to 
maintain documentation showing the age and condition of the properties 
and the record of capital improvements, evidencing that these particular 
properties have not received capital funds.
    (iii) PHAs shall also document that in all cases, properties that 
were exempted for other reasons were not included in the calculation.
    (c) Database adjustment. (1) Adjustments for factors not reflected 
or inappropriately reflected in physical condition score. Under certain 
circumstances, HUD may determine it is appropriate to review the results 
of a PHA's physical inspection which are unusual or incorrect due to 
facts and circumstances affecting the PHA's property which are not 
reflected in the inspection or which are reflected inappropriately in 
the inspection.
    (i) These circumstances are not those that may addressed by the 
technical review process described in Sec. 902.68. The

[[Page 275]]

circumstances addressed by this paragraph (c)(1) may include 
inconsistencies between local code requirements and the HUD physical 
inspection protocol; conditions which are permitted by local variance or 
license or which are preexisting physical features that do not conform 
to, or are inconsistent with, HUD's physical condition protocol; or the 
PHA has been scored for elements (e.g., roads, sidewalks, mail boxes, 
resident-owned appliances, etc.) that it does not own and is not 
responsible for maintaining, and the PHA has notified the proper 
authorities regarding the deficient structure.
    (ii) An adjustment due to these circumstances may be initiated by a 
PHA's notification to the applicable HUD HUB/Program Center and such 
notification shall include appropriate proof of the reasons for the 
unusual or incorrect result. A PHA may submit the request for this 
adjustment either prior to or after the physical inspection has been 
concluded. If the request is made after the conclusion of the physical 
inspection, the request must be made within 15 days of issuance of the 
physical condition score. Based on the recommendation of the applicable 
HUD HUB/Program Center following its review of the PHA's evidence or 
documentation, HUD may determine that a reinspection and/or re-scoring 
of the PHA's property is necessary. HUD shall define, by notice, the 
procedures to be followed to address circumstances described in 
paragraph (c) of this section. The notice will be applicable to both 
public housing and multifamily housing properties covered by 24 CFR part 
5, subpart G.
    (2) Adjustments for adverse conditions beyond the PHA's control. 
Under certain circumstances, HUD may determine that certain deficiencies 
that adversely and significantly affect the physical condition score of 
the PHA were caused by circumstances beyond the control of the PHA. The 
correction of these conditions, however, remains the responsibility of 
the PHA.
    (i) The circumstances addressed by this paragraph (c)(2) may 
include, but are not limited to, damage caused by third parties (such as 
a private entity or public entity undertaking work near a public housing 
development that results in damage to the development) or natural 
disasters. (The circumstances addressed in paragraph (c)(2) of this 
section are not those addressed by the technical review process in Sec. 
902.68.)
    (ii) To adjust a physical condition score based on circumstances 
addressed in paragraph (c)(2) of this section, the PHA must submit a 
request to the applicable HUD HUB/Program Center requesting a 
reinspection of the PHA's properties. The request must be submitted 
within 15 days of the issuance of the physical condition score to the 
PHA and must be accompanied by a certification that all deficiencies 
identified in the original report have been corrected. Based on the 
recommendation of the applicable HUD HUB/Program Center following its 
review of the PHA's evidence or documentation, HUD may determine that a 
reinspection and/or re-scoring of the PHA's property is necessary.
    (3) Adjustments for modernization work in progress. HUD may 
determine that an occupied dwelling unit or other areas of a PHA 
development, subject to physical inspection under this subpart, which 
are undergoing modernization work in progress require an adjustment to 
the physical condition score.
    (i) An occupied dwelling unit or other areas of a PHA development 
undergoing modernization are subject to physical inspection; the unit 
and other areas of the PHA development are not exempt from physical 
inspection. All elements of the unit or of the other areas of the PHA 
development that are subject to inspection and are not undergoing 
modernization at the time of the inspection (even if modernization is 
planned) will be subject to HUD's physical inspection protocol without 
adjustment. For those elements of the unit or of the development that 
are undergoing modernization, deficiencies will be noted in accordance 
with HUD's physical inspection protocol, but the PHA may request 
adjustment of the physical condition score as a result of modernization 
work in progress.
    (ii) An adjustment due to modernization work in progress may be 
initiated by a PHA's notification to the applicable HUD HUB/Program 
Center and the notification shall include supporting documentation of 
the modernization

[[Page 276]]

work underway at the time of the physical inspection. A PHA may submit 
the request for this adjustment either prior to or after the physical 
inspection has been concluded. If the request is made after the 
conclusion of the physical inspection, the request must be made within 
15 days of issuance of the physical condition score. Based on the 
recommendation of the applicable HUD HUB/Program Center, HUD may 
determine that a reinspection and/or re-scoring of the PHA's property is 
necessary.
    (d) Overall PHA Physical Condition Indicator score. The overall 
Physical Condition Indicator score for a PHA is the weighted average of 
the PHA's individual property physical inspection scores, where the 
weights are the number of units in each property divided by the total 
number of units in all properties of the PHA.
    (e) Thresholds. (1) The physical condition score is reduced to a 30 
point basis for the PHAS Physical Condition Indicator.
    (2) In order to receive a passing score under the Physical Condition 
Indicator, the PHA must achieve a score of at least 18 points, or 60 
percent of the available points under this indicator. If the PHA fails 
to receive a passing score on the Physical Condition Indicator, the PHA 
shall be categorized as a substandard physical agency.

[65 FR 1738, Jan. 11, 2000, as amended at 65 FR 36044, June 6, 2000]



Sec. 902.26  Physical Inspection Report.

    (a) Following the physical inspection and computation of the score 
under this subpart, each PHA receives a Physical Inspection Report. The 
Physical Inspection Report allows the PHA to see the magnitude of the 
points lost by inspectable area, and the impact on the score of the 
health and safety (H&S) deficiencies.
    (1) If exigent health and safety items are identified in the report, 
the PHA will have the opportunity to correct all exigent health and 
safety deficiencies noted on the report and request a reinspection.
    (2) The correction of exigent health and safety deficiencies and the 
request for reinspection must be made within 15 days of the PHA's 
receipt of the Physical Inspection Report. The request for reinspection 
must be accompanied by the PHA's identification of the exigent health 
and safety deficiencies that have been corrected, and the PHA's 
certification that all such deficiencies identified in the report have 
been corrected.
    (3) If HUD determines that a reinspection is appropriate, REAC will 
arrange for a complete reinspection of the development(s) in question, 
not just the deficiencies previously identified. The reinspection will 
constitute the final physical inspection for the development, and REAC 
will issue a new inspection report (the final inspection report).
    (4) If any of the previously identified exigent health and safety 
deficiencies that the PHA certified were corrected are found during the 
reinspection to be not corrected, the score in the final inspection 
report will reflect a point deduction of triple the value of the 
original deduction, up to the maximum possible points for the unit or 
area, and the PHA must reimburse HUD for the cost of the reinspection.
    (5) If a request for reinspection is not made within 15 days, the 
physical inspection report issued to the PHA will be the final physical 
inspection report.
    (b) The Physical Inspection Report includes the following items:
    (1) Normalized weights as the ``possible points'' by area;
    (2) The area scores, taking into account the points deducted for 
observed deficiencies;
    (3) The H&S deductions for each of the five inspectable areas; a 
listing of all observed smoke detector deficiencies; and a projection of 
the total number of H&S problems that the inspector potentially would 
see in an inspection of all buildings and all units; and
    (4) The overall property score.



Sec. 902.27  Physical condition portion of total PHAS points.

    Of the total 100 points available for a PHAS score, a PHA may 
receive up to 30 points based on the Physical Condition Indicator.

[[Page 277]]



            Subpart C_PHAS Indicator #2: Financial Condition



Sec. 902.30  Financial condition assessment.

    (a) Objective. The objective of the Financial Condition Indicator is 
to measure the financial condition of a PHA for the purpose of 
evaluating whether it has sufficient financial resources and is capable 
of managing those financial resources effectively to support the 
provision of housing that is decent, safe, sanitary and in good repair.
    (b) Financial reporting standards. A PHA's financial condition will 
be assessed under this indicator by measuring the PHA's entity-wide 
performance in each of the components listed in Sec. 902.35, on the 
basis of the annual financial report provided in accordance with Sec. 
902.33.



Sec. 902.33  Financial reporting requirements.

    (a) Annual financial report. All PHAs must submit their unaudited 
and audited financial data to HUD on an annual basis. The financial 
information must be:
    (1) Prepared in accordance with Generally Accepted Accounting 
Principles (GAAP) as further defined by HUD in supplementary guidance; 
and
    (2) Submitted electronically in the format prescribed by HUD using 
the Financial Data Schedule (FDS).
    (b) Annual financial report filing dates. The unaudited financial 
information to be submitted to HUD in accordance with paragraph (a) of 
this section, must be submitted to HUD annually, no later than two 
months after the end of the PHA's fiscal year end, with no penalty 
applying until the 16th day of the third month after the PHA's fiscal 
year end in accordance with Uniform Financial Reporting Standards (see 
24 CFR part 5, subpart H). An automatic one month extension will be 
granted for PHAs with fiscal years ending September 30, 1999 through 
June 30, 2000.
    (c) Reporting compliance dates. The requirement for compliance with 
the financial reporting requirements of this section begins with PHAs 
with fiscal years ending on and after September 30, 1999. Unaudited 
financial statements will be required two months after the PHA's fiscal 
year end, and audited financial statements will be required no later 
than 9 months after the PHA's fiscal year end, in accordance with the 
Single Audit Act and OMB Circular A-133 (see 24 CFR 84.26).

[65 FR 1738, Jan. 11, 2000, as amended at 68 FR 37671, June 24, 2003]



Sec. 902.35  Financial condition scoring and thresholds.

    (a) Scoring. Under PHAS Indicator 2, REAC will calculate a 
score based on the values of financial condition components, as well as 
audit and internal control flags. Each financial condition component has 
several levels of performance, with different point values for each 
level. A PHA's score for a financial condition component depends upon 
both the level of the PHA's performance under a component, and the PHA's 
size, based on the number of public housing and section 8 units and 
other units the PHA operates.
    (1) Under PHAS Indicator 2, REAC will calculate a score 
following the procedures described in the PHAS Notice on the Financial 
Condition Scoring Process (PHAS FASS Notice 3), which will be published 
in the Federal Register. HUD may revise this notice in the future, but 
HUD will publish for comment any significant proposed amendments to this 
notice. After comments have been considered, HUD will publish a notice 
adopting a final notice or amendment. The PHAS Notice on the Financial 
Condition Scoring Process that is currently in effect can be found at 
the REAC Internet site at http://www.hud.gov/reac or obtained from 
REAC's Technical Assistance Center at 888-245-4860 (this is a toll free 
number).
    (2) PHAs with fiscal years ending on or before June 30, 2000, will 
receive an advisory score based on the PHA's entity-wide operations. 
PHAs with fiscal years ending March 31, 2000, and June 30, 2000, will 
also receive a score under this subpart C. These PHAs will receive a 
PHAS financial condition score on the basis of their public housing 
operating subsidies program. PHAs with fiscal years ending after June 
30, 2000, will receive PHAS financial condition scores on the basis of 
their entity-wide operations.

[[Page 278]]

    (3) High liquidity or reserves. (i) Under the scoring process for 
the Financial Condition Indicator, no points will be deducted under the 
Current Ratio or Monthly Expenditure Fund Balance components for a PHA 
that has too high liquidity or reserves if the PHA has achieved at least 
90 percent of the points available under the Physical Condition 
Indicator, and is not required to prepare a follow-up survey plan under 
the Resident Service and Satisfaction Indicator.
    (ii) A PHA that has too high liquidity or reserves but does not meet 
the qualifications described in paragraph (a)(3)(i) of this section may 
appeal point deductions under the Current Ratio or Monthly Expenditure 
Fund Balance components based on mitigating circumstances if the PHA's 
physical condition score is at least 60 percent of the total available 
points under the Physical Condition Indicator.
    (A) The appeal may be made without regard to change in designation.
    (B) To adjust a financial condition score based on mitigating 
circumstances, the PHA must submit a request to the applicable HUD HUB/
Program Center within 15 days of the issuance of the financial condition 
score to the PHA and must be accompanied by a description of the 
mitigating circumstances. Based on the recommendation of the applicable 
HUD HUB/Program Center following its review of the PHA's evidence or 
documentation, HUD may determine that a point adjustment for the 
financial condition score is acceptable.
    (b) Components of PHAS Indicator 2. The components of PHAS 
Indicator 2 are:
    (1) Current Ratio is current assets divided by current liabilities.
    (2) Number of Months Expendable Fund Balance is expendable fund 
balance (Expendable Fund Balance) divided by monthly operating expenses. 
The Expendable Fund Balance is the portion of the fund balance 
representing expendable available financial resources, that is, the 
unreserved and undesignated fund balance.
    (3) Tenant Receivable Outstanding is the average number of days 
tenant receivables are outstanding and it is calculated by dividing 
tenant accounts receivable by Daily Tenant Revenue (rental revenue/365).
    (4) Occupancy Loss is one minus unit months leased divided by unit 
months available.
    (5) Expense Management/Utility Consumption is the expense per unit 
for key expenses, including utility consumption, and other expenses such 
as maintenance and security.
    (6) Net Income or Loss divided by the Expendable Fund Balance 
measures how the year's operations have affected the PHA's viability.
    (c) Thresholds. In order to receive a passing score under the 
Financial Condition Indicator, the PHA must achieve a score of at least 
18 points, or 60 percent of the available points under this indicator. 
If the PHA fails to receive a passing score on the Financial Condition 
Indicator, the PHA shall be categorized as a substandard financial 
agency.

[65 FR 1738, Jan. 11, 2000, as amended at 65 FR 36044, June 6, 2000]



Sec. 902.37  Financial condition portion of total PHAS points.

    Of the total 100 points available for a PHAS score, a PHA may 
receive up to 30 points based on the Financial Condition Indicator.



           Subpart D_PHAS Indicator #3: Management Operations



Sec. 902.40  Management operations assessment.

    (a) Objective. The objective of the Management Operations Indicator 
is to measure certain key management operations and responsibilities of 
a PHA for the purpose of assessing the PHA's management operations 
capabilities.
    (b) Management assessment. PHAS Indicator 3 pertaining to 
Management Operations incorporates the majority of the statutory 
indicators of section 6(j) of the Act, as provided in Sec. 902.43. (The 
remaining statutory indicators are addressed under the other PHAS 
Indicators.)



Sec. 902.43  Management operations performance standards.

    (a) Management operations sub-indicators. The following sub-
indicators listed

[[Page 279]]

in this section will be used to assess a PHA's management operations. 
The components and grades for each sub-indicator are the same as those 
provided in Appendix 1 to the PHAS Notice on the Management Operations 
Scoring Process, except as may be otherwise noted in this subpart.
    (1) Management sub-indicator #1--Vacant Unit Turnaround Time. This 
sub-indicator measures the PHA's efforts to reduce unit turnaround time 
and assesses the adequacy of the PHA's system to track unit down time, 
make ready time and lease up time.
    (2) Management sub-indicator #2--Capital Fund. This management sub-
indicator examines the amount and percentage of funds provided to the 
PHA from the Capital Fund under section 9(d) of the Act, which remain 
unexpended by the PHA after three years, the timeliness of fund 
obligation, the adequacy of contract administration, the quality of the 
physical work, and the adequacy of budget controls. For funding under 
the HOPE VI Program, only components 3, 4, and 
5 of this sub-indicator are applicable. This management sub-
indicator is automatically excluded if the PHA does not have section 
9(d) capital funding.
    (3) Management sub-indicator #3--Work Orders. This management sub-
indicator examines the time it takes to complete or abate emergency work 
orders, the average number of days nonemergency work orders were active, 
and any progress a PHA has made during the preceding three years to 
reduce the period of time nonemergency maintenance work orders were 
active. Implicit in this management sub-indicator is the adequacy of the 
PHA's work order system in terms of how a PHA accounts for and controls 
its work orders, and its timeliness in preparing/issuing work orders.
    (4) Management sub-indicator #4--PHA Annual Inspection of Units and 
Systems. This management sub-indicator examines the percentage of units 
and systems that a PHA inspects on an annual basis in order to determine 
short-term maintenance needs and long-term Capital Fund needs. This 
management sub-indicator requires a PHA's inspection to utilize the HUD 
uniform physical condition standards set forth in subpart B of this 
part. All occupied units are required to be inspected.
    (5) Management sub-indicator #5--Security. (i) This management sub-
indicator evaluates the PHA's performance in tracking crime related 
problems in their developments; reporting incidence of crime to local 
law enforcement agencies; the adoption and implementation, consistent 
with section 6(j)(1)(I) (42 U.S.C. 1437d(j)(1)(I)), of applicant 
screening and resident eviction policies and procedures, and other 
anticrime strategies; coordination with local government officials and 
residents in the development on implementation of such strategies; and 
as applicable, PHA performance under any HUD drug prevention/crime 
reduction grants.
    (ii) Paragraph (a) of this section provides that the components and 
grades for each sub-indicator are the same as those for the 
corresponding indicator provided in Appendix 1 to the PHAS Notice on the 
Management Operations Scoring Process, except as may be otherwise noted. 
For Component 1, Tracking and Reporting Crime Related Problems, 
the following will be used to describe a Grade of A: The PHA Board, by 
resolution, has adopted policies and the PHA has implemented procedures 
and can document that it:
    (A) Tracks crime and crime-related problems in at least 90 percent 
of its developments;
    (B) Has a cooperative system for tracking and reporting incidents of 
crime to local police authorities to improve law enforcement and crime 
prevention; and
    (C) Coordinates with local government officials and its residents on 
the implementation of anticrime strategies.
    (6) Management sub-indicator #6--Economic Self-Sufficiency. The 
economic self-sufficiency sub-indicator measures the PHA's efforts to 
coordinate, promote or provide effective programs and activities to 
promote the economic self-sufficiency of residents. For this sub-
indicator, PHAs will be assessed for all the programs that the PHA has 
HUD funding to implement. Also, PHAs will receive credit for 
implementation of programs through partnerships with

[[Page 280]]

non-PHA providers, even if the programs are not funded by HUD or the 
PHA.
    (b) Reporting on performance under the Management Operations 
Indicator. (1) A PHA is required to submit electronically a 
certification of its performance under each of the management operations 
sub-indicators in accordance with Sec. 902.60(d).
    (2) If circumstances preclude a PHA from reporting electronically, 
HUD will consider granting short-term approval to allow a PHA to submit 
its management operations certification manually. A PHA that seeks 
approval to submit its certification manually must ensure that REAC 
receives a request for manual submission in writing two months prior to 
the submission due date of its Management Operations certification. The 
written request must include the reasons why the PHA cannot submit its 
certification electronically. REAC will respond to such a request and 
will manually forward its determination in writing to the PHA.

[65 FR 36044, June 6, 2000]



Sec. 902.45  Management operations scoring and thresholds.

    (a) Scoring. The Management Operations Indicator score provides an 
assessment of each PHA's management effectiveness. Under PHAS Indicator 
3, REAC will calculate a score of the overall management 
operations of a PHA that reflects weights based on the relative 
importance of the individual management sub-indicators. Under PHAS 
Indicator 3, REAC will calculate a score following the 
procedures described in the PHAS Notice on the Management Operations 
Scoring Process (PHAS MASS Notice 3), which will be published in the 
Federal Register. HUD may revise this notice in the future, but HUD will 
publish for comment any significant proposed amendments to this notice. 
After comments have been considered, HUD will publish a notice adopting 
a final notice or amendment. The PHAS Notice on the Management 
Operations Scoring Process that is currently in effect can be found at 
the REAC Internet site at http://www.hud.gov/reac or obtained from 
REAC's Technical Assistance Center at 888-245-4860 (this is a toll free 
number).
    (b) Thresholds. (1) In order to receive a passing score under the 
Management Operations Indicator, the PHA must achieve a score of at 
least 18 points or 60 percent of the available points under this PHAS 
Indicator 3. If the PHA fails to receive a passing score on the 
Management Operations Indicator, the PHA shall be categorized as a 
substandard management agency.
    (2) A PHA that receives less than 60 percent of the maximum 
calculation for the Capital Fund subindicator under Management 
Operations Indicator, shall be subject to the sanctions provided in 
section 6(j)(4) of the Act (see Sec. 902.67(c)(2)(ii).)

[65 FR 1738, Jan. 11, 2000, as amended at 65 FR 36045, June 6, 2000]



Sec. 902.47  Management operations portion of total PHAS points.

    Of the total 100 points available for a PHAS score, a PHA may 
receive up to 30 points based on the Management Operations Indicator.



     Subpart E_PHAS Indicator #4: Resident Service and Satisfaction



Sec. 902.50  Resident service and satisfaction assessment.

    (a) Objective. The objective of the Resident Service and 
Satisfaction Indicator is to measure the level of resident satisfaction 
with living conditions at the PHA.
    (b) Method of assessment, generally. The assessment required under 
PHAS Indicator 4 will be performed through the use of a 
resident service and satisfaction survey. The survey process will be 
managed by the PHA in accordance with a methodology prescribed by HUD. 
The PHA will be responsible for completing implementation plan 
activities and developing a follow-up plan, if applicable, to address 
issues resulting from the survey, subject to independent audit.
    (c) PHA certification of completion of resident survey process. (1) 
At the completion of the resident survey process as described in this 
subpart, a PHA will be audited as part of the Independent

[[Page 281]]

Audit to ensure that the resident survey process has been managed as 
directed by HUD. PHAs are required to submit and certify their 
implementation plans electronically via the internet prior to the fiscal 
year end in accordance with Sec. 902.60(d). Follow-up plans, if 
applicable, must be made available for review and inspection at the 
principal office of the PHA during normal business hours as a supporting 
document to the PHA's Annual Plan in accordance with Sec. 903.23(d) of 
this title. The PHA must certify electronically that it will develop a 
follow-up plan, if applicable.
    (2) If circumstances preclude the PHA from reporting electronically, 
HUD will consider granting short-term approval to allow a PHA to submit 
its resident service and satisfaction certification manually. A PHA that 
seeks approval to submit the certification manually must ensure that 
REAC receives the PHA's written request for manual submission two months 
before the submission due date of its resident service and satisfaction 
certification. The written request must include the reasons why the PHA 
cannot submit the certification electronically. REAC will respond to the 
PHA's request and will manually forward its determination in writing to 
the PHA.



Sec. 902.51  Updating of public housing unit address information.

    (a) Electronic updating. The survey process for the Resident Service 
and Satisfaction Indicator is dependent upon electronic updating, 
submission and certification of resident address and unit information by 
PHAs.
    (b) Unit address update and verification. The survey process for 
PHAS Indicator 4 begins with ensuring accurate information 
about the public housing unit addresses.
    (1) PHAs will be required to electronically update unit address 
information initially obtained by REAC from the recently revised form 
HUD-50058, Family Report. REAC will supply a list of current units 
(listed by development) to PHAs via the internet. PHAs will be asked to 
make additions, deletions and corrections to their unit address list.
    (2) After updating the list, PHAs must verify that the list of unit 
addresses under their jurisdiction is complete. Any incorrect or 
obsolete address information will have a detrimental impact on the 
survey results. A statistically valid number of residents cannot be 
selected to participate in the survey if the unit addresses are 
incorrect or obsolete. If a PHA does not verify the address information 
within two months of submission of the list of current units to the PHA 
by REAC, and the address information is not valid, REAC will not be able 
to conduct the survey at that PHA. Under those conditions, the PHA will 
not receive any points for the PHAS Resident Service and Satisfaction 
Indicator.
    (c) Electronic updating of the address list. (1) The preferred 
method for updating a unit address list is electronic updating via the 
internet.
    (2) If circumstances preclude a PHA from updating and submitting its 
unit address list electronically, HUD will consider granting short-term 
approval to allow a PHA to submit the updated unit address list 
information manually. A PHA that seeks approval to update its unit 
address list manually must ensure that REAC receives the PHA's written 
request for manual submission one month before the submission due date. 
The written request must include the reasons why the PHA cannot update 
the list electronically. REAC will respond to the PHA's request upon 
receipt of the request.



Sec. 902.52  Distribution of survey to residents.

    (a) Sampling. A statistically valid number of units will be chosen 
to receive the Resident Service and Satisfaction Survey. These units 
will be randomly selected based on the total number of occupied and 
vacant units of the PHA. The Resident Service and Satisfaction 
assessment takes into account the different properties managed by a PHA 
by organizing the unit sampling based on the unit representation of each 
development in relation to the size of the entire PHA.
    (b) Survey distribution by third party organization. The Resident 
Service and Satisfaction survey will be distributed to the randomly 
selected sample of

[[Page 282]]

units of each PHA by a third party organization designated by HUD. The 
third party organization will also be responsible for:
    (1) Collecting, scanning and aggregating results of the survey;
    (2) Transmitting the survey results to HUD for analysis and scoring; 
and
    (3) Keeping individual responses to the survey confidential.



Sec. 902.53  Resident service and satisfaction scoring and thresholds.

    (a) Scoring. (1) Under the PHAS Indicator 4, REAC will 
calculate a score based upon two components that receive points and a 
third component that is a threshold requirement.
    (i) One component will be the point score of the survey results. The 
survey content will focus on resident evaluation of the overall living 
conditions, to include basic constructs such as:
    (A) Maintenance and repair (i.e., work order response);
    (B) Communications (i.e., perceived effectiveness);
    (C) Safety (i.e., perception of personal security);
    (D) Services; and
    (E) Neighborhood appearance.
    (ii) The second component will be a point score based on the level 
of implementation and follow-up or corrective actions based on the 
results of the survey.
    (iii) The final component, which is not scored for points, but which 
is a threshold requirement, is verification that the survey process was 
managed in a manner consistent with guidance provided by HUD.
    (2) Under PHAS Indicator 4, REAC will calculate a score 
following the procedures described in the PHAS Notice on the Resident 
Service and Satisfaction Survey Scoring Process (PHAS RASS Notice 3), 
which will be published in the Federal Register. HUD may revise this 
notice in the future, but HUD will publish for comment any significant 
proposed amendments to this notice. After comments have been considered, 
HUD will publish a notice adopting a final notice or amendment. The PHAS 
Notice on the Resident Service and Satisfaction Survey Process that is 
currently in effect can be found at the REAC Internet site at http://
www.hud.gov/reac or obtained from REAC's Technical Assistance Center at 
888-245-4860 (this is a toll free number).
    (b) Thresholds. A PHA will not receive any points under PHAS 
Indicator 4 if the survey process is not managed as directed by 
HUD, the survey results are determined to be altered, or the public 
housing unit addresses are not updated as referenced in Sec. 902.51 of 
this document. A PHA will receive a passing score on the Resident 
Service and Satisfaction Indicator if the PHA receives at least 6 
points, or 60 percent of the available points under this PHAS Indicator 
4.



Sec. 902.55  Resident service and satisfaction portion of total PHAS points.

    Of the total 100 points available for a PHAS score, a PHA may 
receive up to 10 points based on the Resident Service and Satisfaction 
Indicator.



                         Subpart F_PHAS Scoring



Sec. 902.60  Data collection.

    (a) Fiscal Year reporting period--limitation on changes after PHAS 
effectiveness. An assessed fiscal year for purposes of the PHAS 
corresponds to a PHA's fiscal year. To allow for a period of consistent 
assessments to refine and make necessary adjustments to the PHAS, a PHA 
is not permitted to change its fiscal year for the first three full 
fiscal years following October 1, 1998, unless such change is approved 
by HUD (see Sec. 902.1(e)).
    (b) Physical condition information. Information necessary to conduct 
the physical condition assessment under subpart B of this part will be 
obtained from HUD inspectors during the fiscal year being scored through 
electronic transmission of the data.
    (c) Financial condition information. Year-end financial information 
to conduct the assessment under subpart C, Financial Condition, of this 
part will be submitted by a PHA through electronic transmission of the 
data to HUD not later than two months after the end of the PHA's fiscal 
year. An audited report of the year-end financial information is due not 
later than 9 months after the end of the PHA's fiscal year.

[[Page 283]]

    (d) Management operations and resident service and satisfaction 
information. A PHA shall provide certification to HUD as to data 
required under subpart D, Management Operations, of this part and 
subpart E, Resident Service and Satisfaction, of this part not later 
than two months after the end of the PHA's fiscal year that is being 
assessed and scored, with no penalty applying, however, until the 16th 
day of the third month after the PHA fiscal year end. An automatic one 
month extension will be granted for PHAs with fiscal years ending 
September 30, 1999 through June 30, 2000.
    (1) The Management Operations certification shall be approved by PHA 
Board resolution, and signed and attested to by the Executive Director.
    (2) PHAs shall maintain documentation for three years verifying all 
certified indicators for HUD on-site review.
    (e) Failure to submit data by due date. (1) If a PHA without a 
finding of good cause by HUD does not submit its certifications or year-
end financial information, required by this part, or submits its 
certifications or year-end financial information more than 15 days past 
the due date, appropriate sanctions may be imposed, including a 
reduction of 1 point in the total PHAS score for each 15-day period past 
the due date.
    (2) If any certification or year-end financial information, with the 
exception of the PHA's audited financial statement, is not received 
within three months after the due date, the PHA will receive a 
presumptive rating of failure for each PHAS Indicator for which the 
certification or year-end financial information is not received. The 
PHA's audited financial statement must be received no later than 9 
months after the PHA's fiscal year-end, in accordance with OMB Circular 
A-133 (see Sec. 902.33(c)). If the audited financial statement is not 
received by that date, the PHA will receive a presumptive rating of 
failure for the PHAS Financial Indicator. If the PHA receives a 
presumptive rating failure for any PHAS Indicator due to failure to 
submit a certification or year-end financial information by the due 
date, including any extension of the due date, as provided in this 
paragraph (except for the audited financial statement for which the due 
date is established by OMB Circular A-133), the PHA shall be designated 
as troubled or identified as troubled with respect to the program for 
assistance from the Capital Fund under section 9(d) of the Act.
    (f) Verification of information submitted. (1) A PHA's 
certifications, year-end financial information and any supporting 
documentation are subject to verification by HUD at any time, including 
review by an independent auditor as authorized by section 6(j)(6) of the 
Act (42 U.S.C. 1437(d)(j)(6)). Appropriate sanctions for intentional 
false certification will be imposed, including civil penalties, 
suspension or debarment of the signatories, the loss of high performer 
designation, a lower score under individual PHAS indicators and a lower 
overall PHAS score.
    (2) A PHA that cannot provide justifying documentation to REAC, or 
to the PHA's independent auditor for the assessment under any 
indicator(s), sub-indicator(s) and/or component(s) shall receive a score 
of 0 for the relevant indicator(s), sub-indicator(s) and/or 
component(s), and its overall PHAS score shall be lowered.
    (g) Management operations assumed by an RMC (including DF-RMC). For 
those developments of a PHA where management operations have been 
assumed by an RMC, the PHA's certification shall identify the 
development and the management functions assumed by the RMC.
    (1) For an RMC, that is not a DF-RMC, the PHA shall obtain a 
certified questionnaire from the RMC as to the management functions 
undertaken by the RMC. Following verification of the RMC's 
certification, the PHA shall submit the RMC's certified questionnaire 
along with its own. The RMC's certification shall be approved by its 
Executive Director or Chief Executive Officer or responsible party.
    (2) For a DF-RMC, the DF-RMC must submit directly to HUD its 
certified statement concerning the management functions that it has 
undertaken. The DF-RMC's certification shall be approved by its 
Executive Director or

[[Page 284]]

Chief Executive Officer or responsible party.

[65 FR 1738, Jan. 11, 2000, as amended at 65 FR 36045, June 6, 2000; 68 
FR 37671, June 24, 2003]



Sec. 902.63  PHAS scoring.

    (a) Computing the PHAS score. Each of the four PHAS indicators in 
this part will be scored individually, and then will be used to 
determine an overall score for the PHA. Components within each of the 
four PHAS indicators will be scored individually, and the scores for the 
components will be used to determine a single score for each of the PHAS 
indicators.
    (b) Adjustments to the PHAS score. (1) Adjustments to the score may 
be made after a PHA's audit report for the year being assessed is 
transmitted to HUD. If significant differences (as defined in GAAP 
guidance materials provided to PHAs) are noted between unaudited and 
audited results, a PHA's PHAS score will be adjusted (e.g., reduction in 
points) in accordance with the audited results.
    (2) A PHA's PHAS score under individual indicators, sub-indicators 
or components, or its overall PHAS score, may be changed by HUD in 
accordance with data included in the independent audit report, or 
obtained through such sources as HUD on-site review, investigations by 
HUD's Office of Fair Housing and Equal Opportunity, or reinspection by 
REAC, as applicable.
    (c) Issuance of score by HUD. An overall PHAS score will be issued 
by REAC for each PHA after the later of one month after the submission 
due date for financial data and certifications, or one month after 
submission by the PHA of its financial data and certifications. The 
overall PHAS score becomes the PHA's final PHAS score after any 
adjustments requested by the PHA and determined necessary under the 
processes provided in Sec. Sec. 902.25(c), 902.35(a)(3) and/or 902.68; 
any adjustments requested by the PHA and determined necessary under the 
appeal process provided in Sec. 902.69; and/or any adjustments 
determined necessary as a result of the independent public accountant 
(IPA) audit, as provided in paragraph (b) of this section.
    (d) Review of audit. For a PHA whose audit has been found deficient 
as a result of a quality control review of the IPA workpapers, a quality 
control review that is conducted by REAC as part of REAC's on-going 
quality assurance process, REAC may, at its discretion, select the audit 
firm that will perform the audit of the PHA and may serve as the audit 
committee for the audit in question. This review is important to 
determine the accuracy of the scoring under the Financial Condition 
Indicator.
    (e) Posting and publication of PHAS scores. Each PHA (or RMC as the 
case may be) shall post a notice of its final PHAS score and status in 
appropriate conspicuous and accessible locations in its offices within 
two weeks of receipt of its final score and status. In addition, HUD 
will publish every PHA's score and status in the Federal Register and on 
HUD's internet site.



Sec. 902.67  Score and designation status.

    A PHA will receive a status designation corresponding to its final 
PHAS score as follows:
    (a) High performer. (1) A PHA that achieves a score of at least 60 
percent of the points available under each of the four PHAS Indicators 
(addressed in subparts B through E of this part) and achieves an overall 
PHAS score of 90 percent or greater of the total available points under 
PHAS shall be designated a high performer.
    (2) A PHA shall not be designated a high performer if it scores 
below the threshold established for any indicator.
    (3) High performers will be afforded incentives that include relief 
from reporting and other requirements, as described in Sec. 902.71.
    (b) Standard performer. (1) A PHA that is not a high performer shall 
be designated a standard performer if:
    (i) The PHA achieves a total PHAS score of not less than 60 percent 
of the total available points under PHAS; and
    (ii) The PHA does not achieve less than 60 percent of the total 
points available under one of the following indicators, PHAS Indicators 
1, 2, or 3
    (2) All standard performers must correct reported deficiencies.
    (3) A PHA that achieves a total PHAS score of less than 70 percent, 
but

[[Page 285]]

not less that 60 percent, is required by the HUB/Program Center to 
submit an Improvement Plan to correct identified deficiencies.
    (4) A PHA that achieves a total PHAS score of less than 70 percent 
but not less than 60 percent is at risk of being designated troubled.
    (c) Troubled performer. A PHA that is designated as troubled may be:
    (1) Overall troubled. A PHA that achieves an overall PHAS score of 
less than 60 percent or achieves less than 60 percent of the total 
points available under more than one of the following indicators, PHAS 
Indicators 1, 2, or 3, shall be designated as 
troubled (overall), and referred to the TARC as described in Sec. 
902.75.
    (2) Troubled in one area. (i) A PHA that achieves less than 60 
percent of the total points available under only one of the following 
indicators, PHAS Indicators 1, 2, or 3, shall 
be considered a substandard physical, substandard financial, or 
substandard management performer, and referred to the TARC as described 
in Sec. 902.75.
    (ii) In accordance with section 6(j)(2) of the Act, a PHA that 
receives less than 60 percent of the maximum calculation for the Capital 
Fund sub-indicator under PHAS Indicator 3 (Management 
Operations, subpart D of this part; see Sec. 902.43(a)) will be subject 
to the sanctions, provided in section 6(j)(4), as appropriate.
    (d) Withholding designation. (1) In exceptional circumstances, even 
though a PHA has satisfied all of the PHAS Indicators for high performer 
or standard performer designation, HUD may conduct any review as it may 
determine necessary, and may deny or rescind incentives or high 
performer designation or standard performer designation, in the case of 
a PHA that:
    (i) Is operating under a special agreement with HUD;
    (ii) Is involved in litigation that bears directly upon the 
physical, financial or management performance of a PHA;
    (iii) Is operating under a court order;
    (iv) Demonstrates substantial evidence of fraud or misconduct, 
including evidence that the PHA's certifications, submitted in 
accordance with this part, are not supported by the facts, as evidenced 
by such sources as a HUD review, routine reports, an Office of Inspector 
General investigation/audit, an independent auditor's audit or an 
investigation by any appropriate legal authority; or
    (v) Demonstrates substantial noncompliance in one or more areas of a 
PHA's required compliance with applicable laws and regulations, 
including areas not assessed under the PHAS. Areas of substantial 
noncompliance include, but are not limited to, noncompliance with civil 
rights, nondiscrimination and fair housing laws and regulations, or the 
Annual Contributions Contract. Substantial noncompliance casts doubt on 
the capacity of a PHA to preserve and protect its public housing 
developments and operate them consistent with Federal laws and 
regulations.
    (2) If high performer designation is denied or rescinded, the PHA 
shall be designated either a standard performer or troubled performer 
depending on the nature and seriousness of the matter or matters 
constituting the basis for HUD's action. If standard performer 
designation is denied or rescinded, the PHA shall be designated 
troubled.
    (3) The denial or rescission of a designation of high performer or 
standard performer does not affect the PHA's numerical PHAS score.
    (4) A PHA that disagrees with the basis for denial or rescission of 
the designation may make a written request for reinstatement of the 
designation to the Assistant Secretary for Public and Indian Housing 
which request shall include reasons for the reinstatement.

[65 FR 1738, Jan. 11, 2000, as amended at 65 FR 36045, June 6, 2000]



Sec. 902.68  Technical review of results of PHAS Indicators #1 or #4.

    (a) Request for technical reviews. This section describes the 
process for requesting and granting technical reviews of physical 
inspection results and resident survey results.
    (1) For both reviews, the burden of proof is on the PHA to show that 
an error occurred.
    (2) For both reviews, a request for technical review must be 
submitted in writing to the Director of the Real Estate Assessment 
Center and must be

[[Page 286]]

received by REAC no later than 15 days following the issuance of the 
applicable results to the PHA (either the physical inspection results or 
the resident survey results). The request must be accompanied by the 
PHA's reasonable evidence that an error occurred.
    (b) Technical review of physical inspection results. (1) For each 
property inspected, REAC will provide the results of the physical 
inspection and a score for that property to the PHA. If the PHA believes 
that an objectively verifiable and material error (or errors) occurred 
in the inspection of an individual property, the PHA may request a 
technical review of the inspection results for that property.
    (2) For a technical review of physical inspection results, the PHA's 
request must be accompanied by the PHA's evidence that an objectively 
verifiable and material error has occurred. The documentation submitted 
by the PHA may be photographic evidence, written material from an 
objective source, such as a local fire marshal or building code 
official, or other similar evidence. The evidence must be more than a 
disagreement with the inspector's observations, or the inspector's 
finding regarding the severity of the deficiency.
    (3) A technical review of a property's physical inspection will not 
be conducted based on conditions that were corrected subsequent to the 
inspection, nor will REAC consider a request for a technical review that 
is based on a challenge to the inspector's findings as to the severity 
of the deficiency (i.e., minor, major or severe).
    (4) Upon receipt of a PHA's request for technical review of a 
property's inspection results, REAC will review the PHA's file and any 
objectively verifiable evidence produced by the PHA. If REAC's review 
determines that an objectively verifiable and material error (or errors) 
has been documented, then REAC may take one or a combination of the 
following actions:
    (i) Undertake a new inspection;
    (ii) Correct the physical inspection report;
    (iii) Issue a corrected physical condition score;
    (iv) Issue a corrected PHAS score.
    (5) In determining whether a new inspection of the property is 
warranted and a new PHAS score must be issued, REAC will review the 
PHA's file and evidence submitted to determine whether the evidence 
supports that there may have been a significant contractor error in the 
inspection which results in a significant change from the property's 
original physical condition score and the PHAS designation assigned to 
the PHA (i.e., high performer, standard performer, or troubled 
performer). If REAC determines that a new inspection is warranted, and 
the new inspection results in a significant change from the original 
physical condition score, and the PHA's PHAS score and PHAS designation, 
REAC shall issue a new PHAS score to the PHA.
    (6) Material errors are the only grounds for technical review of 
physical inspection results. Material errors are those that exhibit 
specific characteristics and meet specific thresholds. The three types 
of material errors are:
    (i) Building data error. A building data error occurs if the 
inspection includes the wrong building or a building that was not owned 
by the PHA, including common or site areas that were not a part of the 
property. Incorrect building data that does not affect the score, such 
as the address, building name, year built, etc., would not be considered 
material, but is of great interest to HUD and will be corrected upon 
notice to REAC.
    (ii) Unit count error. A unit count error occurs if the total number 
of public housing units considered in scoring is incorrect. Since 
scoring uses total public housing units, REAC will examine instances 
where the participant can provide evidence that the total units used is 
incorrect.
    (iii) Non-existent deficiency error. A non-existent deficiency error 
occurs if the inspection cites a deficiency that does not exist.
    (7) A PHA's subsequent correction of deficiencies identified as a 
result of a property's physical inspection cannot serve as the basis for 
an appeal of the PHA's physical condition score.
    (c) Technical review of resident survey results. REAC will consider 
conducting a technical review of a PHA's resident

[[Page 287]]

survey results in cases where the contracted third party organization 
can be shown by the PHA to be in error.
    (1) The burden of proof rests with the PHA to provide objectively 
verifiable evidence that a technical error occurred. Examples include, 
but are not limited to, incorrect material being mailed to residents; or 
the PHA's units addresses were incorrect due to the third party 
organization's error, such as unit numbers being omitted from the 
addresses. A PHA that does not update its unit address list as 
described, above, will not be eligible for a technical review based on 
incorrect addresses.
    (2) Upon receipt of a PHA's request for technical review of resident 
survey results, REAC will review the PHA's file and evidence submitted 
by the PHA. If REAC's review determines that an error has been 
documented, REAC may take one or a combination of the following actions:
    (i) Undertake a new survey;
    (ii) Correct the resident survey results report;
    (iii) Issue a corrected resident services and satisfaction score;
    (iv) Issue a corrected PHAS score.



Sec. 902.69  PHA right of petition and appeal.

    (a) Appeal of troubled designation and petition for removal troubled 
designation. A PHA may:
    (1) Appeal its troubled designation (including designation as 
troubled with respect to its performance under the Capital Fund 
subindicator as provided in Sec. 902.67(c)(2)); and
    (2) Petition for removal of troubled designation.
    (b) Appeal of PHAS score. If a PHA believes that an objectively 
verifiable and material error (or errors) exists in any of the scores 
for its PHAS Indicators, which, if corrected, will result in a 
significant change in the PHA's PHAS score and its designation (i.e., as 
troubled, standard, or high performer), the PHA may appeal its PHAS 
score in accordance with the procedures of paragraphs (c), (d) and (e) 
of this section. A significant change in a PHAS score is a change that 
would cause the PHA's PHAS score to increase, resulting in a higher PHAS 
designation for the PHA (i.e., from troubled performer to standard 
performer, or from standard performer to high performer).
    (c) Appeal and petition procedures. (1) To appeal troubled 
designation or a PHAS score, a PHA must submit a request in writing to 
the Director of the Real Estate Assessment Center that must be received 
by REAC no later than 30 days following the issuance of the overall PHAS 
score to the PHA. To petition removal of troubled designation, a PHA 
also must submit its request in writing to the Director of the Real 
Estate Assessment Center. The written request must be received by REAC 
no later than 30 days after HUD's decision to refuse to remove the PHA's 
troubled designation.
    (2) An appeal of troubled designation or petition for removal of 
troubled designation must include the PHA's supporting documentation and 
reasons for the appeal. An appeal of a PHAS score must be accompanied by 
the PHA's reasonable evidence that an objectively verifiable and 
material error occurred. An appeal submitted to REAC without appropriate 
documentation will not be considered and will be returned to the PHA.
    (d) Consideration of appeal. (1) Consideration of appeal of PHAS 
score. Upon receipt of an appeal of a PHAS score from a PHA, REAC will 
review the PHA's file and the evidence submitted by the PHA to support 
that an error occurred. If REAC determines that an objectively 
verifiable and material error has been documented by the PHA, REAC will 
convene a Board of Review, in accordance with the procedures of 
paragraphs (d) and (e) of this section, to evaluate the appeal and its 
merits for purposes of determining whether a reassessment of the PHA is 
warranted. For appeal of PHAS scores, the Board of Review may determine 
that REAC should undertake a new inspection of the property, and/or a 
reexamination of the financial information, management information, or 
resident information (the components of the PHAS score), depending upon 
which PHAS Indicator the PHA believes was scored erroneously and the 
type of evidence submitted by the PHA to support its position that an 
error occurred.

[[Page 288]]

    (2) Consideration of appeal of troubled designation or refusal to 
remove troubled designation. Upon receipt of an appeal of a troubled 
designation from a PHA, REAC will convene a Board of Review (the Board) 
to evaluate the appeal and its merits for the purpose of determining 
whether a reassessment of the PHA is warranted. Board membership will be 
comprised of a representative from REAC, from the Office of Public and 
Indian Housing, and from such other office or representative as the 
Secretary may designate (excluding, however, representation from the 
Troubled Agency Recovery Center). For purposes of reassessment, REAC 
will schedule a reinspection and/or acquire audit services, as 
determined by the Board, and a new score will be issued, if appropriate. 
Decisions by the Board will be reported to the PHA by the Assistant 
Secretary for Public and Indian Housing.
    (e) Final appeal decisions. HUD will make final decisions of 
appeals, made under this section, within 30 days of receipt of an 
appeal, and may extend this period for an additional 30 days if further 
inquiry is necessary. Failure by a PHA to submit supporting 
documentation with its request for appeal, or within any additional 
period granted by HUD is grounds for denial of an appeal. Final appeal 
decisions will be reported to the PHA by the Assistant Secretary for 
Public and Indian Housing.

[65 FR 36045, June 6, 2000]



                 Subpart G_PHAS Incentives and Remedies



Sec. 902.71  Incentives for high performers.

    (a) Incentives for high performer PHAs. A PHA that is designated a 
high performer will be eligible for the following incentives, and such 
other incentives that HUD may determine appropriate and permissible 
under program statutes or regulations:
    (1) Relief from specific HUD requirements. (i) A PHA that is 
designated high performer will be relieved of specific HUD requirements 
(for example, fewer reviews and less monitoring), effective upon 
notification of high performer designation.
    (ii) The development or developments of a PHA that receives a 
physical condition score of 90 percent or greater under PHAS Indicator 
1 shall be subject to a physical inspection every other year 
rather than annually. (All developments of the high performer PHA are 
subject to inspection every other year, not only those inspected for 
which the physical condition score of 90 percent or greater was 
achieved.)
    (2) Public recognition. High performer PHAs and RMCs that receive a 
score of at least 60 percent of the points available under each of the 
four PHAS Indicators and achieve an overall PHAS score of 90, will 
receive a Certificate of Commendation from HUD as well as special public 
recognition, as provided by the HUB/Program Center.
    (3) Bonus points in funding competitions. A high performer PHA will 
be eligible for bonus points in HUD's funding competitions, where such 
bonus points are not restricted by statute or regulation governing the 
funding program. Where permissible by statute or regulation, eligibility 
for high performers to receive bonus points in HUD's funding 
competitions, will be stated in HUD's notices of funding availability or 
other funding documents.
    (b) Compliance with applicable Federal laws and regulations. Relief 
from any standard procedural requirement that may be provided under this 
section does not mean that a PHA is relieved from compliance with the 
provisions of Federal law and regulations or other handbook 
requirements. For example, although a high performer or standard 
performer may be relieved of requirements for prior HUD approval for 
certain types of contracts for services, the PHA must still comply with 
all other Federal and State requirements that remain in effect, such as 
those for competitive bidding or competitive negotiation (see 24 CFR 
85.36).
    (c) Audits and reviews not relieved by designation. A PHA designated 
as a high performer or standard performer remains subject to:
    (1) Regular independent auditor (IA) audits.
    (2) Office of Inspector General (OIG) audits or investigations will 
continue

[[Page 289]]

to be conducted as circumstances may warrant.



Sec. 902.73  Referral to an Area HUB/Program Center.

    (a) Standard performers will be referred to the HUB/Program Center 
for appropriate action.
    (1) A standard performer that receives a total score of less than 70 
percent but not less than 60 percent shall be required to submit an 
Improvement Plan to eliminate deficiencies in the PHA's performance.
    (2) A standard performer that receives a score of not less than 70 
percent may be required, at the discretion of the appropriate area HUB/
Program Center, to submit an Improvement Plan to address specific 
deficiencies.
    (b) Submission of an Improvement Plan. (1) Within 30 days after the 
final PHAS score is issued, a standard performer with a score of less 
than 70 percent is required to submit an Improvement Plan to the HUB/
Program Center in accordance with paragraphs (d) and (e) of this 
section.
    (2) An RMC, unless a DF-RMC, that is required to submit an 
Improvement Plan must develop the plan in consultation with its PHA and 
submit the plan to the HUB/Program Center through its PHA. A DF-RMC that 
is required to submit an Improvement Plan, also must develop its plan in 
consultation with its PHA, but must submit its plan directly to the HUB/
Program Center.
    (3) On a risk management basis, the HUB/Program Center may require a 
standard performer with a score of not less than 70 percent to submit 
within 30 days after receipt of its final PHAS score an Improvement 
Plan, which includes the information stated in paragraph (d) of this 
section.
    (c) Correction of deficiencies. (1) Time period for correction. 
After a PHA's (or DF-RMC's) receipt of its PHAS score and designation as 
a standard performer or, in the case of an RMC, notification of its 
score from a PHA, a PHA or RMC shall correct any deficiency indicated in 
its assessment within 90 days, or within such period as provided in the 
HUD approved Improvement Plan if an Improvement Plan is required.
    (2) Notification and report to HUB/Program Center. A PHA shall 
notify the HUB/Program Center of its action to correct a deficiency. A 
PHA shall also forward to the HUB/Program Center an RMC's report of its 
action to correct a deficiency. A DF-RMC shall forward directly to the 
HUB/Program Center its report of its action to correct a deficiency.
    (d) Improvement Plan. An Improvement Plan shall:
    (1) Identify baseline data, which should be raw data but may be the 
PHA's score for each individual PHAS indicator, sub-indicator and/or 
component that was identified as a deficiency;
    (2) Identify any other performance and/or compliance deficiencies 
that were identified as a result of an on-site review of the PHA's 
operations;
    (3) Describe the procedures that will be followed to correct each 
deficiency;
    (4) Provide a timetable for the correction of each deficiency; and
    (5) Provide for or facilitate technical assistance to the PHA.
    (e) Determination of acceptability of Improvement Plan (1) The HUB/
Program Center will approve or deny a PHA's Improvement Plan (or RMC's 
Improvement Plan submitted to the HUB/Program Center through the RMC's 
PHA, or the DF-RMC's Improvement Plan submitted directly to the HUB/
Program Center), and notify the PHA of its decision. A PHA that submits 
an RMC's Improvement Plan must notify the RMC in writing, immediately 
upon receipt of the HUB/Program Center notification, of the HUB/Program 
Center approval or denial of the RMC's Improvement Plan.
    (2) An Improvement Plan that is not approved will be returned to the 
PHA with recommendations from the HUB/Program Center for revising the 
Improvement Plan to obtain approval.
    (f) Submission of revised Improvement Plan. A revised Improvement 
Plan shall be resubmitted by the PHA within 30 calendar days of its 
receipt of the HUB/Program Center recommendations.
    (g) Failure to submit acceptable Improvement Plan or correct 
deficiencies. (1) If a PHA fails to submit an acceptable

[[Page 290]]

Improvement Plan, or to correct deficiencies within the time specified 
in an Improvement Plan or such extensions as may be granted by HUD, the 
HUB/Program Center will notify the PHA of its noncompliance.
    (2) The PHA (or DF-RMC or the RMC through the PHA) will provide the 
HUB/Program Center its reasons for lack of progress in submitting or 
carrying out the Improvement Plan within 30 calendar days of its receipt 
of the noncompliance notification. HUD will advise the PHA as to the 
acceptability of its reasons for lack of progress.
    (3) If HUD finds the PHA's reasons for lack of progress 
unacceptable, HUD will notify the PHA that it will be referred to the 
area Troubled Agency Recovery Center (TARC) for remedial actions or such 
actions as the TARC may determine appropriate in accordance with the 
provisions of the ACC, this part and other HUD regulations, including 
the remedies available for substantial default.
    (4) In the case of a PHA's failure to correct deficiencies within 
the time specified in an Improvement Plan or such extensions as may be 
granted by HUD, if the TARC determines that it is appropriate to refer 
the PHA to the Departmental Enforcement Center (DEC), it will only do so 
after the PHA has had one year since the issuance of the PHAS score (or, 
in the case of an RMC, that is not a DF-RMC, notification of its score 
from a PHA) to correct its deficiencies.



Sec. 902.75  Referral to a Troubled Agency Recovery Center (TARC).

    (a) General. Upon a PHA's designation of troubled (including 
troubled in one area), in accordance with the requirements of section 
6(j)(2)(B) of the Act and in accordance with this part (or part 901, of 
this chapter if applicable), REAC shall refer each troubled PHA to the 
PHA's area TARC for remedial action. Remedial action by the TARC may 
include referral to the HUB/Program Center for oversight and monitoring. 
The actions to be taken by HUD and the PHA will include actions 
statutorily required, and such other actions as may be determined 
appropriate by HUD.
    (b) Memorandum of Agreement (MOA). Within 30 days of notification of 
a PHA's designation as a troubled performer (including substandard 
categorization), HUD will initiate activities to develop a MOA. The 
final MOA is a binding contractual agreement between HUD and a PHA. The 
scope of the MOA may vary depending upon the extent of the problems 
present in the PHA, but shall include:
    (1) Baseline data, which should be raw data but may be the PHA's 
score in each of the PHAS indicators, sub-indicators or components 
identified as a deficiency;
    (2) Performance targets for such periods specified by HUD (e.g., 
annual, semi-annual, quarterly, monthly), which may be the attainment of 
a higher score within an indicator, sub-indicator or component that is a 
problem, or the description of a goal to be achieved;
    (3) Strategies to be used by the PHA in achieving the performance 
targets within the time period of the MOA;
    (4) Technical assistance to the PHA provided or facilitated by HUD, 
for example, the training of PHA employees in specific management areas 
or assistance in the resolution of outstanding HUD monitoring findings;
    (5) The PHA's commitment to take all actions within its control to 
achieve the targets;
    (6) Incentives for meeting such targets, such as the removal of 
troubled designation or troubled with respect to the program for 
assistance from the Capital Fund under section 9(d) and Departmental 
recognition for the most improved PHAs;
    (7) The consequences of failing to meet the targets include but are 
not limited to, such sanctions as the imposition of budget and 
management controls by HUD, declaration of substantial default and 
subsequent actions, including referral to the DEC for judicial 
appointment of a receiver, limited denial of participation, suspension, 
debarment, or other actions deemed appropriate by the DEC; and
    (8) A description of the involvement of local public and private 
entities, including PHA resident leaders, in carrying out the agreement 
and rectifying the PHA's problems. A PHA shall have

[[Page 291]]

primary responsibility for obtaining active local public and private 
entity participation, including the involvement of public housing 
resident leaders, in assisting PHA improvement efforts. Local public and 
private entity participation should be premised upon the participant's 
knowledge of the PHA, ability to contribute technical expertise with 
regard to the PHA's specific problem areas and authority to make 
preliminary/tentative commitments of support, financial or otherwise.
    (c) PHA review of MOA. The PHA will have 10 days to review the MOA. 
During this 10-day period, the PHA shall resolve any claimed 
discrepancies in the MOA with HUD, and discuss any recommended changes 
and target dates for improvement to be incorporated in the final MOA. 
Unless the time period is extended by HUD, the MOA is to be executed 15 
days following issuance of the preliminary MOA.
    (d) Maximum recovery period. (1) Expiration of one-year recovery 
period. Upon the expiration of the one-year period beginning on the date 
on which the PHA receives initial notice of troubled designation 
(including notice of substandard status) or October 21, 1998, whichever 
is later, the PHA shall improve its performance, as measured by the PHAS 
Indicators, by at least 50 percent of the difference between the most 
recent performance measurement and the measurement necessary to remove 
the PHA's designation as troubled or substandard status.
    (2) Expiration of two-year recovery period. Upon the expiration of 
the two-year period beginning on the later of the date on which the PHA 
receives initial notice of troubled designation (including notice of 
substandard status) or October 21, 1998, the PHA shall improve its 
performance and achieve an overall PHAS score of at least 60 percent, 
and achieve a score of at least 60 percent of the total points available 
under each of PHAS Indicators 1, 2 and 3.
    (e) Parties to the MOA. An MOA shall be executed by:
    (1) The PHA Board Chairperson (supported by a Board resolution), or 
a receiver (pursuant to a court ordered receivership agreement, if 
applicable) or other AME acting in lieu of the PHA Board;
    (2) The PHA Executive Director, or a designated receiver (pursuant 
to a court ordered receivership agreement, if applicable) or other AME-
designated Chief Executive Officer;
    (3) The Director of the area TARC; and
    (4) The appointing authorities of the Board of Commissioners, unless 
exempted by the TARC.
    (f) Involvement of resident leadership in the MOA. HUD encourages 
the inclusion of the resident leadership in the execution of the MOA.
    (g) Failure to execute MOA or make substantial improvement under 
MOA. (1) If a troubled PHA fails or refuses to execute a MOA within the 
period provided in paragraph (b) of this section, or a troubled PHA 
operating under an executed MOA does not show a substantial improvement, 
as provided in paragraph (d) of this section, toward a passing PHAS 
score following the issuance of the failing PHAS score by REAC, the TARC 
shall refer the PHA to the DEC in accordance with Sec. 902.77, and the 
DEC shall take the actions required by Sec. 902.77(a)(2).
    (2) For purposes of this paragraph (g), substantial improvement is 
defined as the improvement required by paragraphs (d)(1) and (d)(2) of 
this section. The maximum period of time for remaining in troubled 
status before being referred to the DEC is two years. Therefore, the PHA 
must make substantial improvement in each year of this two year period.
    (3) The following example illustrates the provisions of paragraph 
(g)(1) of this section:

    Example: A PHA receives a score of 50 percent; 60 percent is a 
passing score. The PHA is referred to the TARC. Within one year after 
the score is issued to the PHA, the PHA must achieve a 55 (50% of the 
points necessary to achieve a passing score of 60 points) to continue 
recovery efforts in the TARC. In the second year, the PHA must achieve a 
minimum score of 60 points (a passing score). If in the first year, the 
PHA fails to achieve the five-point increase,the PHA will be referred to 
the DEC. If in the first year, the PHA achieves the five-point increase 
but fails to achieve a passing score in the second year, the PHA will be 
referred to the DEC. The maximum period of time for

[[Page 292]]

remaining in troubled status before being referred to the DEC is two 
years.

    (h) Audit review. For a PHA designated as troubled, REAC will 
perform an audit review and may, at its discretion, select the audit 
firm that will perform the audit of the PHA and REAC may, at its 
discretion, serve as the audit committee for the audit in question.
    (i) Continuation of services to residents. To the extent feasible, 
while a PHA is under a referral to a TARC, all services to residents 
will continue uninterrupted.



Sec. 902.77  Referral to the Departmental Enforcement Center (DEC).

    (a) Referral of Troubled PHA to the DEC for failing to execute or 
meet MOA requirements. (1) Failure of a troubled PHA to execute or meet 
the requirements of a MOA in accordance with Sec. 902.75 constitutes a 
substantial default under Sec. 902.79 and may result in referral of the 
PHA to the DEC. The TARC will recommend to the Assistant Secretary for 
Public and Indian Housing that a troubled performer PHA be declared in 
substantial default. In accordance with Sec. Sec. 902.79, the 
Assistant Secretary shall notify the PHA of the default and allow the 
PHA an opportunity to cure the default. A PHA shall be referred to the 
DEC if the PHA fails to cure the default within the a period not to 
exceed 30 days unless the Assistant Secretary for Public and Indian 
Housing determines that a longer period is appropriate.
    (2) Actions of the DEC. The DEC shall initiate:
    (i) The judicial appointment of a receiver, or
    (ii) An administrative receivership at HUD's option but only:
    (A) With respect to PHAs with fewer than 1250 units, or
    (B) While HUD's petition for judicial receivership is pending; and
    (iii) Upon the recommendation of the Assistant Secretary for Public 
and Indian Housing, the interventions provided in Sec. 902.83, and may 
initiate such other sanctions available to HUD, including, limited 
denial of participation, suspension, debarment, and referral to the 
appropriate Federal government agencies or offices for the imposition of 
civil or criminal sanctions.
    (b) Referral of PHAs in Substantial Default to the DEC. A PHA that 
is not designated as troubled but that has been found to be in 
substantial default under the provisions of Sec. 902.79 shall also be 
referred to the DEC. The Assistant Secretary for Public and Indian 
Housing makes the determination that a PHA is in substantial default. In 
accordance with Sec. 902.79, the Assistant Secretary shall notify the 
PHA of the default and allow the PHA an opportunity to cure the default. 
If the PHA fails to cure the default within the specified period time, 
the PHA shall be referred to the DEC. The DEC shall initiate the 
judicial appointment of a receiver or the interventions provided in 
Sec. 902.83 as recommended by the Assistant Secretary for Public and 
Indian Housing and may initiate such other sanctions available to HUD, 
including, limited denial of participation, suspension, debarment, and 
referral to the appropriate Federal government agencies or offices for 
the imposition of civil or criminal sanctions.
    (c) Receivership/Possession of PHA by HUD. (1) If a judicial 
receiver is appointed, the receiver, in addition to the powers provided 
by the court, shall have available the powers provided by section 
6(j)(3)(C) of the Act (42 U.S.C. 1437d(j)(3)(C)).
    (2) If HUD assumes responsibility for all or part of the PHA, the 
Secretary of HUD shall have available the powers provided by section 
6(j)(3)(D) of the Act (42 U.S.C. 1437d(j)(3)(D)).
    (3) If an administrative receiver is appointed, the Secretary may 
delegate to the administrative receiver any of the powers provided to 
the Secretary as described in paragraph (e)(2) of this section, in 
accordance with section 6(j)(3)(D).
    (4) The appointments of receivers, the actions of receivers, and 
HUD's responsibilities toward the receivers are governed by the 
provisions of section 6(j)(3).
    (d) To the extent feasible, while a PHA is under a referral to the 
DEC, all services to residents will continue uninterrupted.

[65 FR 1738, Jan. 11, 2000, as amended at 65 FR 36046, June 6, 2000]

[[Page 293]]



Sec. 902.79  Substantial default.

    (a) Events or conditions that constitute substantial default. The 
following events or conditions shall constitute substantial default.
    (1) HUD may determine that events have occurred or that conditions 
exist that constitute a substantial default if a PHA is determined to be 
in violation of Federal statutes, including but not limited to, the Act, 
or in violation of regulations implementing such statutory requirements, 
whether or not such violations would constitute a substantial breach or 
default under provisions of the relevant ACC.
    (2) HUD may determine that a PHA's failure to satisfy the terms of a 
memorandum of agreement entered into in accordance with Sec. 902.75, or 
to make reasonable progress to execute or meet requirements included in 
a memorandum of agreement, are events or conditions that constitute a 
substantial default.
    (3) HUD shall determine that a PHA that has been designated as 
troubled and does not show substantial improvement, as defined in Sec. 
902.75(g)(2), is in substantial default.
    (4) HUD may declare a substantial breach or default under the ACC, 
in accordance with its terms and conditions.
    (5) HUD may determine that the events or conditions constituting a 
substantial default are limited to a portion of a PHA's public housing 
operations, designated either by program, by operational area, or by 
development(s).
    (b) Notification of substantial default and response. If information 
from an annual assessment or audit, or any other credible source 
(including but not limited to the Office of Fair Housing Enforcement, 
the Office of the Inspector General, a judicial referral or a referral 
from a mayor or other official) indicates that there may exist events or 
conditions constituting a substantial breach or default, HUD shall 
advise a PHA of such information. HUD is authorized to protect the 
confidentiality of the source(s) of such information in appropriate 
cases. Before taking further action, except in cases of apparent fraud 
or criminality, and/or in cases where emergency conditions exist posing 
an imminent threat to the life, health, or safety of residents, HUD 
shall afford the PHA a timely opportunity to initiate corrective action, 
including the remedies and procedures available to PHAs designated as 
troubled PHAs, or to demonstrate that the information is incorrect.
    (1) Form of notification. Upon a determination or finding that 
events have occurred or that conditions exist that constitute a 
substantial default, the Assistant Secretary shall provide written 
notification of such determination or finding to the affected PHA. 
Written notification shall be transmitted to the Executive Director, the 
Chairperson of the Board, and the appointing authority(ies) of the 
Board, and shall include, but is not limited to:
    (i) Identification of the specific covenants, conditions, and/or 
agreements under which the PHA is determined to be in noncompliance;
    (ii) Identification of the specific events, occurrences, or 
conditions that constitute the determined noncompliance;
    (iii) Citation of the communications and opportunities to effect 
remedies afforded pursuant to paragraph (a) of this section;
    (iv) Notification to the PHA of a specific time period, to be not 
less than 10 calendar days, except in cases of apparent fraud or other 
criminal behavior, and/or under emergency conditions as described in 
paragraph (b)(4) of this section, nor more than 30 calendar days, during 
which the PHA shall be required to demonstrate that the determination or 
finding is not substantively accurate; and
    (v) Notification to the PHA that, absent a satisfactory response in 
accordance with paragraph (b) of this section, HUD will refer the PHA to 
the Enforcement Center, using any or all of the interventions specified 
in Sec. 902.83, and determined to be appropriate to remedy the 
noncompliance, citing Sec. 902.83, and any additional authority for 
such action.
    (2) Receipt of notification. Upon receipt of the notification 
described in paragraph (b)(1) of this section, the PHA must demonstrate, 
within the time period permitted in the notification, factual error in 
HUD's description of events, occurrences, or conditions,

[[Page 294]]

or show that the events, occurrences, or conditions do not constitute 
noncompliance with the statute, regulation, or covenants or conditions 
to which the PHA is cited in the notification.
    (3) Waiver of notification. A PHA may waive, in writing, receipt of 
explicit notice from HUD as to a finding of substantial default, and 
voluntarily consent to a determination of substantial default. The PHA 
must concur on the existence of substantial default conditions which can 
be remedied by technical assistance, and the PHA shall provide HUD with 
written assurances that all deficiencies will be addressed by the PHA. 
HUD will then immediately proceed with interventions as provided in 
Sec. 902.83.
    (4) Emergency situations. In any situation determined to be an 
emergency, or in any case where the events or conditions precipitating 
the intervention are determined to be the result of criminal or 
fraudulent activity, the Secretary or the Secretary's designee is 
authorized to intercede to protect the residents' and HUD's interests by 
causing the proposed interventions to be implemented without further 
appeals or delays.

[65 FR 1738, Jan. 11, 2000, as amended at 65 FR 36046, June 6, 2000]



Sec. 902.83  Interventions.

    (a) Interventions under this part (including an assumption of 
operating responsibilities) may be limited to one or more of a PHA's 
specific operational areas (e.g., maintenance, modernization, occupancy, 
or financial management) or to a single development or a group of 
developments. Under this limited intervention procedure, HUD could 
select, or participate in the selection of, an AME to assume management 
responsibility for a specific development, a group of developments in a 
geographical area, or a specific operational area, while permitting the 
PHA to retain responsibility for all programs, operational areas, and 
developments not so designated.
    (b) Upon determining that a substantial default exists under this 
part, HUD may initiate any interventions deemed necessary to maintain 
decent, safe, and sanitary dwellings for residents. Such intervention 
may include:
    (1) Providing technical assistance for existing PHA management 
staff;
    (2) Selecting or participating in the selection of an AME to provide 
technical assistance or other services up to and including contract 
management of all or any part of the public housing developments 
administered by a PHA;
    (3) Assuming possession and operational responsibility for all or 
any part of the public housing administered by a PHA;
    (4) Entering into agreements, arrangements, and/or contracts for or 
on behalf of a PHA, or acting as the PHA, and expending or authorizing 
the expenditure of PHA funds, irrespective of the source of such funds, 
to remedy the events or conditions constituting the substantial default;
    (5) The provision of intervention and assistance necessary to remedy 
emergency conditions;
    (6) After the solicitation of competitive proposals, select an 
administrative receiver to manage and operate all or part of the PHA's 
housing; and
    (7) Petition for the appointment of a receiver to any District Court 
of the United States or any court of the State in which real property of 
the PHA is located.
    (c) The receiver is to conduct the affairs of the PHA in a manner 
consistent with statutory, regulatory, and contractual obligations of 
the PHA and in accordance with such additional terms and conditions that 
the court may provide and with section 6(j)(3)(C) of the Act.
    (d) The appointment of a receiver pursuant to this section may be 
terminated upon the petition of any party, when the court determines 
that all defaults have been cured or the public housing agency is 
capable again of discharging its duties.
    (e) HUD may take the actions described in this part sequentially or 
simultaneously in any combination.



Sec. 902.85  Resident petitions for remedial action.

    The total number of residents that petition HUD to take remedial 
action pursuant to sections 6(j)(3)(A) (i) through (iv) of the Act must 
equal at

[[Page 295]]

least 20 percent of the residents, or the petition must be from an 
organization or organizations of residents whose membership must equal 
at least 20 percent of the PHA's residents.



PART 903_PUBLIC HOUSING AGENCY PLANS--Table of Contents




Sec.

    Subpart A_Deconcentration of Poverty and Fair Housing in Program 
                               Admissions

903.1 What is the purpose of this subpart?
903.2 With respect to admissions, what must a PHA do to deconcentrate 
          poverty in its developments and comply with fair housing 
          requirements?

                           Subpart B_PHA Plans

903.3 What is the purpose of this subpart?
903.4 What are the public housing agency plans?
903.5 When must a PHA submit the plans to HUD?
903.6 What information must a PHA provide in the 5-Year Plan?
903.7 What information must a PHA provide in the Annual Plan?
903.9 May HUD request additional information in the Annual Plan of a 
          troubled PHA?
903.11 Are certain PHAs eligible to submit a streamlined Annual Plan?
903.12 What are the streamlined Annual Plan requirements for small PHAs?
903.13 What is a Resident Advisory Board and what is its role in 
          development of the Annual Plan?
903.15 What is the relationship of the public housing agency plans to 
          the Consolidated Plan?
903.17 What is the process for obtaining public comment on the plans?
903.19 When is the 5-Year Plan or Annual Plan ready for submission to 
          HUD?
903.21 May the PHA amend or modify a plan?
903.23 What is the process by which HUD reviews, approves, or 
          disapproves an Annual Plan?
903.25 How does HUD ensure PHA compliance with its plans?

    Authority. 42 U.S.C. 1437c; 42 U.S.C. 3535(d).

    Source: 65 FR 81222, Dec. 22, 2000, unless otherwise noted.



    Subpart A_Deconcentration of Poverty and Fair Housing in Program 
                               Admissions



Sec. 903.1  What is the purpose of this subpart?

    The purpose of this subpart is to specify the process which a Public 
Housing Agency, as part of its annual planning process and development 
of an admissions policy, must follow in order to develop and apply a 
policy that provides for deconcentration of poverty and income mixing in 
certain public housing developments and to affirmatively further fair 
housing in admissions.
    References to the ``1937 Act'' in this part refer to the U.S. 
Housing Act of 1937 (42 U.S.C. 1437 et seq.)



Sec. 903.2  With respect to admissions, what must a PHA do to deconcentrate 
poverty in its developments and comply with fair housing requirements?

    (a) General. The PHA's admission policy includes the PHA's policy 
designed to promote deconcentration of poverty and income mixing in 
accordance with section 16(a)(3)(B) of the 1937 Act (42 U.S.C. 1437n), 
which is submitted to HUD as part of the PHA Annual Plan process. 
Deconcentration of poverty and income mixing is promoted by a policy 
that provides for bringing higher income tenants into lower income 
developments and lower income tenants into higher income developments.
    (1) The provisions of this section apply to applicants to and 
residents seeking voluntary transfers within covered public housing 
developments (``covered developments'' as specified in paragraph (b) of 
this section).
    (2) The statutory requirement to design a policy to provide for 
deconcentration and income mixing is not to be construed to impose or 
require any specific income or racial quotas for any development or 
developments.
    (b) Applicability of deconcentration of poverty and income mixing 
requirements.
    (1) Developments subject to deconcentration of poverty and income 
mixing requirements. The deconcentration requirements of this subpart 
apply to general occupancy,

[[Page 296]]

family public housing developments, excluding those developments listed 
in paragraph (b)(2) of this section. Developments to which this subpart 
is applicable are referred to as ``covered developments''.
    (2) Developments not subject to deconcentration of poverty and 
income mixing requirements. This subpart does not apply to the following 
public housing developments:
    (i) Public housing developments operated by a PHA with fewer than 
100 public housing units;
    (ii) Public housing developments operated by a PHA which house only 
elderly persons or persons with disabilities, or both;
    (iii) Public housing developments operated by a PHA which consist of 
only one general occupancy, family public housing development;
    (iv) Public housing developments approved for demolition or for 
conversion to tenant-based assistance; and
    (v) Public housing developments which include public housing units 
operated in accordance with a HUD-approved mixed-finance plan using HOPE 
VI or public housing funds awarded before the effective date of this 
rule, provided that the PHA certifies (and includes reasons for the 
certification) as part of its PHA Plan (which may be accomplished either 
in the annual Plan submission or as a significant amendment to its PHA 
Plan) that exemption from the regulation is necessary to honor an 
existing contractual agreement or be consistent with a mixed finance 
plan, including provisions regarding the incomes of public housing 
residents to be admitted to that development, which has been developed 
in consultation with residents with rights to live at the affected 
development and other interested persons.
    (c) Deconcentration of poverty and income mixing.
    (1) Steps for implementation. To implement the statutory requirement 
to deconcentrate poverty and provide for income mixing in covered public 
housing developments, a PHA must comply with the following steps:
    (i) Step 1. A PHA shall determine the average income of all families 
residing in all the PHA's covered developments. A PHA may use median 
income, instead of average income, provided that the PHA includes a 
written explanation in its PHA Annual Plan justifying use of median 
income in the PHA's Annual Plan.
    (ii) Step 2. A PHA shall determine the average income of all 
families residing in each covered development. In determining average 
income for each development, a PHA has the option of adjusting its 
income analysis for unit size in accordance with procedures prescribed 
by HUD.
    (iii) Step 3. A PHA shall determine whether each of its covered 
developments falls above, within or below the Established Income Range. 
The Established Income Range is from 85 to 115 percent (inclusive) of 
the average family income (the PHA-wide average income for covered 
developments as defined in Step 1), except that the upper limit shall 
never be less than the income at which a family would be defined as an 
extremely low income family under 24 CFR 5.603(b).
    (iv) Step 4. A PHA with covered developments having average incomes 
outside the Established Income Range may explain or justify the income 
profile for these developments as being consistent with and furthering 
two sets of goals: the goals of deconcentration of poverty and income 
mixing as specified by the statute (bringing higher income tenants into 
lower income developments and vice versa); and the local goals and 
strategies contained in the PHA Annual Plan. Elements of explanations or 
justifications that may satisfy these requirements may include, but 
shall not be limited to the following:
    (A) The covered development or developments are subject to consent 
decrees or other resident selection and admission plans mandated by 
court action;
    (B) The covered development or developments are part of PHA's 
programs, strategies or activities specifically authorized by statute, 
such as mixed-income or mixed-finance developments, homeownership 
programs, self-sufficiency strategies, or other strategies designed to 
deconcentrate poverty, promote income mixing in public housing, increase 
the incomes of public housing residents, or the income

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mix is otherwise subject to individual review and approval by HUD;
    (C) The covered development's or developments' size, location, and/
or configuration promote income deconcentration, such as scattered site 
or small developments;
    (D) The income characteristics of the covered development or 
developments are sufficiently explained by other circumstances.
    (v) Step 5. Where the income profile for a covered development is 
not explained or justified in the PHA Annual Plan submission, the PHA 
shall include in its admission policy its specific policy to provide for 
deconcentration of poverty and income mixing in applicable covered 
developments. Depending on local circumstances, a PHA's deconcentration 
policy (which may be undertaken in conjunction with other efforts such 
as efforts to increase self-sufficiency or current residents) may 
include but is not limited to providing for one or more of the following 
actions:
    (A) Providing incentives designed to encourage families with incomes 
below the Established Income Range to accept units in developments with 
incomes above the Established Income Range, or vice versa, including 
rent incentives, affirmative marketing plans, or added amenities;
    (B) Targeting investment and capital improvements toward 
developments with an average income below the Established Income Range 
to encourage applicant families whose income is above the Established 
Income Range to accept units in those developments;
    (C) Establishing a preference for admission of working families in 
developments below the Established Income Range;
    (D) Skipping a family on the waiting list to reach another family in 
an effort to further the goals of the PHA's deconcentration policy;
    (E) Providing such other strategies as permitted by statute and 
determined by the PHA in consultation with the residents and the 
community, through the PHA Annual Plan process, to be responsive to the 
local context and the PHA's strategic objectives.
    (2) Determination of compliance with deconcentration requirement. 
HUD shall consider a PHA to be in compliance with this subpart if:
    (i) The PHA's income analysis shows that the PHA has no general 
occupancy family developments to which the deconcentration requirements 
apply; that is, the average incomes of all covered developments are 
within the Established Income Range;
    (ii) The PHA has covered developments with average incomes above or 
below the Established Income Range and the PHA provides a sufficient 
explanation in its Annual Plan that supports that the income mix of such 
development or developments is consistent with and furthers the goal of 
deconcentration of poverty and income mixing and also the locally 
determined goals of the PHA's Annual and Five Year Plans, and the PHA 
therefore need not take further action to deconcentrate poverty and mix 
incomes; or
    (iii) The PHA's deconcentration policy provides specific strategies 
the PHA will take that can be expected to promote deconcentration of 
poverty and income mixing in developments with average incomes outside 
of the Established Income Range.
    (3) Right of return. If a PHA has provided that a family that 
resided in a covered public housing development has a right to admission 
to a public housing unit in that development after revitalization, the 
requirements of paragraph (c) of this section do not preclude fulfilling 
that commitment or a PHA's commitment to return a family to another 
development after revitalization.
    (4) Family's discretion to refuse a unit. A family has the sole 
discretion whether to accept an offer of a unit made under a PHA's 
deconcentration policy. The PHA may not take any adverse action toward 
any eligible family for choosing not to accept an offer of a unit under 
the PHA's deconcentration policy. In accordance with the PHA's 
established policies, the PHA may uniformly limit the number of offers 
received by applicants.
    (5) Relationship to income targeting requirement. Nothing in this 
section relieves a PHA of the obligation to meet the requirement to 
admit annually at least 40 percent families whose incomes

[[Page 298]]

are below 30 percent of area median income as provided by section 
16(a)(2) of the 1937 Act, 42 U.S.C. 1437n(a)(2).
    (d) Fair housing requirements. All admission and occupancy policies 
for public housing and Section 8 tenant-based housing programs must 
comply with Fair Housing Act requirements and with regulations to 
affirmatively further fair housing. The PHA may not impose any specific 
income or racial quotas for any development or developments.
    (1) Nondiscrimination. A PHA must carry out its PHA Plan in 
conformity with the nondiscrimination requirements in Federal civil 
rights laws, including title VI of the Civil Rights Act of 1964 and the 
Fair Housing Act. A PHA cannot assign persons to a particular section of 
a community or to a development or building based on race, color, 
religion, sex, disability, familial status or national origin for 
purposes of segregating populations (Sec. 1.4(b)(1)(ii) of this title).
    (2) Affirmatively Furthering Fair Housing. PHA policies that govern 
eligibility, selection and admissions under its PHA Plan should be 
designed to reduce racial and national origin concentrations. Any 
affirmative steps or incentives a PHA plans to take must be stated in 
the admission policy.
    (i) HUD regulations provide that PHAs should take affirmative steps 
to overcome the effects of conditions which resulted in limiting 
participation of persons because of their race, national origin or other 
prohibited basis (Sec. 1.4(b)(1)(iii) and (6)(ii) of this title).
    (ii) Such affirmative steps may include but are not limited to, 
appropriate affirmative marketing efforts; additional applicant 
consultation and information; and provision of additional supportive 
services and amenities to a development.
    (3) Validity of certification. (i) HUD will take action to challenge 
the PHA's certification under Sec. 903.7(o) where it appears that a PHA 
Plan or its implementation:
    (A) Does not reduce racial and national origin concentration in 
developments or buildings and is perpetuating segregated housing; or
    (B) Is creating new segregation in housing.
    (ii) If HUD challenges the validity of a PHA's certification, the 
PHA must establish that it is providing a full range of housing 
opportunities to applicants and tenants or that it is implementing 
actions described in paragraph (d)(2)(ii) of this section.
    (e) Relationship between poverty deconcentration and fair housing. 
The requirements for poverty deconcentration in paragraph (c) of this 
section and for fair housing in paragraph (d) of this section arise 
under separate statutory authorities and are independent.

[65 FR 81222, Dec. 22, 2000, as amended at 67 FR 51033, Aug. 6, 2002]



                           Subpart B_PHA Plans



Sec. 903.3  What is the purpose of this subpart?

    (a) This subpart specifies the requirements for PHA plans, required 
by section 5A of the United States Housing Act of 1937 (42 U.S.C. 1437c-
1).
    (b) The purpose of the plans is to provide a framework for:
    (1) Local accountability; and
    (2) An easily identifiable source by which public housing residents, 
participants in the tenant-based assistance program, and other members 
of the public may locate basic PHA policies, rules and requirements 
concerning the PHA's operations, programs and services.



Sec. 903.4  What are the public housing agency plans?

    (a) Types of plans. There are two public housing agency plans. They 
are:
    (1) The 5-Year Plan (the 5-Year Plan) that a public housing agency 
(PHA) must submit to HUD once every five PHA fiscal years. The 5-Year 
Plan covers the five PHA fiscal years immediately following the date on 
which the 5-Year Plan is due to HUD; and
    (2) The Annual Plan (Annual Plan) that the PHA must submit to HUD 
for each fiscal year immediately following the date on which the Annual 
Plan is due to HUD and for which the PHA receives:
    (i) Section 8 tenant-based assistance (under section 8(o) of the 
U.S. Housing

[[Page 299]]

Act of 1937, 42 U.S.C. 1437f(o)) (tenant-based assistance); or
    (ii) Amounts from the public housing operating fund or capital fund 
(under section 9 of the U.S. Housing Act of 1937 (42 U.S.C. 1437g) 
(public housing)).
    (b) Format. HUD may prescribe the format of submission (including 
electronic format submission) of the plans. HUD also may prescribe the 
format of attachments to the plans and documents related to the plan 
that the PHA does not submit but may be required to make available 
locally. PHAs will receive appropriate notice of any prescribed format.
    (c) Applicability. The requirements of this subpart only apply to a 
PHA that receives the type of assistance described in paragraph (a) of 
this section.
    (d) Authority for waivers. In addition to the waiver authority 
provided in Sec. 5.110 of this title, the Secretary may, subject to 
statutory limitations, waive any provision of this title on a program-
wide basis, and delegate this authority in accordance with section 106 
of the Department of Housing and Urban Development Reform Act of 1989 
(42 U.S.C. 3535(q)) where the Secretary determines that such waiver is 
necessary for the effective implementation of this part.



Sec. 903.5  When must a PHA submit the plans to HUD?

    (a) 5-Year Plan. (1) The first PHA fiscal year that is covered by 
the requirements of this part as amended on December 22, 2000, is the 
PHA fiscal year that begins October 2001. This 5-Year Plan submitted by 
a PHA must be submitted for the 5-year period beginning October 1, 2001.
    (2) For all PHAs, the first 5-Year Plans are due 75 days before the 
commencement of their fiscal year.
    (3) For all PHAs, after submission of their first 5-Year Plan, all 
subsequent 5-Year Plans must be submitted once every 5 PHA fiscal years, 
no later than 75 days before the commencement of the PHA's fiscal year. 
However, HUD may require that half of all PHAs with less than 250 public 
housing units submit their 5-Year Plan one fiscal year in advance (in 
the fourth PHA fiscal year rather than the fifth PHA fiscal year).
    (4) PHAs may choose to update their 5-Year Plans every year as good 
management practice and must update their 5-Year Plans that were 
submitted for PHA fiscal years beginning before October 1, 2001, to 
comply with the requirements of this part as amended on December 22, 
2000, at the time they submit their next Annual Plan for fiscal years 
beginning on or after October 1, 2001. PHAs must explain any substantial 
deviation from their 5-Year Plans in their Annual Plans. (Substantial 
deviation is determined by the PHA in accordance with criteria provided 
by the PHA in its Annual Plan in accordance with Sec. 903.7(r).)
    (b) The Annual Plan. (1) The first PHA fiscal year that is covered 
by the requirements of this part as amended on December 22, 2000 is the 
PHA fiscal year that begins October 1, 2001.
    (2) For all PHAs, the first Annual Plans are due 75 days before the 
commencement of their fiscal year.
    (3) For all PHAs, after submission of the first Annual Plan, all 
subsequent Annual Plans will be due no later than 75 days before the 
commencement of their fiscal year.

[64 FR 56862, Oct. 21, 1999, as amended at 66 FR 8898, Mar. 7, 2001; 68 
FR 37671, June 24, 2003]



Sec. 903.6  What information must a PHA provide in the 5-Year Plan?

    (a) A PHA must include in its 5-Year Plan a statement of:
    (1) The PHA's mission for serving the needs of low-income, very low-
income and extremely low-income families in the PHA's jurisdiction; and
    (2) The PHA's goals and objectives that enable the PHA to serve the 
needs of the families identified in the PHA's Annual Plan. For HUD, the 
PHA and the public to better measure the success of the PHA in meeting 
its goals and objectives, the PHA must adopt quantifiable goals and 
objectives for serving those needs wherever possible.
    (b) After submitting its first 5-Year Plan, a PHA in its succeeding 
5-Year Plans, must address:
    (1) The PHA's mission, goals and objectives for the next 5 years; 
and

[[Page 300]]

    (2) The progress the PHA has made in meeting the goals and 
objectives described in the PHA's previous 5-Year Plan.



Sec. 903.7  What information must a PHA provide in the Annual Plan?

    With the exception of the first Annual Plan submitted by a PHA, the 
Annual Plan must include the information provided in this section. HUD 
will advise PHAs by separate notice, sufficiently in advance of the 
first Annual Plan due date, of the information, described in this 
section that must be part of the first Annual Plan submission, and any 
additional instructions or directions that may be necessary to prepare 
and submit the first Annual Plan. The information described in this 
section applies to both public housing and tenant-based assistance, 
except where specifically stated otherwise. The information that the PHA 
must submit for HUD approval under the Annual Plan includes the 
discretionary policies of the various plan components or elements (for 
example, rent policies) and not the statutory or regulatory requirements 
that govern these plan components and that provide no discretion on the 
part of the PHA in implementation of the requirements. The PHA's Annual 
Plan must be consistent with the goals and objectives of the PHA's 5-
Year Plan.
    (a) A statement of housing needs. (1) This statement must address 
the housing needs of the low-income and very low-income families who 
reside in the jurisdiction served by the PHA, and other families who are 
on the public housing and Section 8 tenant-based assistance waiting 
lists, including:
    (i) Families with incomes below 30 percent of area median (extremely 
low-income families);
    (ii) Elderly families and families with disabilities;
    (iii) Households of various races and ethnic groups residing in the 
jurisdiction or on the waiting list.
    (2) A PHA must make reasonable efforts to identify the housing needs 
of each of the groups listed in paragraph (a)(1) of this section based 
on information provided by the applicable Consolidated Plan, information 
provided by HUD, and other generally available data.
    (i) The identification of housing needs must address issues of 
affordability, supply, quality, accessibility, size of units and 
location.
    (ii) The statement of housing needs also must describe the ways in 
which the PHA intends, to the maximum extent practicable, to address 
those needs, and the PHA's reasons for choosing its strategy.
    (b) A statement of the PHA's deconcentration and other policies that 
govern eligibility, selection, and admissions. This statement must 
describe the PHA's policies that govern resident or tenant eligibility, 
selection and admission. This statement also must describe any PHA 
admission preferences, and any occupancy policies that pertain to public 
housing units and housing units assisted under section 8(o) of the 1937 
Act, as well as any unit assignment policies for public housing. This 
statement must include the following information:
    (1) Deconcentration Policy. The PHA's deconcentration policy 
applicable to public housing, as described in Sec. 903.2(a).
    (2) Waiting List Procedures. The PHA's procedures for maintaining 
waiting lists for admission to the PHA's public housing developments. 
The statement must address any site-based waiting lists, as authorized 
by section 6(s) of the 1937 Act (42 U.S.C. 1437d(s)), for public 
housing. Section 6(s) of the 1937 Act permits PHAs to establish a system 
of site-based waiting lists for public housing that is consistent with 
all applicable civil rights and fair housing laws and regulations. 
Notwithstanding any other regulations, a PHA may adopt site-based 
waiting lists where:
    (i) The PHA regularly submits required occupancy data to HUD's 
Multifamily Tenant Characteristics Systems (MTCS) in an accurate, 
complete and timely manner;
    (ii) The system of site-based waiting lists provides for full 
disclosure to each applicant of any option available to the applicant in 
the selection of the development in which to reside, including basic 
information about available sites (location, occupancy, number and size 
of accessible units, amenities such as

[[Page 301]]

day care, security, transportation and training programs) and an 
estimate of the period of time the applicant would likely have to wait 
to be admitted to units of different sizes and types (e.g., regular or 
accessible) at each site;
    (iii) Adoption of site-based waiting lists would not violate any 
court order or settlement agreement, or be inconsistent with a pending 
complaint brought by HUD;
    (iv) The PHA includes reasonable measures to assure that adoption of 
site-based waiting lists is consistent with affirmatively furthering 
fair housing, such as reasonable marketing activities to attract 
applicants regardless of race or ethnicity;
    (v) The PHA provides for review of its site-based waiting list 
policy to determine if the policy is consistent with civil rights laws 
and certifications through the following steps:
    (A) As part of the submission of the Annual Plan, the PHA shall 
assess changes in racial, ethnic or disability-related tenant 
composition at each PHA site that may have occurred during the 
implementation of the site-based waiting list, based upon MTCS occupancy 
data that has been confirmed to be complete and accurate by an 
independent audit (which may be the annual independent audit) or is 
otherwise satisfactory to HUD;
    (B) At least every three years the PHA uses independent testers or 
other means satisfactory to HUD, to assure that the site-based waiting 
list is not being implemented in a discriminatory manner, and that no 
patterns or practices of discrimination exist, and providing the results 
to HUD;
    (C) Taking any steps necessary to remedy the problems surfaced 
during the review; and
    (D) Taking the steps necessary to affirmatively further fair 
housing.
    (3) Other admissions policies. The PHA's admission policies that 
include any other PHA policies that govern eligibility, selection and 
admissions for the public housing (see part 960 of this title) and 
tenant-based assistance programs (see part 982, subpart E of this 
title). (The information requested on site-based waiting lists and 
deconcentration is applicable only to public housing.)
    (c) A statement of financial resources. This statement must address 
the financial resources that are available to the PHA for the support of 
Federal public housing and tenant-based assistance programs administered 
by the PHA during the plan year. The statement must include a listing, 
by general categories, of the PHA's anticipated resources, such as PHA 
operating, capital and other anticipated Federal resources available to 
the PHA, as well as tenant rents and other income available to support 
public housing or tenant-based assistance. The statement also should 
include the non-Federal sources of funds supporting each Federal 
program, and state the planned uses for the resources.
    (d) A statement of the PHA's rent determination policies. This 
statement must describe the PHA's basic discretionary policies that 
govern rents charged for public housing units, applicable flat rents, 
and the rental contributions of families receiving tenant-based 
assistance. For tenant-based assistance, this statement also shall cover 
any discretionary minimum tenant rents and payment standard policies.
    (e) A statement of the PHA's operation and management. (1) This 
statement must list the PHA's rules, standards, and policies that govern 
maintenance and management of housing owned, assisted, or operated by 
the PHA.
    (2) The policies listed in this statement must include a description 
of any measures necessary for the prevention or eradication of pest 
infestation. Pest infestation includes cockroach infestation.
    (3) This statement must include a description of PHA management 
organization, and a listing of the programs administered by the PHA.
    (4) The information requested on a PHA's rules, standards and 
policies regarding management and maintenance of housing applies only to 
public housing. The information requested on PHA program management and 
listing of administered programs applies to public housing and tenant-
based assistance.
    (f) A statement of the PHA grievance procedures. This statement 
describes the grievance and informal hearing and review procedures that 
the PHA makes

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available to its residents and applicants. These procedures include 
public housing grievance procedures and tenant-based assistance informal 
review procedures for applicants and hearing procedures for 
participants.
    (g) A statement of capital improvements needed. With respect to 
public housing only, this statement describes the capital improvements 
necessary to ensure long-term physical and social viability of the PHA's 
public housing developments, including the capital improvements to be 
undertaken in the year in question and their estimated costs, and any 
other information required for participation in the Capital Fund. PHAs 
also are required to include 5-Year Plans covering large capital items.
    (h) A statement of any demolition and/or disposition. (1) Plan for 
Demolition/Disposition. With respect to public housing only, a 
description of any public housing development, or portion of a public 
housing development, owned by the PHA for which the PHA has applied or 
will apply for demolition and/or disposition approval under section 18 
of the 1937 Act (42 U.S.C. 1437p), and the timetable for demolition and/
or disposition. The application and approval process for demolition and/
or disposition is a separate process. Approval of the PHA Plan does not 
constitute approval of these activities.
    (2) Interim Plan for Demolition/Disposition. (i) Before submission 
of the first Annual Plan, a PHA may submit an interim PHA Annual Plan 
solely for demolition/disposition. The interim plan must provide:
    (A) The required description of the action to be taken;
    (B) A certification of consistency with the Consolidated Plan;
    (C) A description of how the plan is consistent with the 
Consolidated Plan;
    (D) A relocation plan that includes the availability of units in the 
area and adequate funding; and
    (E) Confirmation that a public hearing was held on the proposed 
action and that the resident advisory board was consulted.
    (ii) Interim plans for demolition/disposition are subject to PHA 
Plan procedural requirements in this part (see Sec. Sec. 903.13, 
903.15, 903.17, 903.19, 903.21, 903.23, 903.25), with the following 
exception. If a resident advisory board has not yet been formed, the PHA 
may seek a waiver of the requirement to consult with the resident 
advisory board on the grounds that organizations that adequately 
represent residents for this purpose were consulted.
    (iii) The actual application for demolition or disposition may be 
submitted at the same time as submission of the interim plan or at a 
later date.
    (i) A statement of the public housing developments designated as 
housing for elderly families or families with disabilities or elderly 
families and families with disabilities.
    (1) With respect to public housing only, this statement identifies 
any public housing developments owned, assisted, or operated by the PHA, 
or any portion of these developments, that:
    (i) The PHA has designated for occupancy by:
    (A) Only elderly families;
    (B) Only families with disabilities; or
    (C) Elderly families and families with disabilities; and
    (ii) The PHA will apply for designation for occupancy by:
    (A) Only elderly families;
    (B) Only families with disabilities; or
    (C) Elderly families and families with disabilities as provided by 
section 7 of the 1937 Act (42 U.S.C. 1437e).
    (2) The designated housing application and approval process is a 
separate process. Approval of the PHA Plan does not constitute approval 
of these activities.
    (j) A statement of the conversion of public housing to tenant-based 
assistance. (1) This statement describes:
    (i) Any building or buildings that the PHA is required to convert to 
tenant-based assistance under section 33 of the 1937 Act (42 U.S.C. 
1437z-5);
    (ii) The status of any building or buildings that the PHA may be 
required to convert to tenant-based assistance under section 202 of the 
Fiscal Year 1996 HUD Appropriations Act (42 U.S.C. 14371 note); or
    (iii) The PHA's plans to voluntarily convert under section 22 of the 
1937 Act (42 U.S.C. 1437t).
    (2) The statement also must include an analysis of the developments 
or

[[Page 303]]

buildings required to be converted under section 33.
    (3) For both voluntary and required conversions, the statement must 
include the amount of assistance received commencing in Federal Fiscal 
Year 1999 to be used for rental assistance or other housing assistance 
in connection with such conversion.
    (4) The application and approval processes for required or voluntary 
conversions are separate approval processes. Approval of the PHA Plan 
does not constitute approval of these activities.
    (5) The information required under this paragraph (j) of this 
section is applicable to public housing and only that tenant-based 
assistance which is to be included in the conversion plan.
    (k) A statement of homeownership programs administered by the PHA.
    (1) This statement describes:
    (i) Any homeownership programs administered by the PHA under section 
8(y) of the 1937 Act (42 U.S.C. 1437f(y));
    (ii) Any homeownership programs administered by the PHA under an 
approved section 5(h) homeownership program (42 U.S.C. 1437c(h));
    (iii) An approved HOPE I program (42 U.S.C. 1437aaa); or
    (iv) Any homeownership programs for which the PHA has applied to 
administer or will apply to administer under section 5(h), the HOPE I 
program, or section 32 of the 1937 Act (42 U.S.C. 1437z-4).
    (2) The application and approval process for homeownership under the 
programs described in paragraph (k) of this section, with the exception 
of the section 8(y) homeownership program, are separate processes. 
Approval of the PHA Plan does not constitute approval of these 
activities.
    (l) A statement of the PHA's community service and self-sufficiency 
programs. (1) This statement describes:
    (i) Any PHA programs relating to services and amenities coordinated, 
promoted or provided by the PHA for assisted families, including 
programs provided or offered as a result of the PHA's partnership with 
other entities;
    (ii) Any PHA programs coordinated, promoted or provided by the PHA 
for the enhancement of the economic and social self-sufficiency of 
assisted families, including programs provided or offered as a result of 
the PHA's partnerships with other entities, and activities under section 
3 of the Housing and Community Development Act of 1968 and under 
requirements for the Family Self-Sufficiency Program and others. The 
description of programs offered shall include the program's size 
(including required and actual size of the Family Self-Sufficiency 
program) and means of allocating assistance to households.
    (iii) How the PHA will comply with the requirements of section 12(c) 
and (d) of the 1937 Act (42 U.S.C. 1437j(c) and (d)). These statutory 
provisions relate to community service by public housing residents and 
treatment of income changes in public housing and tenant-based 
assistance recipients resulting from welfare program requirements. PHAs 
must address any cooperation agreements, as described in section 
12(d)(7) of the 1937 Act (42 U.S.C. 1437j(d)(7)), that the PHA has 
entered into or plans to enter into.
    (2) The information required by paragraph (l) of this section is 
applicable to both public housing and tenant-based assistance, except 
that the information regarding the PHA's compliance with the community 
service requirement applies only to public housing.
    (m) A statement of the PHA's safety and crime prevention measures.
    (1) With respect to public housing only, this statement describes 
the PHA's plan for safety and crime prevention to ensure the safety of 
the public housing residents that it serves. The plan for safety and 
crime prevention must be established in consultation with the police 
officer or officers in command of the appropriate precinct or police 
departments. The plan also must provide, on a development-by-development 
or jurisdiction wide-basis, the measures necessary to ensure the safety 
of public housing residents.
    (2) The statement regarding the PHA's safety and crime prevention 
plan must include the following information:
    (i) A description of the need for measures to ensure the safety of 
public housing residents;

[[Page 304]]

    (ii) A description of any crime prevention activities conducted or 
to be conducted by the PHA; and
    (iii) A description of the coordination between the PHA and the 
appropriate police precincts for carrying out crime prevention measures 
and activities.
    (3) If the PHA expects to receive drug elimination program grant 
funds, the PHA must submit, in addition to the information required by 
paragraph (m)(1) of this section, the plan required by HUD's Public 
Housing Drug Elimination Program regulations (see part 761 of this 
title).
    (4) If HUD determines at any time that the security needs of a 
public housing development are not being adequately addressed by the 
PHA's plan, or that the local police precinct is not assisting the PHA 
with compliance with its crime prevention measures as described in the 
Annual Plan, HUD may mediate between the PHA and the local precinct to 
resolve any issues of conflict.
    (n) A statement of the PHA's policies and rules regarding ownership 
of pets in public housing. This statement describes the PHA's policies 
and requirements pertaining to the ownership of pets in public housing. 
The policies must be in accordance with section 31 of the 1937 Act (42 
U.S.C. 1437a-3).
    (o) Civil rights certification. (1) The PHA must certify that it 
will carry out its plan in conformity with title VI of the Civil Rights 
Act of 1964 (42 U.S.C. 2000d-2000d-4), the Fair Housing Act (42 U.S.C. 
3601-19), section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 794), 
and title II of the Americans with Disabilities Act of 1990 (42 U.S.C. 
12101 et seq.). The PHA also must certify that it will affirmatively 
further fair housing.
    (2) The certification is applicable to both the 5-Year Plan and the 
Annual Plan.
    (3) A PHA shall be considered in compliance with the certification 
requirement to affirmatively further fair housing if the PHA fulfills 
the requirements of Sec. 903.2(b) and:
    (i) Examines its programs or proposed programs;
    (ii) Identifies any impediments to fair housing choice within those 
programs;
    (iii) Addresses those impediments in a reasonable fashion in view of 
the resources available;
    (iv) Works with local jurisdictions to implement any of the 
jurisdiction's initiatives to affirmatively further fair housing that 
require the PHA's involvement; and
    (v) Maintains records reflecting these analyses and actions.
    (p) Recent results of PHA's fiscal year audit. This statement 
provides the results of the most recent fiscal year audit of the PHA 
conducted under section 5(h)(2) of the 1937 Act (42 U.S.C. 1437c(h)).
    (q) A statement of asset management. To the extent not covered by 
other components of the PHA Annual Plan, this statement describes how 
the PHA will carry out its asset management functions with respect to 
the PHA's public housing inventory, including how the PHA will plan for 
long-term operating, capital investment, rehabilitation, modernization, 
disposition, and other needs for such inventory.
    (r) Additional information to be provided. (1) For all Annual Plans 
following submission of the first Annual Plan, a PHA must include a 
brief statement of the PHA's progress in meeting the mission and goals 
described in the 5-Year Plan;
    (2) A PHA must identify the basic criteria the PHA will use for 
determining:
    (i) A substantial deviation from its 5-Year Plan; and
    (ii) A significant amendment or modification to its 5-Year Plan and 
Annual Plan.
    (3) A PHA must include such other information as HUD may request of 
PHAs, either on an individual or across-the-board basis. HUD will advise 
the PHA or PHAs of this additional information through advance notice.



Sec. 903.9  May HUD request additional information in the Annual Plan 
of a troubled PHA?

    HUD may request that a PHA that is at risk of being designated as 
troubled or is designated as troubled in accordance with section 6(j)(2) 
of the 1937 Act (42 U.S.C. 1437d(j)(2)), the Public Housing Management 
Assessment Program (part 901 of this title) or the Public

[[Page 305]]

Housing Assessment System (part 902 of this chapter) include its 
operating budget. The PHA also must include or reference any applicable 
memorandum of agreement with HUD or any plan to improve performance, and 
such other material as HUD may prescribe.



Sec. 903.11  Are certain PHAs eligible to submit a streamlined Annual Plan?

    (a) Yes, the following PHAs may submit a streamlined Annual Plan, as 
described in paragraph (b) of this section:
    (1) PHAs that are determined to be high performing PHAs as of the 
last annual or interim assessment of the PHA before the submission of 
the 5-Year or Annual Plan;
    (2) PHAs with less than 250 public housing units (small PHAs) and 
that have not been designated as troubled in accordance with section 
6(j)(2) of the 1937 Act; and
    (3) PHAs that only administer tenant-based assistance and do not own 
or operate public housing.
    (b) All streamlined plans must provide information on how the public 
may reasonably obtain additional information on the PHA policies 
contained in the standard Annual Plan, but excluded from their 
streamlined submissions.
    (c) A streamlined plan must include the information provided in this 
paragraph (c). The Secretary may reduce the information requirements of 
streamlined Plans further, with adequate notice.
    (1) For high performing PHAs, the streamlined Annual Plan must 
include the information required by Sec. 903.7(a), (b), (c), (d), (g), 
(h), (k), (m), (n), (o), (p) and (r). The information required by Sec. 
903.7(m) must be included only to the extent this information is 
required for PHA's participation in the public housing drug elimination 
program and the PHA anticipates participating in this program in the 
upcoming year. The information required by Sec. 903.7(k) must be 
included only to the extent that the PHA participates in homeownership 
programs under section 8(y).
    (2) For small PHAs that are not designated as troubled (see Sec. 
902.67(c)) or that are not at risk of being designated as troubled (see 
Sec. 902.67(b)(4) of this chapter) under section 6(j)(2) of the 1937 
Act, the requirements for streamlined Annual Plans are described in 
Sec. 903.12.
    (3) For PHAs that administer only tenant-based assistance, the 
streamlined Annual Plan must include the information required by Sec. 
903.7(a), (b), (c), (d), (e), (f), (k), (l), (o), (p) and (r).

[65 FR 49484, Aug. 14, 2000, as amended at 65 FR 55161, Sept. 12, 2000; 
68 FR 37671, June 24, 2003]



Sec. 903.12  What are the streamlined Annual Plan requirements for small PHAs?

    (a) General. PHAs with less than 250 public housing units (small 
PHAs) and that have not been designated as troubled (see Sec. 902.67(c) 
of this chapter) or that are not at risk of being designated as troubled 
(see Sec. 902.67(b)(4)) under section 6(j) of the 1937 Act may submit 
streamlined Annual Plans in accordance with this section.
    (b) Streamlined Annual Plan requirements for fiscal years in which 
its 5-Year Plan is also due. For the fiscal year in which its 5-Year 
Plan is also due, the streamlined Annual Plan of the small PHA shall 
consist of the information required by Sec. 903.7(a), (b), (c), (d), 
(g), (h), (k), (o) and (r). If the PHA wishes to use the project-based 
voucher program, the streamlined Annual Plan of the small PHA must also 
include a statement of the projected number of project-based units and 
general locations and how project basing would be consistent with its 
PHA Plan. The information required by Sec. 903.7(a) must be included 
only to the extent it pertains to the housing needs of families that are 
on the PHA's public housing and Section 8 tenant-based assistance 
waiting lists. The information required by Sec. 903.7(k) must be 
included only to the extent that the PHA participates in homeownership 
programs under section 8(y) of the 1937 Act.
    (c) Streamlined Annual Plan requirements for all other fiscal years. 
For all other fiscal years, the streamlined Annual Plan must include:
    (1) The information required by Sec. 903.7(g) and (o) and, if 
applicable, Sec. 903.7(b)(2) with respect to site-based waiting lists 
and Sec. 903.7(k)(1)(i) with respect to homeownership programs under 
section 8(y) of the 1937 Act;

[[Page 306]]

    (2) If the PHA wishes to use the project-based voucher program, a 
statement of the projected number of project-based units and general 
locations and how project basing would be consistent with its PHA Plan; 
and
    (3) A certification from the PHA that lists the policies and 
programs covered by Sec. 903.7(a), (b), (c), (d), (h), (k), and (r) 
that the PHA has revised since submission of its last Annual Plan and 
provides assurance by the PHA that:
    (i) The Resident Advisory Board had an opportunity to review and 
comment on the changes to the policies and programs before 
implementation by the PHA;
    (ii) The changes were duly approved by the PHA board of directors 
(or similar governing body); and
    (iii) The revised policies and programs are available for review and 
inspection at the principal office of the PHA during normal business 
hours.

[68 FR 37671, June 24, 2003]



Sec. 903.13  What is a Resident Advisory Board and what is its role in 
development of the Annual Plan?

    (a) A Resident Advisory Board refers to a board or boards, as 
provided in paragraph (b) of this section, whose membership consists of 
individuals who adequately reflect and represent the residents assisted 
by the PHA.
    (1) The role of the Resident Advisory Board (or Resident Advisory 
Boards) is to assist and make recommendations regarding the development 
of the PHA plan, and any significant amendment or modification to the 
PHA plan.
    (2) The PHA shall allocate reasonable resources to assure the 
effective functioning of Resident Advisory Boards. Reasonable resources 
for the Resident Advisory Boards must provide reasonable means for them 
to become informed on programs covered by the PHA Plan, to communicate 
in writing and by telephone with assisted families and hold meetings 
with those families, and to access information regarding covered 
programs on the internet, taking into account the size and resources of 
the PHA.
    (b) Each PHA must establish one or more Resident Advisory Boards, as 
provided in paragraph (b) of this section.
    (1) If a jurisdiction-wide resident council exists that complies 
with the tenant participation regulations in part 964 of this title, the 
PHA shall appoint the jurisdiction-wide resident council or the 
council's representatives as the Resident Advisory Board. If the PHA 
makes such appointment, the members of the jurisdiction-wide resident 
council or the council's representatives shall be added or another 
Resident Advisory Board formed to provide for reasonable representation 
of families receiving tenant-based assistance where such representation 
is required under paragraph (b)(2) of this section.
    (2) If a jurisdiction-wide resident council does not exist but 
resident councils exist that comply with the tenant participation 
regulations, the PHA shall appoint such resident councils or their 
representatives to serve on one or more Resident Advisory Boards. If the 
PHA makes such appointment, the PHA may require that the resident 
councils choose a limited number of representatives.
    (3) Where the PHA has a tenant-based assistance program of 
significant size (where tenant-based assistance is 20% or more of 
assisted households), the PHA shall assure that the Resident Advisory 
Board (or Boards) has reasonable representation of families receiving 
tenant-based assistance and that a reasonable process is undertaken to 
choose this representation.
    (4) Where or to the extent that resident councils that comply with 
the tenant participation regulations do not exist, the PHA shall appoint 
Resident Advisory Boards or Board members as needed to adequately 
reflect and represent the interests of residents of such developments; 
provided that the PHA shall provide reasonable notice to such residents 
and urge that they form resident councils with the tenant participation 
regulations.
    (c) The PHA must consider the recommendations of the Resident 
Advisory Board or Boards in preparing the final Annual Plan, and any 
significant amendment or modification to the Annual Plan, as provided in 
Sec. 903.21 of this title.
    (1) In submitting the final plan to HUD for approval, or any 
significant amendment or modification to the plan

[[Page 307]]

to HUD for approval, the PHA must include a copy of the recommendations 
made by the Resident Advisory Board or Boards and a description of the 
manner in which the PHA addressed these recommendations.
    (2) Notwithstanding the 75-day limitation on HUD review, in response 
to a written request from a Resident Advisory Board claiming that the 
PHA failed to provide adequate notice and opportunity for comment, HUD 
may make a finding of good cause during the required time period and 
require the PHA to remedy the failure before final approval of the plan.



Sec. 903.15  What is the relationship of the public housing agency plans 
to the Consolidated Plan?

    (a) The PHA must ensure that the Annual Plan is consistent with any 
applicable Consolidated Plan for the jurisdiction in which the PHA is 
located. The Consolidated Plan includes a certification that requires 
the preparation of an Analysis of Impediments to Fair Housing Choice.
    (1) The PHA must submit a certification by the appropriate State or 
local officials that the Annual Plan is consistent with the Consolidated 
Plan and include a description of the manner in which the applicable 
plan contents are consistent with the Consolidated Plans.
    (2) For State agencies that are PHAs, the applicable Consolidated 
Plan is the State Consolidated Plan.
    (b) A PHA may request to change its fiscal year to better coordinate 
its planning with the planning done under the Consolidated Plan process, 
by the State or local officials, as applicable.



Sec. 903.17  What is the process for obtaining public comment on the plans?

    (a) The PHA's board of directors or similar governing body must 
conduct a public hearing to discuss the PHA plan (either the 5-Year Plan 
and/or Annual Plan, as applicable) and invite public comment on the 
plan(s). The hearing must be conducted at a location that is convenient 
to the residents served by the PHA.
    (b) Not later than 45 days before the public hearing is to take 
place, the PHA must:
    (1) Make the proposed PHA plan(s), the required attachments and 
documents related to the plans, and all information relevant to the 
public hearing to be conducted, available for inspection by the public 
at the principal office of the PHA during normal business hours; and
    (2) Publish a notice informing the public that the information is 
available for review and inspection, and that a public hearing will take 
place on the plan, and the date, time and location of the hearing.
    (c) PHAs shall conduct reasonable outreach activities to encourage 
broad public participation in the PHA plans.



Sec. 903.19  When is the 5-Year Plan or Annual Plan ready for submission to HUD?

    A PHA may adopt its 5-Year Plan or its Annual Plan and submit the 
plan to HUD for approval only after:
    (a) The PHA has conducted the public hearing;
    (b) The PHA has considered all public comments received on the plan;
    (c) The PHA has made any changes to the plan, based on comments, 
after consultation with the Resident Advisory Board or other resident 
organization.



Sec. 903.21  May the PHA amend or modify a plan?

    (a) A PHA, after submitting its 5-Year Plan or Annual Plan to HUD, 
may amend or modify any PHA policy, rule, regulation or other aspect of 
the plan. If the amendment or modification is a significant amendment or 
modification, as defined in Sec. 903.7(r)(2), the PHA:
    (1) May not adopt the amendment or modification until the PHA has 
duly called a meeting of its board of directors (or similar governing 
body) and the meeting, at which the amendment or modification is 
adopted, is open to the public; and
    (2) May not implement the amendment or modification, until 
notification of the amendment or modification is provided to HUD and 
approved by HUD in accordance with HUD's plan review procedures, as 
provided in Sec. 903.23.
    (b) Each significant amendment or modification to a plan submitted 
to

[[Page 308]]

HUD is subject to the requirements of Sec. Sec. 903.13, 903.15, and 
903.17.



Sec. 903.23  What is the process by which HUD reviews, approves, or 
disapproves an Annual Plan?

    (a) Review of the plan. When the PHA submits its Annual Plan to HUD, 
including any significant amendment or modification to the plan, HUD 
reviews the plan to determine whether:
    (1) The plan provides all the information that is required to be 
included in the plan;
    (2) The plan is consistent with the information and data available 
to HUD;
    (3) The plan is consistent with any applicable Consolidated Plan for 
the jurisdiction in which the PHA is located; and
    (4) The plan is not prohibited or inconsistent with the 1937 Act or 
any other applicable Federal law.
    (b) Scope of HUD review. HUD's review of the Annual Plan (and any 
significant amendments or modifications to the plan) will be limited to 
the information required by Sec. 903.7(b), (g), (h), and (o), and any 
other element of the PHA's Annual Plan that is challenged.
    (c) Disapproval of the plan. (1) HUD may disapprove a PHA plan, in 
its entirety or with respect to any part, or disapprove any significant 
amendment or modification to the plan, only if HUD determines that the 
plan, or one of its components or elements, or any significant amendment 
or modification to the plan:
    (i) Does not provide all the information that is required to be 
included in the plan;
    (ii) Is not consistent with the information and data available to 
HUD;
    (iii) Is not consistent with any applicable Consolidated Plan for 
the jurisdiction in which the PHA is located; or
    (iv) Is not consistent with applicable Federal laws and regulations.
    (2) Not later than 75 days after the date on which the PHA submits 
its plan or significant amendment or modification to the plan, HUD will 
issue written notice to the PHA if the plan or a significant amendment 
or modification has been disapproved. The notice that HUD issues to the 
PHA must state with specificity the reasons for the disapproval. HUD may 
not state as a reason for disapproval the lack of time to review the 
plan.
    (3) If HUD fails to issue the notice of disapproval on or before the 
75th day after the date on which the PHA submits its plan or significant 
amendment or modification to the plan, HUD shall be considered to have 
determined that all elements or components of the plan required to be 
submitted and that were submitted, and to be reviewed by HUD were in 
compliance with applicable requirements and the plan has been approved.
    (4) The provisions of paragraph (b)(3) of this section do not apply 
to troubled PHAs. The plan of a troubled PHA must be approved or 
disapproved by HUD through written notice.
    (d) Designation of due date as submission date for first plan 
submissions. For purposes of the 75-day period described in paragraph 
(b) of this section, the first 5-year and Annual Plans submitted by a 
PHA will be considered to have been submitted no earlier than the due 
date as provided in Sec. 903.5.
    (e) Public availability of the approved plan. Once a PHA's plan has 
been approved, a PHA must make the approved plan and the required 
attachments and documents related to the plan, available for review and 
inspection, at the principal office of the PHA during normal business 
hours.

[65 FR 81222, Dec. 22, 2000, as amended at 68 FR 37671, June 24, 2003]



Sec. 903.25  How does HUD ensure PHA compliance with its plan?

    A PHA must comply with the rules, standards and policies established 
in the plans. To ensure that a PHA is in compliance with all policies, 
rules, and standards adopted in the plan approved by HUD, HUD shall, as 
it deems appropriate, respond to any complaint concerning PHA 
noncompliance with its plan. If HUD should determine that a PHA is not 
in compliance with its plan, HUD will take whatever action it deems 
necessary and appropriate.



PART 904_LOW RENT HOUSING HOMEOWNERSHIP OPPORTUNITIES--Table of Contents




Subpart A--Introduction to Low-Rent Housing Homeownership Opportunity 
Program [Reserved]

[[Page 309]]

                Subpart B_Turnkey III Program Description

Sec.
904.101 Introduction.
904.102 Definitions.
904.103 Development.
904.104 Eligibility and selection of homebuyers.
904.105 Counseling of homebuyers.
904.106 Homebuyers Association (HBA).
904.107 Responsibilities of homebuyer.
904.108 Break-even amount.
904.109 Monthly operating expense.
904.110 Earned Home Payments Account. (EHPA)
904.111 Nonroutine Maintenance Reserve (NRMR).
904.112 Operating reserve.
904.113 Achievement of ownership by initial homebuyer.
904.114 Payment upon resale at profit.
904.115 Achievement of ownership by subsequent homebuyers.
904.116 Transfer of title to homebuyer.
904.117 Responsibilities of homebuyer after acquisition of ownership.
904.118 Homeowners association-planned unit development (PUD).
904.119 Homeowners association-condominium.
904.120 Relationship of homeowners association to HBA.
904.121 Use of appendices.
904.122 Statutory preferences.

Appendix I to Subpart B--Annual Contributions Contract
Appendix II to Subpart B--Homebuyers Ownership Opportunity Agreement 
          (Turnkey III)
Appendix III to Subpart B--Certification of Homebuyer Status
Appendix IV to Subpart B--Promissory Note for Payment Upon Resale by 
          Homebuyer at Profit

             Subpart C_Homeownership Counseling and Training

904.201 Purpose.
904.202 Objectives.
904.203 Planning.
904.204 General requirements and information.
904.205 Training methodology.
904.206 Funding.
904.207 Use of appendix.

Appendix I to Subpart C--Content Guide for Counseling and Training 
          Program

                 Subpart D_Homebuyers Association (HBA)

904.301 Purpose.
904.302 Membership.
904.303 Organizing the HBA.
904.304 Functions of the HBA.
904.305 Funding of HBA.
904.306 Performing management services.
904.307 Alternative to HBA.
904.308 Relationship with homeowners association.
904.309 Use of appendices.

Appendix I to Subpart D--Articles of Incorporation and By-Laws of 
          Homebuyers Association
Appendix II to Subpart D--Recognition Agreement Between Local Housing 
          Authority and Homebuyers Association

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

    Source: 39 FR 10966, Mar. 22, 1974, unless otherwise noted. 
Redesignated at 40 FR 15580, Apr. 7, 1975, and 49 FR 6714, Feb. 23, 
1984.

Subpart A--Introduction to Low-Rent Housing Homeownership Opportunity 
Program [Reserved]



                Subpart B_Turnkey III Program Description



Sec. 904.101  Introduction.

    (a) Purpose. This subpart sets forth the essential elements of the 
HUD Homeownership Opportunities Program for Low-Income Families (Turnkey 
III).
    (b) Applicability. This subpart is applicable to Turnkey III 
developments operated by LHA. For Turnkey III developments operated by 
an Indian Housing Authority, applicable provisions are found at 24 CFR 
part 905, subpart G.
    (1) With respect to any development to be operated as Turnkey III, 
the Annual Contributions Contract (ACC) shall contain the ``Special 
Provisions for Turnkey III Homeownership Opportunity Project'' as set 
forth in Appendix I. A Turnkey III development may include only units 
which are to be operated as such under Homebuyers Ownership Opportunity 
Agreements. If for any reason it is determined that certain units should 
be operated as conventional rental units, such units must comprise or be 
made part of a conventional rental project.
    (2) With respect to Turnkey III developments pursuant to an executed 
ACC where no Agreements with Homebuyers have been signed, the ACC shall 
be amended (i) to include the ``Special Provisions'' set forth in 
Appendix I, (ii) to extend its term to 30 years, and (iii)

[[Page 310]]

to reduce its Maximum Contribution Percentage to a rate that will 
amortize the debt in 30 years at the minimum Loan Interest Rate 
specified in the ACC for the specific Turnkey III project involved. 
Further development and operation shall be in accordance with this 
subpart including use of the form of Homebuyers Ownership Opportunity 
Agreement set forth in Appendix II.
    (3) With respect to developments where Agreements with homebuyers 
have been signed, the following steps shall be taken:
    (i) The ACC shall be amended to include the Special Provisions'' set 
forth in Appendix I; further development and operation of the Project 
shall be in accordance with this subpart.
    (ii) The LHA shall offer all qualified homebuyers in the development 
a new Homebuyers Ownership Opportunity Agreement as set forth in 
Appendix II with an amendment to section 16a to refer to ``the latest 
approved Development Cost Budget, or Actual Development Cost Certificate 
if issued,'' in lieu of ``the Development Cost Budget in effect upon 
award of the Main Construction Contract or execution of the Contract of 
Sale,'' and, if the ACC for the Project has a term of 25 years, an 
amendment to section 16(b) to refer to a term of 25 years, instead of 
30, for the Purchase Price Schedule. Each Purchase Price Schedule shall 
commence with the first day of the month following the effective date of 
the initial Agreement. No other modification in the new Agreement may be 
made. In the event the homebuyer refuses to accept the new Agreement, no 
modifications may be made in the old Agreement and the matter shall be 
referred to HUD.
    (4) With respect to Projects which were under ACC on the effective 
date of this subpart, the Total Development Cost Budget shall be 
revised, if financially feasible, to include the cost of the appraisals 
which are necessary for computation of the initial purchase prices 
pursuant to Sec. 904.113. In the event this is not financially 
feasible, the matter shall be referred to HUD, which may, if necessary, 
authorize a different method for computation of such initial purchase 
prices on an equitable basis.
    (5) With respect to all developments which were completed by the 
effective date of this subpart, the appraisals which are necessary for 
computation of the initial purchase prices pursuant to Sec. 904.113 
shall be made as of the date of completion of the development.

[39 FR 10966, Mar. 22, 1974. Redesignated at 40 FR 15580, Apr. 7, 1975, 
and 49 FR 6714, Feb. 23, 1984, and amended at 56 FR 922, Jan. 9, 1991]



Sec. 904.102  Definitions.

    (a) The term common property means the nondwelling structures and 
equipment, common areas, community facilities, and in some cases certain 
component parts of dwelling structures, which are contained in the 
development: Provided, however, That in the case of a development that 
is organized as a condominium or a planned unit development (PUD), the 
term common property shall have the meaning established by the 
condominium or PUD documents and the State law pursuant to which the 
condominium or PUD is organized, under the terms common areas, common 
facilities, common elements, common estate, or other similar terms.
    (b) The term development means the entire undertaking including all 
real and personal property, funds and reserves, rights, interests and 
obligations, and activities related thereto.
    (c) The term EHPA means the Earned Home Payments Account established 
and maintained pursuant to Sec. 904.110.
    (d) The term homebuyer means the member or members of a low-income 
family who have executed a Homebuyers Ownership Opportunity Agreement 
with the LHA.
    (e) The term homebuyers association (HBA) means an organization as 
defined in Sec. 904.106.
    (f) The term homeowner means a homebuyer who has acquired title to 
his home.
    (g) The term homeowners association means an association comprised 
of homeowners, including condominium associations, having 
responsibilities with respect to common property.
    (h) The term LHA means the local housing authority which acquires or 
develops a low-rent housing development with financial assistance from 
HUD, owns the homes until title is

[[Page 311]]

transferred to the homebuyers, and is responsible for the management of 
the homeownership opportunity program.
    (i) The term NRMR means the Nonroutine Maintenance Reserve 
established and maintained pursuant to Sec. 904.111.
    (j) The term Project is used to refer to the development in relation 
to matters specifically related to the Annual Contributions Contract.

[39 FR 10966, Mar. 22, 1974, as amended at 61 FR 5214, Feb. 9, 1996]



Sec. 904.103  Development.

    (a) Financial framework. The LHA shall finance development or 
acquisition by sale of its notes (bond financing shall not be used) in 
the amount of the Minimum Development Cost. Payment of the debt service 
on the notes is assured by the HUD commitment to provide annual 
contributions.
    (b) Maximum total development cost. The maximum total development 
cost stated in the ACC is the maximum amount authorized for development 
of a project and shall not exceed the amount approved in accordance with 
Sec. 941.406(a) of this chapter.
    (c) Contractual framework. There are three basic contracts:
    (1) An Annual Contributions Contract containing ``Special Provisions 
For Turnkey III Homeownership Opportunity Project,'' Form HUD-53010C 
(see Appendix I);
    (2) A Homebuyers Ownership Opportunity Agreement (see Appendix II) 
which sets forth the respective rights and obligations of the low-income 
occupants and the LHA, including conditions for achieving homeownership; 
and
    (3) A Recognition Agreement (see Appendix II of Subpart D of this 
part) between the LHA and the HBA under which the LHA agrees to 
recognize the HBA as the established representative of the homebuyers.
    (d) Community Participation Committee (CPC). In the necessary 
development of citizens' participation in and understanding of the 
Turnkey III program, the LHA should consider formation and use of a CPC 
to assist the community and the LHA in the development and support of 
the Turnkey III program. The CPC shall be a voluntary group comprised of 
representatives of the low-income population primarily and may also 
include representatives of community service organizations.

[39 FR 10966, Mar. 22, 1974. Redesignated at 40 FR 15580, Apr. 7, 1975, 
and amended at 47 FR 39482, Sept. 8, 1982. Redesignated at 49 FR 6714, 
Feb. 23, 1984, and amended at 53 FR 41598, Oct. 24, 1988]



Sec. 904.104  Eligibility and selection of homebuyers.

    (a) Announcement of availability of housing; fair housing marketing. 
(1) The availability of housing under Turnkey III shall be announced to 
the community at large. Families on the waiting list for LHA 
conventional rental housing who wish to be considered for Turnkey III 
must apply specifically for that program (see paragraph (d) of this 
section).
    (2) The LHA shall submit to HUD an Affirmative Fair Housing 
Marketing Plan and shall otherwise comply with the provisions of the 
Affirmative Fair Housing Marketing Regulations, 24 CFR part 200, subpart 
M, as if the LHA were an applicant for participation in an FHA housing 
program. This Plan shall be submitted with the development program, and 
no development program may be approved without prior approval of the 
Plan pursuant to HUD procedures under said Affirmative Fair Housing 
Marketing Regulations. If the development program has been approved, but 
the Annual Contributions Contract has not been executed, prior to the 
effective date of this subpart, an Affirmative Fair Housing Marketing 
Plan must be approved prior to execution of said contract.
    (b) Eligibility and standards for admission. (1) Homebuyers shall be 
lower income families that are determined to be eligible for admission 
in accordance with the provisions of 24 CFR parts 5 and 913, which 
prescribe income definitions, income limits, and restrictions concerning 
citizenship or eligible immigration status. The HUD-approved standards 
for admission to low-rent housing, including the LHA's established 
priorities and preferences and the requirements for administration of 
low-rent housing under Title VI of the Civil Rights Act of 1964 (Pub. L. 
88-352, 78 Stat. 241, 42 U.S.C. 2000d), shall be

[[Page 312]]

applicable except that the procedures used for homebuyer selection under 
Turnkey III shall be those set forth in this section. In carrying out 
these procedures the aim shall be to provide for equal housing 
opportunity in such a way as to prevent segregation or other 
discrimination on the basis of race, creed, color or national origin in 
accordance with the Civil Rights Act of 1964 (Pub. L. 88-352, 78 Stat. 
241, 42 U.S.C. 2000d) and 1968 (Pub. L. 90-284, 82 Stat. 73, 42 U.S.C. 
3601).
    (2) An LHA may establish income limits for Turnkey III which are 
different from those for its conventional rental program: Provided That 
those limits are in accord with all applicable statutory and 
administrative requirements and are approved by HUD.
    (c) Determination of eligibility and preparation of list. The LHA, 
without participation of a recommending committee (see paragraph (e)(1) 
of this section), must determine the eligibility of each applicant 
family in respect to the income limits for the development (including 
the requirement that the applicant family disclose and verify Social 
Security Numbers, as provided by 24 CFR part 750, and sign and submit 
consent forms for the obtaining of wage and claim information from State 
Wage Information Collection Agencies, as provided by 24 CFR part 760), 
and must then assign each eligible applicant its appropriate place on a 
waiting list for the development, in sequence based upon the date of the 
application, suitable type or size of unit, qualification for a Federal 
preference in accordance with Sec. 904.122, and factors affecting 
preference or priority established by the LHA's regulations. 
Notwithstanding the fact that the LHA may not be accepting additional 
applications because of the length of the waiting list, the LHA may not 
refuse to place an applicant on the waiting list if the applicant is 
otherwise eligible for participation and claims that he or she qualifies 
for a Federal preference as provided in Sec. 904.122(c)(2), unless the 
LHA determines, on the basis of the number of applicants who are already 
on the waiting list and who claim a Federal preference, and the 
anticipated number of admissions to housing under Turnkey III, that--
    (1) There is an adequate pool of applicants who are likely to 
qualify for a Federal preference, and
    (2) It is unlikely that, on the basis of the LHA's system for 
applying the Federal preferences, the preference or preferences that the 
applicant claims, and the preferences claimed by applicants on the 
waiting list, the applicant would qualify for admission before other 
applicants on the waiting list.
    (d) List of applicants. A separate list of applicants for Turnkey 
III shall be maintained, consisting of families who specifically apply 
and are eligible for admission to such housing.
    (1) Dating of applications. All applications for Turnkey III shall 
be dated as received.
    (2) Effect on applicant status. The filing of an application for 
Turnkey III by a family which is an applicant for LHA conventional 
rental housing or is an occupant of such housing shall in no way affect 
its status with regard to such rental housing. Such an applicant shall 
not lose his place on the rental housing waiting list until his 
application is accepted for Turnkey III and shall not receive any 
different treatment or consideration with respect to conventional rental 
housing because of having applied for Turnkey III.
    (e) Determination of potential for homeownership--(1) Recommending 
committee. The LHA should consider use of a recommending committee to 
assist in the establishment of objective criteria for the determination 
of potential for homeownership and in the selection of homebuyers from 
the families determined to have such potential. If a recommending 
committee is used, it should be composed of representatives of the CPC 
(if any), the LHA and the HBA. The LHA shall submit to the committee 
prompt written justification of any rejection of a committee 
recommendation, stating grounds, the reasonableness of which shall be in 
accord with applicable LHA and HUD regulations. Each member of such a 
committee, at the time of appointment, shall be required to furnish the 
LHA with a signed statement that the member will (i) follow selection 
procedures and policies that do not automatically deny admission to a 
particular class,

[[Page 313]]

that insure selection on a nondiscriminatory and nonsegregated basis, 
and that facilitate achievement of the anticipated results for occupancy 
stated in the approved Affirmative Fair Housing Marketing Plan, and (ii) 
maintain strict confidentiality by not divulging any information 
concerning applicants or the deliberations of the committee to any 
person except to the LHA as necessary for purposes of the official 
business of the committee.
    (2) Potential for homeownership. In order to be considered for 
selection, a family must be determined to meet at least all of the 
following standards of potential for homeownership:
    (i) Income sufficient to result in a required monthly payment which 
is not less than the sum of the amounts necessary to pay the EHPA, the 
NRMR, and the estimated average monthly cost of utilities attributable 
to the home;
    (ii) Ability to meet all the obligations of a homebuyer under the 
Homebuyers Ownership Opportunity Agreement;
    (iii) At least one member gainfully employed, or having an 
established source of continuing income.
    (f) Selection of homebuyers. Homebuyers shall be selected from those 
families determined to have potential for homeownership. Such selection 
shall be made in sequence from the waiting list established in 
accordance with this section, provided that the following shall be 
assured:
    (1) Selection procedures that do not automatically deny admission to 
a particular class; that ensure selection on a nondiscriminatory and 
nonsegregated basis; that give a Federal preference in accordance with 
Sec. 904.122; and that facilitate achievement of the anticipated 
results for occupancy stated in the approved Affirmative Fair Housing 
Marketing Plan.
    (2) Achievement of an average monthly payment for the Project, 
including consideration of the availability of the Special Family 
Subsidy, which is at least 10 percent more than the breakeven amount for 
the Project (see Sec. 904.108). This standard shall be complied with 
both in the initial selection of homebuyers and in the subsequent 
filling of vacancies at all times during the life of the Project. If 
there is an applicant who has potential for homeownership but whose 
required monthly payment under the LHA's Rent Schedule would be less 
than the break-even amount for the suitable size and type of unit, such 
applicant may be selected as a homebuyer, provided that the incomes of 
all selected homebuyers shall result in the required average monthly 
payment of at least 10 percent more than the break-even amount for the 
Project. Such an average monthly payment for the Project may be achieved 
by selecting other low-income families who can afford to make required 
monthly payments substantially above the break-even amounts for their 
suitable sizes and types of units.
    (g) Notification to applicants. (1) Once a sufficient number of 
applicants have been selected to assure that the provisions of paragraph 
(f)(2) of this section are met, the selected applicant shall be notified 
of the approximate date of occupancy insofar as such date can reasonably 
be determined.
    (2) Applicants who are not selected for a specific Turnkey III 
development shall be notified in accordance with HUD-approved procedure. 
The notice shall state:
    (i) The reason for the applicant's rejection (including a 
nonrecommendation by the recommending committee unless the applicant has 
previously been so notified by the committee);
    (ii) That the applicant will be given an information hearing on such 
determination, regardless of the reason for the rejection, if the 
applicant makes a request for such a hearing within a reasonable time 
(to be specified in the notice) from the date of the notice; and
    (iii) For denial of assistance for failure to establish citizenship 
or eligible immigration status, the applicant may request, in addition 
to the informal hearing, an appeal to the INS, in accordance with 24 CFR 
part 5.
    (h) Eligibility for continued occupancy. (1) A homebuyer shall cease 
to be eligible for continued occupancy with the aid of HUD annual 
contributions when the LHA determines that the homebuyer's adjusted 
monthly income has reached, and is likely to continue at, a level at 
which the current amount of

[[Page 314]]

the homebuyer's Total Tenant Payment, determined in accordance with part 
913 of this chapter, equals or exceeds the monthly housing cost (see 
paragraph (h)(2) of this section). In such event, if the LHA determines, 
with HUD approval, that suitable financing is available, the LHA shall 
notify the homebuyer that he or she must either: (1) Purchase the home 
or (ii) move from the development. If, however, the LHA determines that, 
because of special circumstances, the family is unable to find decent, 
safe, and sanitary housing within the family's financial reach although 
making every reasonable effort to do so, the family may be permitted to 
remain for the duration of such a situation if it pays as rent an amount 
equal to Tenant Rent, as determined in accordance with part 913 of this 
chapter. Such a monthly payment shall also be payable by the family if 
it continues in occupancy without purchasing the home because suitable 
financing is not available.
    (2) The term ``monthly housing cost,'' as used in this paragraph, 
means the sum of:
    (i) The monthly debt service amount shown on the Purchase Price 
Schedule (except where the homebuyer can purchase the home by the method 
described in Sec. 904.113(c)(1) of this part);
    (ii) One-twelfth of the annual real property taxes which the 
homebuyer will be required to pay as a homeowner;
    (iii) One-twelfth of the annual premium attributable to fire and 
extended coverage insurance carried by the LHA with respect to the home;
    (iv) The current monthly per unit amount budgeted for routine 
maintenance (EHPA), and for routine maintenance-common property; and
    (v) The current LHA and HUD approved monthly allowance for utilities 
paid for directly by the homebuyer plus the monthly cost of utilities 
supplied by the LHA.

(Approved by the Office of Management and Budget under control number 
2577-0083)

[39 FR 10966, Mar. 22, 1974. Redesignated at 40 FR 15580, Apr. 7, 1975, 
and at 49 FR 6714, Feb. 23, 1984, and amended at 49 FR 21490, May 21, 
1984; 53 FR 1172, Jan. 15, 1988; 53 FR 6601, Mar. 2, 1988; 54 FR 39710, 
Sept. 27, 1989; 56 FR 7544, Feb. 22, 1991; 60 FR 14848, Mar. 20, 1995; 
61 FR 13626, Mar. 27, 1996]



Sec. 904.105  Counseling of homebuyers.

    The LHA shall provide counseling and training as provided in subpart 
C of this part, with funding as provided in Sec. 904.206 of this part. 
Applicants for admission shall be advised of the nature of the 
counseling and training program available to them and the application 
for admission shall include a statement that the family agrees to 
participate and cooperate fully in all official pre-occupancy and post-
occupancy training and counseling activities. Failure to participate as 
agreed may result in the family not being selected or retained as a 
homebuyer.



Sec. 904.106  Homebuyers Association (HBA).

    An HBA is an incorporated organization composed of all the families 
who are entitled to occupancy pursuant to a Homebuyers Ownership 
Opportunity Agreement or who are homeowners. It is formed and organized 
for the purposes set forth in Sec. 904.304 of this part. The HBA shall 
be funded as provided in Sec. 904.305 of this part. In the absence of a 
duly organized HBA, the LHA shall be free to act without the HBA action 
required by this subpart.



Sec. 904.107  Responsibilities of homebuyer.

    (a) Repair, maintenance and use of home. The homebuyer shall be 
responsible for the routine maintenance of the home to the satisfaction 
of the HBA and the LHA. This routine maintenance includes the work 
(labor and materials) of keeping the dwelling structure, grounds and 
equipment in good repair, condition and appearance so that they may be 
utilized continually at their designed capacities and at the 
satisfactory level of efficiency

[[Page 315]]

for their intended purposes, and in conformity with the requirements of 
local housing code and applicable regulations and guidelines of HUD. It 
includes repairs (labor and materials) to the dwelling structure, 
plumbing fixtures, dwelling equipment (such as range and refrigerator), 
shades and screens, water heater, heating equipment and other component 
parts of the dwelling. It also includes all interior painting and the 
maintenance of grounds (lot) on which the dwelling is located. It does 
not include maintenance and replacements provided for by the NRMR 
described in Sec. 904.111.
    (b) Repair of damage. In addition to the obligation for routine 
maintenance, the homebuyer shall be responsible for repair of any damage 
caused by him, members of his family, or visitors.
    (c) Care of home. A homebuyer shall keep the home in a sanitary 
condition; cooperate with the LHA and the HBA in keeping and maintaining 
the common areas and property, including fixtures and equipment, in good 
condition and appearance; and follow all rules of the LHA and of the HBA 
concerning the use and care of the dwellings and the common areas and 
property.
    (d) Inspections. A homebuyer shall agree to permit officials, 
employees, or agents of the LHA and of the HBA to inspect the home at 
reasonable hours and intervals in accordance with rules established by 
the LHA and the HBA.
    (e) Use of home. A homebuyer shall not (1) sublet the home without 
the prior written approval of the LHA and HUD, (2) use or occupy the 
home for any unlawful purpose nor for any purpose deemed hazardous by 
insurance companies on account of fire or other risks, or (3) provide 
accommodations (unless approved by the HBA and the LHA) to boarders or 
lodgers. The homebuyer shall agree to use the home only as a place to 
live for the family (as identified in the initial application or by 
subsequent amendment with the approval of the LHA), for children 
thereafter born to or adopted by members of such family, and for aged or 
widowed parents of the homebuyer or spouse who may join the household.
    (f) Obligations with respect to other persons and property. Neither 
the homebuyer nor any member of his family shall interfere with rights 
of other occupants of the development, or damage the common property or 
the property of others, or create physical hazards.
    (g) Structural changes. A homebuyer shall not make any structural 
changes in or additions to the home unless the LHA has first determined 
in writing that such change would not (1) impair the value of the unit, 
the surrounding units, or the development as a whole, or (2) affect the 
use of the home for residential purposes, or (3) violate HUD 
requirements as to construction and design.
    (h) Statements of condition and repair. When each homebuyer moves 
in, the LHA shall inspect the home and shall give the homebuyer a 
written statement, to be signed by the LHA and the homebuyer, of the 
condition of the home and the equipment in it. Should the homebuyer 
vacate the home, the LHA shall inspect it and give the homebuyer a 
written statement of the repairs and other work, if any, required to put 
the home in good condition for the next occupant (see Sec. 
904.110(j)(1)). The homebuyer, his representative, and a representative 
of the HBA may join in any such inspections by the LHA.
    (i) Maintenance of common property. The homebuyer may participate in 
nonroutine maintenance of his home and in maintenance of common property 
as discussed in Sec. 904.110(d) and Sec. 904.111(c).
    (j) Homebuyer's required monthly payment. (1) The term ``required 
monthly payment'' as used herein means the monthly payment the homebuyer 
is required to pay the LHA on or before the first day of each month. The 
homebuyer's required monthly payment, which is based upon family income, 
shall be an amount equal to the Tenant Rent as determined in accordance 
with part 913 of this chapter. If the Utility Allowance, as defined in 
part 913 of this chapter, exceeds the Homebuyer's Total Tenant Payment, 
as determined in accordance with part 913, the LHA will pay a utility 
reimbursement equal to that excess to the Homebuyer, or as provided in 
Sec. 913.108 of this chapter.
    (2) For purposes of determining eligibility of an applicant (see 24 
CFR parts 5 and 913, as well as this part) and the

[[Page 316]]

amount of Homebuyer payments under paragraph (j)(1) of this section, the 
LHA shall examine the family's income and composition and follow the 
procedures required by 24 CFR part 5 for determining citizenship or 
eligible immigration status before initial occupancy. Thereafter, for 
the purposes stated in this paragraph and to determine whether a 
Homebuyer is required to purchase the home under Sec. 904.104(h)(1), 
the LHA shall reexamine the Homebuyer's income and composition 
regularly, at least once every 12 months, and shall undertake such 
further determination and verification of citizenship or eligible 
immigration status as required by 24 CFR part 5. The Homebuyer shall 
comply with the LHA's policy regarding required interim reporting of 
changes in the family's income and composition. If the LHA receives 
information from the family or other source concerning a change in the 
family income or other circumstances between regularly scheduled 
reexaminations, the LHA, upon consultation with the family and 
verification of the information (in accordance with 24 CFR parts 5 and 
913 of this chapter) shall promptly make any adjustments determined to 
be appropriate in the Homebuyer payment amount or take appropriate 
action concerning the addition of a family member who is not a citizen 
with eligible immigration status. Any change in the family's income or 
other circumstances that results in an adjustment in the Total Tenant 
Payment and Tenant Rent must be verified.
    (3) The LHA shall not refuse to accept monthly payments because of 
any other charges (other than overdue monthly payments) owed by the 
homebuyer to the LHA; however, by accepting monthly payments under such 
circumstances the LHA shall not be deemed to have waived any of its 
rights and remedies with respect to such other charges.
    (k) Application of monthly payment. The LHA shall apply the 
homebuyer's monthly payment as follows:
    (1) To the credit of the homebuyer's EHPA (see Sec. 904.110);
    (2) To the credit of the homebuyer's NRMR (see Sec. 904.111); and
    (3) For payment of monthly operating expense including contribution 
to operating reserve (see Sec. 904.109).
    (l) Assignment and survivorship. Until such time as the homebuyer 
obtains title to the home, it shall be used only to house a family of 
low income. Therefore:
    (1) A homebuyer shall not assign any right or interest in the home 
or under the Homebuyers Ownership Opportunity Agreement without the 
prior written approval of the LHA and HUD;
    (2) In the event of death, mental incapacity or abandonment of the 
family by the homebuyer, the person designated as the successor in the 
Homebuyers Ownership Opportunity Agreement shall succeed to the rights 
and responsibilities under the Agreement if that person is an occupant 
of the home at the time of the event and is determined by the LHA to 
meet all of the standards of potential for homeownership as set forth in 
Sec. 904.104(e)(2). Such person shall be designated by the homebuyer at 
the time the Homebuyers Ownership Opportunity Agreement is executed. 
This designation may be changed by the homebuyer at any time. If there 
is no such designation or the designee is no longer an occupant of the 
home or does not meet the standards of potential for homeownership, the 
LHA may consider as the homebuyer any family member who was an occupant 
at the time of the event and who meets the standards of potential for 
homeownership.
    (3) If there is no qualified successor in accordance with paragraph 
(l) (2) of this section, the LHA shall terminate the Agreement and 
another family shall be selected except under the following 
circumstances: where a minor child or children of the homebuyer family 
are in occupancy, then in order to protect their continued occupancy and 
opportunity for acquisition of ownership of the home, the LHA may 
approve as occupants of the unit, an appropriate adult(s) who has been 
appointed legal guardian of the children with a duty to perform the 
obligations of the Homebuyers Ownership Opportunity Agreement in their 
interest and behalf.
    (m) Termination by LHA. (1) In the event the homebuyer breaches the

[[Page 317]]

Homebuyers Ownership Opportunity Agreement by failure to make the 
required monthly payment within ten days after its due date, by 
misrepresenting or withholding of information in applying for admission 
or in connection with any subsequent reexamination of income and family 
composition (including the failure to submit any required evidence of 
citizenship or eligible immigration status, as provided by 24 CFR part 
5; the failure to meet the disclosure and verification requirements for 
Social Security Numbers, as provided by 24 CFR part 5; or the failure to 
sign and submit consent forms for the obtaining of wage and claim 
information from State Wage Information Collection Agencies, as provided 
by 24 CFR part 5), or by failure to comply with any of the other 
homebuyer obligations under the Agreement, the LHA may terminate the 
Agreement. No termination under this paragraph may occur less than 30 
days after the LHA gives the homebuyer notice of its intention to do so, 
in accordance with paragraph (m)(3) of this section. For termination of 
assistance for failure to establish citizenship or eligible immigration 
status under 24 CFR part 5, the requirements of 24 CFR parts 5 and 966 
shall apply.
    (2) Notice of termination by the LHA shall be in writing. Such 
notice shall state
    (i) The reason for termination,
    (ii) That the homebuyer may respond to the LHA, in writing or in 
person, within a specified reasonable period of time regarding the 
reason for termination,
    (iii) That in such response he may be represented or accompanied by 
a person of his choice, including a representative of the HBA,
    (iv) That the LHA will consult the HBA concerning this termination, 
and
    (v) That unless the LHA rescinds or modifies the notice, the 
termination shall be effective at the end of the 30-day notice period.
    (n) Termination by the homebuyer. The homebuyer may terminate the 
Homebuyers Ownership Opportunity Agreement by giving the LHA 30 days 
notice in writing of this intention to terminate and vacate the home. In 
the event that the homebuyer vacates the home without notice to the LHA, 
the Agreement shall be terminated automatically and the LHA may dispose 
of, in any manner deemed suitable by it, any items of personal property 
left by the homebuyer in the home.
    (o) Transfer to rental unit. (1) Inasmuch as the homebuyer was found 
eligible for admission to the Project on the basis of having the 
necessary elements of potential for homeownership, continuation of 
eligibility requires continuation of this potential, subject only to 
temporary unforeseen changes in circumstances. Accordingly, in the event 
it should develop that the homebuyer no longer meets one or more of 
these elements of homeownership potential, the LHA shall investigate the 
circumstances and provide such counseling and assistance as may be 
feasible in order to help the family overcome the deficiency as promptly 
as possible. After a reasonable time, not to exceed 30 days from the 
date of evaluation of the results of the investigation, the LHA shall 
make a re-evaluation as to whether the family has regained the potential 
for homeownership or is likely to do so within a further reasonable 
time, not to exceed 30 days from the date of the reevaluation. Further 
extension of time may be granted in exceptional cases, but in any event, 
a final determination shall be made no later than 90 days from the date 
of evaluation of the results of the initial investigation. The LHA shall 
invite the HBA to participate in all investigations and evaluations.
    (2) If the final determination of the LHA, after considering the 
views of the HBA, is that the homebuyer should be transferred to a 
suitable dwelling unit in an LHA rental proj ect, the LHA shall give the 
homebuyer written notice of the LHA determination of the loss of 
homeownership potential and of the offer of transfer to a rental unit. 
The notice shall state that the transfer shall occur as soon as a 
suitable rental unit is available for occupancy, but no earlier than 30 
days from the date of the notice, provided that an eligible successor 
for the homebuyer unit has been selected by the LHA. The notice shall 
also state that if the homebuyer

[[Page 318]]

should refuse to move under such circumstances, the family may be 
required to vacate the homebuyer unit, without further notice. The 
notice shall include a statement (i) that the homebuyer may respond to 
the LHA in writing or in person, within a specified reasonable time, 
regarding the reason for the determination and offer of transfer, (ii) 
that in such response he may be represented or accompanied by a person 
of his choice including a representative of the HBA, and (iii) that the 
LHA has consulted the HBA concerning this determination and offer of 
transfer.
    (3) When a Homebuyers Ownership Opportunity Agreement is terminated 
pursuant to this paragraph (o), the amount in the homebuyer's EHPA shall 
be paid in accordance with the provisions of Sec. 904.110(j).

(Approved by the Office of Management and Budget under control number 
2577-0083)

[39 FR 10966, Mar. 22, 1974. Redesignated at 40 FR 15580, Apr. 7, 1975, 
and at 49 FR 6714, Feb. 23, 1984, and amended at 49 FR 21490, May 21, 
1984; 49 FR 26719, June 29, 1984; 54 FR 39710, Sept. 27, 1989; 56 FR 
7544, Feb. 22, 1991; 60 FR 14848, Mar. 20, 1995; 60 FR 13626, Mar. 27, 
1996]



Sec. 904.108  Break-even amount.

    (a) Definition. The term ``break-even amount'' as used herein means 
the minimum average monthly amount required to provide funds for the 
items listed in the illustration below. A separate break-even amount 
shall be established for each size and type of dwelling unit, as well as 
for the Project as a whole. The break-even amount for EHPA and NRMR will 
vary by size and type of dwelling unit; similar variations as to other 
line items may be made if the LHA deems this equitable.

    Illustration. The following is an illustration of the computation of 
the break-even amount based upon hypothetical amounts.

(1) Operating Expense (see Sec.  904.109):
  Administration.......................................   $8.50  .......
  Homebuyer services...................................    2.00  .......
  Project supplied utilities...........................    3.00  .......
  Routine maintenance--common property.................    3.00  .......
  Protective services..................................    2.00  .......
  General expense......................................    6.50  .......
  Nonroutine maintenance--common property (Contribution    2.00   $27.00
   to operating reserve)...............................
(2) Earned Home Payments Account (see Sec.  904.110)..  ......    12.00
(3) Nonroutine Maintenance Reserve (see Sec.  904.111)  ......     7.50
Break-Even Amount......................................  ......    46.50
 


The break-even amount does not include the monthly allowance for 
utilities which the homebuyer pays for directly, nor does it include any 
amount for debt service on the Project notes.

    (b) Excess over break-even. When the homebuyer's required monthly 
payment (see Sec. 904.107(j)) exceeds the applicable break-even amount, 
the excess shall constitute additional Proj ect income and shall be 
deposited and used in the same manner as other Proj ect income.
    (c) Deficit in monthly payment. When the homebuyer's required 
monthly payment is less than the applicable break-even amount, the 
deficit shall be applied as a reduction of that portion of the monthly 
payment designated for operating expense (i. e., as a reduction of 
Project income). In all such cases, the EHPA and the NRMR shall be 
credited with the amount included in the break-even amount for these 
accounts.



Sec. 904.109  Monthly operating expense.

    (a) Definition and categories of monthly operating expense. The term 
``monthly operating expense'' means the monthly amount needed for the 
following purposes:
    (1) Administration. Administrative salaries, travel, legal expenses, 
office supplies, postage, telephone and telegraph, etc.;
    (2) Homebuyer services. LHA expenses in the achievement of social 
goals, including costs such as salaries, publications, payments to the 
HBA to assist its operation, contract and other costs;
    (3) Utilities. Those utilities (such as water), if any, to be 
furnished by the LHA as part of operating expense;
    (4) Routine maintenance--common property. For community building, 
grounds, and other common areas, if any. The amount required for routine 
maintenance of common property depends upon the type of common property 
included in the development and the extent of the LHA's responsibility 
for maintenance (see also Sec. 904.109(c));
    (5) Protective services. The cost of supplemental protective 
services paid by the LHA for the protection of persons and property;

[[Page 319]]

    (6) General expense. Premiums for fire and other insurance, payments 
in lieu of taxes to the local taxing body, collection losses, payroll 
taxes, etc.;
    (7) Nonroutine maintenance--common property (Contribution to 
operating reserve). Extraordinary maintenance of equipment applicable to 
the community building and grounds, and unanticipated items for non-
dwelling structures (see Sec. 904.112).
    (b) Monthly operating expense rate. The monthly operating expense 
rate for each fiscal year shall be established on the basis of the LHA's 
HUD-approved operating budget for that fiscal year. The operating budget 
may be revised during the course of the fiscal year in accordance with 
HUD requirements. If it is subsequently determined that the actual 
operating expense for a fiscal year was more or less than the amount 
provided by the monthly operating expense established for that fiscal 
year, the rate of monthly operating expenses to be established for the 
next fiscal year may be adjusted to account for the difference (see 
Sec. 904.112(b)). Such adjustment may result in a change in the 
required monthly payment, see Sec. 904.107(j)(3).
    (c) Provision for common property maintenance. During the period the 
LHA is responsible for the maintenance of common property, the annual 
operating budget and the monthly operating expense rate shall include 
the amount required for routine maintenance of all common property in 
the development, even though a number of the homes may have been 
acquired by homebuyers. During such period, this amount shall be 
computed on the basis of the total number of homes in the development 
(i. e., the annual amount budgeted for routine maintenance of common 
property shall be divided by the number of homes in the development, 
resulting in the annual amount for each home; this figure shall in turn 
be divided by 12 to determine the monthly amount to be included in the 
monthly operating expense (and in the break-even amount) for routine 
maintenance of common property). After the home owners association 
assumes responsibility for maintenance of common property, the monthly 
operating expense (and break-even amount) shall include an amount equal 
to the monthly assessment by the homeowners association for the 
remaining homes owned by the LHA (see Sec. 904.112(b) for nonroutine 
maintenance of common property).
    (d) Posting of monthly operating expense statement. A statement 
showing the budgeted monthly amount allocated in the current operating 
budget to each operating expense category shall be provided to the HBA 
and copies shall be provided to homebuyers upon request.



Sec. 904.110  Earned Home Payments Account (EHPA)

    (a) Credits to the account. The LHA shall establish and maintain a 
separate EHPA for each homebuyer. Since the homebuyer is responsible for 
maintaining the home, a portion of his required monthly payment equal to 
the LHA's estimate, approved by HUD, of the monthly cost for such 
routine maintenance, taking into consideration the relative type and 
size of the homebuyer's home, shall be set aside in his EHPA. In 
addition, this account shall be credited with
    (1) Any voluntary payments made pursuant to paragraph (f) of this 
section, and
    (2) Any amount earned through the performance of maintenance as 
provided in paragraph (d) of this section and Sec. 904.111(c).
    (b) Charges to the account. (1) If for any reason the homebuyer is 
unable or fails to perform any item of required maintenance as described 
in Sec. 904.107(a), the LHA shall arrange to have the work done in 
accordance with the procedures established by the LHA and the HBA and 
the cost thereof shall be charged to the homebuyer's EHPA. Inspections 
of the home shall be made jointly by the LHA and the HBA.
    (2) To the extent NRMR expense is attributable to the negligence of 
the homebuyer as determined by the HBA and approved by the LHA (see 
Sec. 904.111), the cost thereof shall be charged to the EHPA.
    (c) Exercise of option; required amount in EHPA. The homebuyer may 
exercise his option to buy the home, by paying the applicable purchase 
price pursuant

[[Page 320]]

to Sec. 904.113 or Sec. 904.115, only after satisfying the following 
conditions precedent:
    (1) Within the first two years of his occupancy, he has achieved a 
balance in his EHPA equal to 20 times the amount of the monthly EHPA 
credit as initially determined in accordance with paragraph (a) of this 
section;
    (2) He has met, and is continuing to meet, the requirements of the 
Homebuyers Ownership Opportunity Agreement;
    (3) He has rendered, and is continuing to render, satisfactory 
performance of his responsibilities to the HBA.

When the homebuyer has met these conditions precedent, the LHA shall 
give the homebuyer a certificate to that effect. After achieving the 
required minimum EHPA balance within the first two years of his 
occupancy, the homebuyer shall continue to provide the required 
maintenance, thereby continuing to add to his EHPA. If the homebuyer 
fails to meet either his obligation to achieve the minimum EHPA balance, 
as specified, or his obligation thereafter to continue adding to the 
EHPA, the LHA and the HBA shall investigate and take appropriate 
corrective action, including termination of the Agreement by the LHA in 
accordance with Sec. 904.107(m).
    (d) Additional equity through maintenance of common property. 
Homebuyers may earn additional EHPA credits by providing in whole or in 
part any of the maintenance necessary to the common property of the 
development. When such maintenance is to be provided by the homebuyer, 
this may be done and credit earned therefor only pursuant to a prior 
written agreement between the homebuyer and the LHA (or the home owners 
association, depending on who has responsibility for maintenance of the 
property involved), covering the nature and scope of the work and the 
amount of credit the homebuyer is to receive. In such cases, the agreed 
amount shall be charged to the appropriate maintenance account and 
credited to the homebuyer's EHPA upon completion of the work.
    (e) Investment of excess. (1) When the aggregate amount of all EHPA 
balances exceeds the estimated reserve requirements for 90 days, the LHA 
shall notify the HBA and shall invest the excess in federally insured 
savings accounts, federally insured credit unions, and/or securities 
approved by HUD and in accordance with any recommendations made by the 
HBA. If the HBA wishes to participate in the investment program, it 
should submit periodically to the LHA a list of HUD-approved securities, 
bonds, or obligations which the association recommends for investment by 
the LHA of the funds in the EHPAs. Interest earned on the investment of 
such funds shall be prorated and credited to each homebuyer's EHPA in 
proportion to the amount in each such reserve account.
    (2) Periodically, but not less often than semi-annually, the LHA 
shall prepare a statement showing (i) the aggregate amount of all EHPA 
balances; (ii) the aggregate amount of investments (savings accounts 
and/or securities) held for the account of all the homebuyers' EHPAs, 
and (iii) the aggregate uninvested balance of all the homebuyers' EHPAs. 
This statement shall be made available to any authorized representative 
of the HBA.
    (f) Voluntary payments. To enable the homebuyer to acquire title to 
his home within a shorter period, he may, either periodically or in a 
lump sum, voluntarily make payments over and above his required monthly 
payments. Such voluntary payments shall be deposited to his credit in 
his EHPA.
    (g) Delinquent monthly payments. Under exceptional circumstances as 
determined by the HBA and the LHA, a homebuyer's EHPA may be used to pay 
his delinquent required monthly payments, provided the amount used for 
this purpose does not seriously deplete the account and provided that 
the homebuyer agrees to cooperate in such counseling as may be made 
available by the LHA or the HBA.
    (h) Annual statement to homebuyer. The LHA shall provide an annual 
statement to each homebuyer specifying at least (1) the amount in his 
EHPA, and (2) the amount in his NRMR. During the year, any maintenance 
or repair done on the dwelling by the LHA which is chargeable to the 
EHPA or to the NRMR shall be accounted for through a work order. A 
homebuyer shall receive

[[Page 321]]

a copy of all such work orders for his home.
    (i) Withdrawal and assignment. The homebuyer shall have no right to 
assign, withdraw, or in any way dispose of the funds in its EHPA except 
as provided in this section or in Sec. 904.113 and Sec. 904.115.
    (j) Application of EHPA upon vacating of dwelling. (1) In the event 
a Homebuyers Ownership Opportunity Agreement with the LHA is terminated 
or if the homebuyer vacates the home (see Sec. 904.107 (m), (n) and 
(o)), the LHA shall charge against the homebuyer's EHPA the amounts 
required to pay
    (i) The amount due the LHA, including the monthly payments the 
homebuyer is obligated to pay up to the date he vacates;
    (ii) The monthly payment for the period the home is vacant, not to 
exceed 30 days from the date of notice of intention to vacate, or, if 
the homebuyer fails to give notice of intention to vacate, 30 days from 
the date the home is put in good condition for the next occupant in 
conformity with Sec. 904.107; and
    (iii) The cost of any routine maintenance, and of any nonroutine 
maintenance attributable to the negligence of the homebuyer, required to 
put the home in good condition for the next occupant in conformity with 
Sec. 904.107.
    (2) If the EHPA balance is not sufficient to cover all of these 
charges, the LHA shall require the homebuyer to pay the additional 
amount due. If the amount in the account exceeds these charges, the 
excess shall be paid to the homebuyer.
    (3) Settlement with the homebuyer shall be made promptly after the 
actual cost of repairs to the dwelling has been determined (see 
paragraph (j)(1)(iii) of this section), provided that the LHA shall make 
every effort to make such settlement within 30 days from the date the 
homebuyer vacates. The homebuyer may obtain a settlement within 7 days 
of the date he vacates, even though the actual cost of such repair has 
not yet been determined, if he has given the LHA notice of intention to 
vacate at least 30 days prior to the date he vacates and if the amount 
to be charged against his EHPA for such repairs is based on the LHA's 
estimate of the cost thereof (determined after consultation with the 
appropriate representative of the HBA).



Sec. 904.111  Nonroutine Maintenance Reserve (NRMR).

    (a) Purpose of reserve. The LHA shall establish and maintain a 
separate NRMR for each home, using a portion of the homebuyer's monthly 
payment. The purpose of the NRMR is to provide funds for the nonroutine 
maintenance of the home, which consists of the infrequent and costly 
items of maintenance and replacement shown on the Nonroutine Maintenance 
Schedule for the home (see paragraph (b) of this section). Such 
maintenance may include the replacement of dwelling equipment (such as 
range and refrigerator), replacement of roof, exterior painting, major 
repairs to heating and plumbing systems, etc. The NRMR shall not be used 
for nonroutine maintenance of common property, or for nonroutine 
maintenance relating to the home to the extent such maintenance is 
attributable to the Homebuyer's negligence or to defective materials or 
workmanship.
    (b) Amount of reserve. The amount of the monthly payments to be set 
aside for NRMR shall be determined by the LHA, with the approval of HUD, 
on the basis of the Nonroutine Maintenance Schedule showing the amount 
likely to be needed for nonroutine maintenance of the home during the 
term of the Homebuyers Ownership Opportunity Agreement, taking into 
consideration the type of construction and dwelling equipment. This 
Schedule shall (1) list each item of nonroutine maintenance (e.g., 
range, refrigerator, plumbing, heating system, roofing, tile flooring, 
exterior painting, etc.), (2) show for each listed item the estimated 
frequency of maintenance or useful life before replacement, the 
estimated cost of maintenance or replacement (including installation) 
for each occasion, and the annual reserve requirement, and (3) show the 
total reserve requirements for all the listed items, on an annual and a 
monthly basis. This Schedule shall be prepared by the LHA and approved 
by HUD as part of the submission required to determine the financial 
feasibility of the Project. The Schedule shall be

[[Page 322]]

revised after approval of the working drawings and specifications, and 
shall thereafter be reexamined annually in the light of changing 
economic conditions and experience.
    (c) Charges to NRMR. (1) The LHA shall provide the nonroutine 
maintenance necessary for the home and the cost thereof shall be funded 
as provided in paragraph (c)(2) of this section. Such maintenance may be 
provided by the homebuyer but only pursuant to a prior written agreement 
with the LHA covering the nature and scope of the work and the amount of 
credit the homebuyer is to receive. The amount of any credit shall, upon 
completion of the work, be credited to the homebuyer's EHPA and charged 
as provided in paragraph (c)(2) of this section.
    (2) The cost of nonroutine maintenance shall be charged to the NRMR 
for the home except that (i) to the extent such maintenance is 
attributable to the fault or negligence of the homebuyer, the cost shall 
be charged to the homebuyer's EHPA after consultation with the HBA if 
the hombuyer disagrees, and (ii) to the extent such maintenance is 
attributable to defective materials or workmanship not covered by 
warranty, or even though covered by warranty if not paid for thereunder 
through no fault or negligence of the homebuyer, the cost shall be 
charged to the appropriate operating expense account of the Project.
    (3) In the event the amount charged against the NRMR exceeds the 
balance therein, the difference (deficit) shall be made up from 
continuing monthly credits to the NRMR based upon the homebuyer's 
monthly payments. If there is still a deficit when the homebuyer 
acquires title, the homebuyer shall pay such deficit at settlement (see 
paragraph (d)(2) of this section).
    (d) Transfer of NRMR. (1) In the event the Homebuyer's Ownership 
Opportunity Agreement is terminated, the homebuyer shall not receive any 
balance or be required to pay any deficit in the NRMR. When a subsequent 
homebuyer moves in, the NRMR shall continue to be applicable to the home 
in the same amount as if the preceding homebuyer had continued in 
occupancy.
    (2) In the event the homebuyer purchases the home, and there remains 
a balance in the NRMR, the LHA shall pay such balance to the homebuyer 
at settlement. In the event the homebuyer purchases and there is a 
deficit in the NRMR, the homebuyer shall pay such deficit to the LHA at 
settlement.
    (e) Investment of excess. (1) When the aggregate amount of the NRMR 
balances for all the homes exceeds the estimated reserve requirements 
for 90 days the LHA shall invest the excess in federally insured savings 
accounts, federally insured credit unions, and/or securities approved by 
HUD. Income earned on the investment of such funds shall be prorated and 
credited to each homebuyer's NRMR in proportion to the amount in each 
reserve account.
    (2) Periodically, but not less often than semi-annually, the LHA 
shall prepare a statement showing (i) the aggregate amount of all NRMR 
balances, (ii) the aggregate amount of investments (savings accounts 
and/or securities) held for the account of the NRMRs, and (iii) the 
aggregate uninvested balance of the NRMRs. A copy of this statement 
shall be made available to any authorized representative of the HBA.



Sec. 904.112  Operating reserve.

    (a) Purpose of reserve. To the extent that total operating receipts 
(including subsidies for operations) exceed total operating expenditures 
of the Project, the LHA shall establish an operating reserve up to the 
maximum approved by HUD in connection with its approval of the annual 
operating budgets for the Project. The purpose of this reserve is to 
provide funds for
    (1) The infrequent but costly items of nonroutine maintenance and 
replacements of common property, taking into consideration the types of 
items which constitute common property, such as nondwelling structures 
and equipment, and in certain cases, common elements of dwelling 
structures,
    (2) Nonroutine maintenance for the homes to the extent such 
maintenance is attributable to defective materials or workmanship not 
covered by warranty,
    (3) Working capital for payment of a deficit in a homebuyer's NRMR, 
until such deficit is offset by future monthly

[[Page 323]]

payments by the homebuyer or at settlement in the event the homebuyer 
should purchase, and
    (4) A deficit in the operation of the Project for a fiscal year, 
including a deficit resulting from monthly payments totaling less than 
the break-even amount for the Project.
    (b) Nonroutine maintenance--common property (Contribution to 
operating reserve). The amount under this heading to be included in 
operating expense (and in the break-even amount) established for the 
fiscal year (see Sec. 904.108 and Sec. 904.109) shall be determined by 
the LHA, with the approval of HUD, on the basis of estimates of the 
monthly amount needed to accumulate an adequate reserve for the items 
described in paragraph (a)(1) of this section. This amount shall be 
subject to revision in the light of experience. This contribution to the 
operating reserve shall be made only during the period the LHA is 
responsible for the maintenance of any common property; and during such 
period, the amount shall be determined on the basis of the requirements 
of all common property in the development in a manner similar to that 
explained in Sec. 904.109(c). When the operating reserve reaches the 
maximum authorized in paragraph (c) of this section, the break-even 
(monthly operating expense) computations (see Sec. Sec. 904.108 and 
904.109) for the next and succeeding fiscal years need not include a 
provision for this contribution to the operating reserve unless the 
balance of the reserve is reduced below the maximum during any such 
succeeding fiscal year.
    (c) Maximum operating reserve. The maximum operating reserve that 
may be retained by the LHA at the end of any fiscal year shall be the 
sum of (1) one-half of total routine expense included in the operating 
budget approved for the next fiscal year and (2) one-third of total 
break-even amounts included in the operating budget approved for the 
next fiscal year; provided that such maximum may be increased if 
necessary as determined or approved by HUD. Total routine expense means 
the sum of the amounts budgeted for administration, homebuyers services, 
LHA-supplied utilities, routine maintenance of common property, 
protective services, and general expense or other category of day-to-day 
routine expense (see Sec. 904.109 above for explanation of various 
categories of expense).
    (d) Transfer to homeowners association. The LHA shall be responsible 
for and shall retain custody of the operating reserve until the 
homeowners acquire voting control of the homeowners association (see 
Sec. Sec. 904.118(c) and 904.119(f). When the homeowners acquire voting 
control, the homeowners association shall then assume full 
responsibility for management and maintenance of common property under a 
plan approved by HUD, and there shall be transferred to the homeowners 
association a portion of the operating reserve then held by the LHA. The 
amount of the reserve to be transferred shall be based upon the 
proportion that one-half of budgeted routine expense (used as a basis 
for determining the current maximum operating reserve--see paragraph (c) 
of this section) bears to the approved maximum operating reserve. 
Specifically, the portion of operating reserve to be transferred shall 
be computed as follows: Obtain a percentage by dividing one-half of 
budgeted routine expense by the approved maximum operating reserve; and 
multiply the actual operating reserve balance by this percentage.
    (e) Disposition of reserve. If, at the end of a fiscal year, there 
is an excess over the maximum operating reserve this excess shall be 
applied to the operating deficit of the Project, if any, and any 
remainder shall be paid to HUD. Following the end of the fiscal year in 
which the last home has been conveyed by the LHA, the balance of the 
operating reserve held by the LHA shall be paid to HUD, provided that 
the aggregate amount of payments by the LHA under this paragraph shall 
not exceed the aggregate amount of annual contributions paid by HUD with 
respect to the Project.



Sec. 904.113  Achievement of ownership by initial homebuyer.

    (a) Determination of initial purchase price. The LHA shall determine 
the initial purchase price of the home by two basic steps, as follows:

    Step 1: The LHA shall take the Estimated Total Development Cost 
(including the full

[[Page 324]]

amount for contingencies as authorized by HUD) of the development as 
shown in the Development Cost Budget in effect upon award of the Main 
Construction Contract or execution of the Contract of Sale, and shall 
deduct therefrom the amounts, if any, attributed to (1) relocation 
costs, (2) counseling and training costs, and (3) the cost of any 
community, administration or management facilities including the land, 
equipment, and furnishings attributable to such facilities as set forth 
in the development program for the development. The resulting amount is 
herein called Estimated Total Development Cost for Homebuyers.
    Step 2: The LHA shall apportion the Estimated Total Development Cost 
for Homebuyers among all the homes in the development. This 
apportionment shall be made by obtaining an FHA appraisal of each home 
and adjusting such appraised values (upward or downward) by the 
percentage difference between the total of the appraisal for all the 
Homes and the Estimated Total Development Cost for Homebuyers. The 
adjusted amount for each home shall be the initial purchase price for 
that home.

    (b) Purchase price schedule. Each homebuyer shall be provided with a 
Purchase Price Schedule showing (1) the monthly declining purchase price 
over a 30-year period,\1\ commencing with the initial purchase price on 
the first day of the month following the effective date of the 
Homebuyers Ownership Opportunity Agreement and (2) the monthly debt 
service amount upon which the Schedule is based. The Schedule and debt 
service amount shall be computed on the basis of the initial purchase 
price, a 30-year period,\2\ and a rate of interest equal to the minimum 
loan interest rate as specified in the Annual Contributions Contract for 
the Project on the date of HUD approval of the Development Cost Budget, 
described in paragraph (a) of this section, rounded up, if necessary, to 
the next multiple of one-fourth of one percent (\1/4\ percent).
---------------------------------------------------------------------------

    \1\ Change to 25-year period where appropriate pursuant to Sec. 
904.101(b)(3).
    \2\ Under section 234(c) of the National Housing Act, as of the date 
of publication of this subpart, mortgage insurance for a condominium 
unit in a multi-family project is generally authorized only if the 
project is currently or has been covered by a mortgage insured under 
another section of the National Housing Act. There is, however, a 
proviso which authorizes mortgage insurance for a condominium unit in a 
multi-family project even though the project is not or has not been 
covered by such a project mortgage, if the project involves eleven or 
less units.
---------------------------------------------------------------------------

    (c) Methods of purchase. (1) The homebuyer may achieve ownership 
when the amount in his EHPA, plus such portion of the NRMR as he wishes 
to use for the purchase, is equal to the purchase price as shown at that 
time on his Purchase Price Schedule plus all Incidental Costs 
(Incidental Costs mean the costs incidental to acquiring ownership, 
including, but not limited to, the costs for a credit report, field 
survey, title examination, title insurance, and inspections, the fees 
for attorneys other than the LHA's attorney, mortgage application and 
organization, closing and recording, and the transfer taxes and loan 
discount payment, if any). If for any reason title to the home is not 
conveyed to the homebuyer during the month in which such circumstances 
occur, the purchase price shall be fixed at the amount specified for 
such month and the homebuyer shall be refunded (i) the net additions, if 
any, credited to his EHPA subsequent to such month, and (ii) such part 
of the monthly payments made by the homebuyer after the purchase price 
has been fixed which exceeds the sum of the break-even amount 
attributable to the unit and the interest portion of the debt service 
shown in the Purchase Price Schedule.
    (2) Where the sum of the purchase price and Incidental Costs is 
greater than the amounts in the homebuyer's EHPA and NRMR as described 
in paragraph (c)(1) of this section, the homebuyer may achieve ownership 
by obtaining financing for or otherwise paying the excess amount. The 
purchase price shall be the amount shown on his Purchase Price Schedule 
for the month in which the settlement date for the purchase occurs.
    (d) The maximum period for achieving ownership shall be 30 years, 
but depending upon increases in the homebuyers income and the amount of 
credit which the homebuyer can accumulate through maintenance and 
voluntary payments, the period may be shortened accordingly.

[[Page 325]]



Sec. 904.114  Payment upon resale at profit.

    (a) Promissory note. (1) When a homebuyer achieves ownership 
(regardless of whether ownership is achieved under Sec. 904.113 or 
Sec. 904.115), he shall sign a note obligating him to make a payment to 
the LHA, subject to the provisions of paragraph (a)(2) or this section, 
in the event he resells his home at a profit within 5 years of actual 
residence in the home after he becomes a homeowner. If, however, the 
homeowner should purchase and occupy another home within one year (18 
months in case of a newly constructed home) of the resale of the Turnkey 
III home, the LHA shall refund to the homeowner the amount previously 
paid by him under the note, less the amount, if any, by which the resale 
price of the Turnkey III home exceeds the acquisition price of the new 
home, provided that application for such refund shall be made no later 
than 30 days after the date of acquisition of the new home.
    (2) The note to be signed by the homebuyer pursuant to paragraph 
(a)(1) of this section shall be a non interest-bearing promissory note 
(see Appendix IV) to the LHA. The note shall be executed at the time the 
homebuyer becomes a homeowner and shall be secured by a second mortgage. 
The initial amount of the note shall be computed by taking the appraised 
value of the home at the time the homebuyer becomes a homeowner and 
subtracting (i) the homebuyer's purchase price plus the Incidental Costs 
and (ii) the increase in value of the home, determined by appraisal, 
caused by improvements paid for by the homebuyer with funds from sources 
other than the EHPA or NRMR. The note shall provide that this initial 
amount shall be automatically reduced by 20 percent thereof at the end 
of each year of residency as a homeowner, with the note terminating at 
the end of the five-year period of residency, as determined by the LHA. 
To protect the homeowner, the note shall provide that the amount payable 
under it shall in no event be more than the net profit on the resale, 
that is, the amount by which the resale price exceeds the sum of (A) the 
homebuyer's purchase price plus the Incidental Costs, (B) the costs of 
the resale, including commissions and mortgage prepayment penalties, if 
any, and (C) the increase in value of the home, determined by appraisal, 
due to improvements paid for by him as a homebuyer (with funds from 
sources other than the EHPA or NRMR) or as a homeowner.
    (3) Amounts collected by the LHA under such notes shall be retained 
by the LHA for use in making refunds pursuant to paragraph (a)(1) of 
this section. After expiration of the period for the filing of claims 
for such refunds, any remaining amounts shall be applied (i) to reduce 
the LHA's capital indebtedness on the Project and (ii) after such 
indebtedness has been paid, for such purposes as may be authorized or 
approved by HUD under such Annual Contributions Contract as the LHA may 
then have with HUD.

    Illustration. If the homeowner's purchase price is $10,000, the 
Incidental Costs are $500, the value added by improvements is $1,000, 
and the FHA appraised value at the time he acquires ownership is 
$17,000, the note computation would be as follows:

FHA appraised value.................................  ........   $17,000
Homeowner's purchase price..........................   $10,000  ........
Incidental costs....................................       500  ........
Improvements........................................     1,000    11,500
                                                     -----------
Initial note amount.................................  ........     5,500
------------------------------------------------------------------------
 

    In this example, the amount of the note during the first year of 
residence is $5,500. In the second year, the amount of the note is 
$4,400, and in the third year, it is $3,300, etc. The note shall 
terminate at the end of the fifth year.
    If the homeowner in this example resells his home during the first 
year for a sales price of $17,500, has resale costs of $1,600 (including 
a sales commission), and has added $1,500 value by further improvements, 
he would be required to pay the LHA $2,900 rather than the $5,500, as 
indicated in the following computations:

Resale price........................................  ........   $17,500
Resale costs........................................    $1,600  ........
Purchase price and Incidental costs.................    10,500  ........
All improvements....................................     2,500    14,600
                                                     -----------
Payable to LHA......................................  ........     2,900
------------------------------------------------------------------------
 

    (b) Residency requirements. The five-year note period does not end 
if the homeowner rents or otherwise does not use the home as his 
principal place of residence for any period within the first five years 
after he achieves ownership. Only the actual amount of time

[[Page 326]]

he is in residence is counted and the note shall be in effect until a 
total of five years time of residence has elapsed, at which time the 
homeowner may request the LHA to release him from the note, and the LHA 
shall do so.



Sec. 904.115  Achievement of ownership by subsequent homebuyers.

    (a) Definition. In the event the initial homebuyer and his family 
vacate the home before having acquired ownership, a subsequent occupant 
who enters into a Homebuyer's Ownership Opportunity Agreement and who is 
not a successor pursuant to Sec. 904.107(l)(2) is herein called a 
``subsequent homebuyer.''
    (b) Determination of initial purchase price. The initial purchase 
price for a subsequent homebuyer shall be an amount equal to (1) the 
purchase price shown in the initial homebuyer's Purchase Price Schedule 
as of the date of this Agreement with the subsequent homebuyer plus (2) 
the amount, if any, by which the appraised fair market value of the 
home, determined or approved by HUD as of the same date, exceeds the 
purchase price specified in paragraph (b)(1) of this section.
    (c) Purchase price schedule. The subsequent homebuyer's Purchase 
Price Schedule shall be the same as the unexpired portion of the initial 
homebuyer's Purchase Price Schedule except that where his purchase price 
includes an additional amount as specified in paragraph (b)(2) of this 
section, the initial homebuyer's Purchase Price Schedule shall be 
followed by an Additional Purchase Price Schedule for such additional 
amount based upon the same monthly debt service and the same interest 
rate as applied to the initial homebuyer's Purchase Price Schedule.
    (d) Residual receipts. After payment in full of the LHA's debt, if 
there are any subsequent homebuyers who have not acquired ownership of 
their homes, the LHA shall continue to pay to HUD all residual receipts 
from the operation of the Project, including payments received on 
account of any Additional Purchase Price Schedules applicable to the 
homes, provided the aggregate amount of such payments of residual 
receipts does not exceed the aggregate amount of annual contributions 
paid by HUD with respect to the Project.



Sec. 904.116  Transfer of title to homebuyer.

    When the homebuyer is to obtain ownership as described in Sec. 
904.113 or Sec. 904.115, a closing date shall be mutually agreed upon 
by the parties. On the closing date the homebuyer shall pay the required 
amount of money to the LHA, sign the promissory note pursuant to Sec. 
904.114, and receive a deed for the home.



Sec. 904.117  Responsibilities of homebuyer after acquisition of ownership.

    After acquisition of ownership, each homeowner shall be required to 
pay to the LHA or to the homeowners association, as appropriate, a 
monthly fee for (a) the maintenance and operation of community 
facilities including utility facilities, if any, (b) the maintenance of 
grounds and other common areas and, (c) such other purposes as 
determined by the LHA or the homeowners association, as appropriate, 
including taxes and a provision for a reserve. This requirement shall be 
set out in the planned unit development or condominium documents which 
shall be recorded prior to the date of full availability, or in an LHA-
homeowner contract in this regard.



Sec. 904.118  Homeowners association--planned unit development (PUD).

    If the development is organized as a planned unit development:
    (a) Ownership and maintenance of common property. The common areas, 
sidewalks, parking lots, and other common property in the development 
shall be owned and maintained as provided for in the approved planned 
unit development (PUD) program except that the LHA shall be responsible 
for maintenance until such time as the homeowners association assumes 
such responsibility (see Sec. 904.112(d)).
    (b) Title restrictions. The title ultimately conveyed to each 
homebuyer shall be subject to restrictions and encumbrances to protect 
the rights and property of all other owners. The homeowners association 
shall have the

[[Page 327]]

right and obligation to enforce such restrictions and encumbrances and 
to assess owners for the costs incurred in connection with common areas 
and property and other responsibilities.
    (c) Votes in association. There shall be as many votes in the 
association as there are homes in the development, and, at the outset, 
all the voting rights shall be held by the LHA. As each home is conveyed 
to the homebuyer, one vote shall automatically go to the homeowner so 
that, when all the homes have been conveyed, the LHA shall no longer 
have any interest in the homeowners association.
    (d) Voting control. The LHA shall not lose its majority voting 
interest in the association as soon as a majority of the homes have been 
conveyed, unless the law of the state requires control to be transferred 
at a particular time, or the LHA so desires. If permitted by state law, 
provision shall be made for each home owned by the LHA to carry three 
votes, while each home owned by a homeowner shall carry one vote. Under 
this weighted voting plan, the LHA shall continue to have voting control 
until 75 percent of the homes have been acquired by homeowners. However, 
at its discretion, the LHA may transfer voting control to the homeowners 
when at least 50 percent of the homes have been acquired by the 
homeowners.



Sec. 904.119  Homeowners association--condominium.

    If the development is organized as a condominium:
    (a) The LHA at the outset shall own each condominium unit and its 
undivided interest in the common areas;
    (b) All the land, including that land under the housing units, shall 
be a part of the common areas;
    (c) The homeowners association shall own no property but shall 
maintain and operate the common areas for the individual owners of the 
condominium units except that the LHA shall be responsible for 
maintenance until such time as the homeowners association assumes such 
responsibility (see Sec. 904.112(d));
    (d) The percentage of undivided interest attached to each 
condominium unit shall be based on the ratio of the value of the units 
to the value of all units and shall be fixed when the development is 
completed. This percentage shall determine the homeowner's liability for 
the maintenance of the common areas and facilities;
    (e) Each homeowner's vote in the homeowners association shall be 
identical with the percentage of undivided interest attached to his 
unit; and
    (f) The LHA shall not lose its majority voting interest in the 
association as soon as units representing 50 percent of the value of all 
units have been conveyed, unless the law of the state requires control 
to be transferred at a particular time or the LHA so desires. For voting 
purposes, until units representing 75 percent of the value of all units 
have been acquired by homeowners, the total undivided interest 
attributable to the homes owned by the LHA shall be multiplied by three, 
if such weighted voting plan is permitted by state law. Under this plan, 
the LHA shall continue to maintain voting control until 75 percent of 
the homes have been acquired by homeowners. However, at its discretion, 
the LHA may transfer voting control to the homeowners when units 
representing at least 50 percent of the value of all units have been 
acquired by the homeowners.



Sec. 904.120  Relationship of homeowners association to HBA.

    The HBA and the LHA may make arrangements to permit homebuyers to 
participate in homeowners association matters which affect the 
homebuyers. Such arrangements may include rights to attend meetings and 
to participate in homeowners association deliberations and decisions.



Sec. 904.121  Use of appendices.

    Use of the following Appendices is mandatory for Projects developed 
under this subpart:



Sec. 904.122  Statutory preferences.

    In selecting applicants for assistance under this part, the LHA must 
give preference, in accordance with the authorized preference 
requirements described in 24 CFR 5.410 through 5.430. Notwithstanding 
those preferences, the

[[Page 328]]

LHA can limit homeownership admission to eligible homeownership 
candidates.

[59 FR 36651, July 18, 1994, as amended at 61 FR 9048, Mar. 6, 1996]

Appendix I--Annual Contributions Contract ``Special Provisions for 
Turnkey III Homeownership Opportunity Project''
Appendix II--Homebuyers Ownership Opportunity Agreement (Turnkey III)
Appendix III--Certificate of Achievement of Homebuyer Status
Appendix IV--Promissory Note for Payment Upon Resale by Homebuyer at 
Profit


No modification may be made in format, content or text of these 
Appendices except (1) as required under state or local law as determined 
by HUD or (2) with approval of HUD.

   Appendix I to Subpart B of Part 904--Annual Contributions Contract

                               (Subpart B)

    ( ) Special Provisions for Turnkey III Homeownership Opportunity 
Project No. ----------.
    (1) The Local Authority agrees to operate the Project in accordance 
with requirements for the Homeownership Opportunity Program for Low-
Income Families (Turnkey III) as prescribed by the Government. The Local 
Authority shall enter into an agreement with the occupant of each 
dwelling unit in the Project which agreement shall be in the form of the 
Homebuyers Ownership Opportunity Agreement approved by the Government, 
which form provides an opportunity for the acquisition of ownership of 
the dwelling unit by each occupant who has performed all of the 
obligations and conditions precedent imposed upon him by such agreement. 
Upon conveyance of any such dwelling unit, the Local Authority's 
outstanding obligations in respect to the Project shall be reduced by 
the amount received for such conveyance, and the Government's obligation 
for payment of annual contributions in respect to the Project shall be 
reduced by the amount allocable to the initial purchase price of the 
dwelling unit. The term ``initial purchase price'' as used in these 
Special Provisions shall have the same meaning as in the Homebuyers 
Ownership Opportunity Agreement, and the term ``dwelling unit'' shall 
have the same meaning as the term ``Home'' used in the Homebuyers 
Ownership Opportunity Agreement.
    (2) Failure of the Local Authority to enter into such Homebuyers 
Ownership Opportunity Agreements at the time and in the form as required 
by the Government, failure to perform any such agreement, and failure to 
meet any of its obligations under these Special Provisions shall 
constitute a Substantial Default under this Contract.
    (3) The books of account and records of the Local Authority shall be 
maintained to meet the requirements of the Homebuyers Ownership 
Opportunity Agreement as well as the other provisions of this Contract 
and in such manner as will at all times show the operating receipts, 
operating expenditures, reserves, residual receipts, and other required 
accounts for the Project separate and distinct from all other Projects 
under this Contract.
    (4) As of the Date of Full Availability, or at such earlier date as 
the Government may require, the Local Authority shall determine and 
submit to the Government for its approval the amount below which the 
Development Cost of the Project will in no event fall. Upon approval 
thereof by the Government, such amount shall constitute and be known as 
the ``Minimum Development Cost'' of the Project. The Local Authority 
shall issue its Project Loan Notes, Permanent Notes or Project Notes as 
the Government may require to finance the Minimum Development Cost. On 
each Annual Contribution Date the Government shall pay an annual 
contribution for the Project in an amount equal to the Maximum 
Contribution Percentage of the latest approved Minimum Development Cost. 
The first annual contribution shall be paid or made available as of the 
next Annual Contribution Date following the approval of the Minimum 
Development Cost of the Project.
    (5) Notwithstanding section 403(A)(4), the term ``Development Cost'' 
shall include interest on that portion of borrowed monies allocable to 
the Project for the period ending with the Date of Full Availability or 
such earlier date as may be specifically approved by the Government.
    (6) (a) During the --\1\ year Maximum Contribution Period 
established for the Project, the Local Authority shall, within 60 days 
after the end of each Fiscal Year, pay to the Government all Residual 
Receipts of the Project for such Fiscal Year for application to the 
reduction of Annual Contributions payable by the Government with respect 
to the Project.
---------------------------------------------------------------------------

    \1\ 25 or 30, as applicable.
---------------------------------------------------------------------------

    (b) During the period of years immediately following and equal to 
the Maximum Contribution Period established for the Proj ect, the Local 
Authority shall, within 60 days after the end of each Fiscal Year, pay 
to the Government all Residual Receipts of the Project for such Fiscal 
Year.
    (c) Following the end of the Fiscal Year in which the last dwelling 
unit has been conveyed by the Local Authority, the balance of

[[Page 329]]

the operating reserve held by the Local Authority shall be paid to the 
Government, provided that the aggregate amount of payments under (b) and 
(c) of this paragraph shall not exceed the aggregate amount of annual 
contributions paid by the Government with respect to the Project.
    (7) No part of the Funds on deposit in the Debt Service Fund or the 
Advance Amortization Fund with respect to any other Proj ect under this 
Contract or the funds available for deposit in such Funds for such other 
Projects, shall be applied to the retirement of Notes issued for this 
Project, nor shall any such funds on deposit for this Project be used 
with respect to any other Project or Projects under this Contract.
    (8) To the extent that the provisions of this section conflict with 
other provisions of this Contract, the provisions of this section shall 
be controlling with respect to the Proj ect.

 Appendix II to Subpart B of Part 904--Homebuyers Ownership Opportunity 
                         Agreement (Turnkey III)

                               (Subpart B)

                                 part i

    This Agreement, made and entered into ------, 19--, by and between 
---------- (herein called the ``Authority''), and ---------- (herein 
called the ``Homebuyer'');

                               witnesseth:

    In consideration of the agreements and covenants contained in this 
Agreement and in Homebuyers Ownership Opportunity Agreement Part II, 
which is hereby incorporated into this Agreement by reference, the 
Authority leases to the Homebuyer the following described land and 
improvements thereon together with an undivided interest in all common 
areas and property (herein called the ``Home'') located in the -------- 
Development (Project No. ----), which Home is identified and located as 
follows: [Insert address and legal description of location of Home, 
including rights with respect to common areas and property, and making 
reference to Book and Page No. in Recorder of Deeds Recorded].
    A. Term of Agreement. The term of this Agreement shall commence on 
------, 19--, and shall expire at midnight on the last day of this same 
calendar month. Said term shall be extended automatically for successive 
periods of one calendar month for a total term of ---- \1\ years from 
the first day of the next calendar month unless the Homebuyer acquires 
title to the home pursuant to section 16 or 17 of Part II, as 
applicable, or unless this Agreement is terminated pursuant to section 
24 of Part II.
---------------------------------------------------------------------------

    \1\ Fill in term of years equal to term of Purchase Price Schedule 
(and Additional Purchase Price Schedule, if applicable) (see Section 16 
or 17 of Part II as applicable).
---------------------------------------------------------------------------

    B. Monthly Payment. 1. Until changed in accordance with this 
Agreement, the Homebuyer's Monthly Payment shall be $---- per month, due 
and payable on or before the first day of each month. If liability for 
the Monthly Payment shall start on a day other than the first day of a 
calendar month, or if for any reason the effective date of termination 
occurs on other than the last day of the month, the Monthly Payment for 
such month shall be proportionate to the period of occupancy during that 
month.
    2. The amount of the Monthly Payment may be increased or decreased 
only by reason of changes in the Rent Schedule (see section 7c of Part 
II) or changes in the Homebuyer's family income or other circumstances 
(see section 7b of Part II). Any change in Monthly Payment shall become 
effective by written notice from the Authority to the Homebuyer as of 
the date specified in such notice, and such notice shall be deemed to 
constitute an Amendment to this Agreement.
    C. Option to Purchase. In consideration of the covenants contained 
herein, the Authority grants the Homebuyer an option to purchase the 
Home for the applicable purchase price, to be exercised in accordance 
with section 10d of Part II.
    D. Purchase Price. The Initial Purchase Price of this Home is $----
-- (this price has been determined in accordance with section 16 or 17 
of Part II as applicable); this amount shall be reduced periodically in 
accordance with the schedule (hereinafter called Purchase Price 
Schedule) for that amount, which Schedule is hereby furnished the 
Homebuyer.
    E. Amount of NRMR. The balance (or deficit) in the NRMR on the date 
of this Agreement is $------.
    F. Homebuyers Association. Upon the signing of this Agreement, the 
Homebuyer's family automatically becomes a member of the Homebuyers 
Association, as provided in section 5 of Part II.
G. Designation of Successor. For the purpose of section 25 of Part II, 
the designee and his address are:_______________________________________
________________________________________________________________________
 First Name Initial Last Name
________________________________________________________________________
 Relationship
    H. Entire Agreement. THIS AGREEMENT (COMPRISING PARTS I AND II, THE 
PURCHASE PRICE SCHEDULE, THE NONROUTINE MAINTENANCE SCHEDULE, AND THE 
PROMISSORY NOTE) IS THE ENTIRE AGREEMENT BETWEEN THE AUTHORITY AND THE 
HOMEBUYER, AND, EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT, NO 
CHANGES SHALL BE MADE

[[Page 330]]

OTHER THAN IN WRITING SIGNED BY THE AUTHORITY AND THE HOMEBUYER.
    THIS AGREEMENT is signed in duplicate, original for all purposes. 
The Homebuyer hereby acknowledges receipt of one of these signed copies.

WITNESSES:
________________________________________________________________________
________________________________________________________________________
The Authority:
By______________________________________________________________________

                            (Official Title)

The Homebuyer(s):
Initial
Subsequent
________________________________________________________________________
________________________________________________________________________

                                 part ii

                          terms and conditions

    1. Introduction-- a. The Home. The Home described in Part I of this 
Agreement is part of a Development, which the Authority has acquired or 
caused to be constructed. This Development contains a number of dwelling 
units including related land, and may also include common areas and 
property as described in Part I for occupancy by low-income families 
under lease-purchase agreements, each in the form of this Homebuyers 
Ownership Opportunity Agreement. This Development is financed by sale of 
the Authority's notes which will be amortized over the period of years 
specified in the Annual Contributions Contract relating to this 
Development.
    b. Annual Contributions Contract. The Authority has entered into an 
Annual Contributions Contract (``ACC'') with the Department of Housing 
and Urban Development (``HUD'') under which the Authority will receive 
Annual Contributions provided by HUD, and will perform certain 
operational functions, to provide housing for the Homebuyers and assist 
the Homebuyers in achieving homeownership.
    c. Management. The Authority may enter into a contract or contracts 
for management of the Development or for performance of management 
functions, by the Homebuyers Association (see section 5) or others.
    d. Definitions.
    (1) The term ``Authority'' means the local housing authority which 
acquires or develops a low-rent housing development with financial 
assistance from HUD, owns the Homes until title is transferred to the 
Homebuyers, and is responsible for the management of the homeownership 
opportunity program.
    (2) The term ``common property'' means the nondwelling structures 
and equipment, common areas, community facilities, and in some cases 
certain component parts of dwelling structures, which are contained in 
the Development: Provided, however, That in the case of a Development 
that is organized as a condominium or a planned unit development (PUD), 
the term ``common property'' shall have the meaning established by the 
condominium or PUD documents and the State law pursuant to which the 
condominium or PUD is organized, under the terms, ``common areas,'' 
``common facilities,'' ``common elements,'' ``common estate,'' or other 
similar terms.
    (3) The term ``Development'' means the entire undertaking including 
all real and personal property, funds and reserves, rights, interests 
and obligations, and activities related thereto.
    (4) The term ``EHPA'' means the Earned Home Payments Account 
established and maintained pursuant to section 10 of the Agreement.
    (5) The term ``Homebuyer'' means the member or members of a low-
income family who have executed a Homebuyers Ownership Opportunity 
Agreement with the Authority.
    (6) The term ``Homebuyers Association'' (HBA) means an organization 
as defined in section 5 of this Agreement.
    (7) The term ``Homeowner'' means a Homebuyer who has acquired title 
to his Home.
    (8) The term ``Homeowners Association'' means an association 
comprised of Homeowners, including condominium associations, having 
responsibilities with respect to common property.
    (9) The term ``HUD'' means the Department of Housing and Urban 
Development which provides the Authority with financial assistance 
through loans and annual contributions and technical assistance in 
development and operation.
    (10) The term ``NRMR'' means the Nonroutine Maintenance Reserve 
established and maintained pursuant to section 11 of this Agreement.
    (11) The term ``Project'' is used to refer to the Development in 
relation to matters specifically related to the Annual Contributions 
Contract.
    2. The Homebuyers Ownership Opportunity Agreement. Under this 
Homebuyers Ownership Opportunity Agreement, the Homebuyer may achieve 
ownership of the home described in Part I by making the required monthly 
payments and providing maintenance and repairs to build up a credit in 
his Earned Home Payments Account (hereinafter called ``EHPA''). While 
the Homebuyer is performing his obligations, the purchase price will be 
reduced in accordance with the Purchase Price Schedule, so that, while 
this purchase price is being reduced, the Homebuyer is increasing the 
amount of his EHPA. The Homebuyer may also make voluntary payments to 
his EHPA which will enable him to acquire ownership more quickly. The 
Homebuyer may take title to his Home when

[[Page 331]]

he is able to finance or pay in full the balance of the purchase price 
as shown on the Purchase Price Schedule plus the costs incidental to 
acquiring ownership, as provided in section 16 or 17, as applicable.
    3. Status of Homebuyer. Until the Homebuyer satisfies the conditions 
set forth in section 10d precedent to the exercise of his option to 
purchase the Home for the applicable purchase price, the Homebuyer shall 
have the status of a lessee of the Authority from month to month with an 
obligation to build up such balance in his EHPA within the first two 
years of his occupancy and to continue adding to his EHPA thereafter. 
For convenience the term ``Homebuyer'' also refers to the occupant 
during his status as a lessee.
    4. Counseling of Homebuyers. The Authority shall provide training 
and counseling, as required and approved by HUD. The Authority's own 
staff and resources, existing community resources, a private agency 
under contract with the Authority, or any combination of the three, 
shall be utilized to prepare Homebuyers for the rights, 
responsibilities, and obligations of homeownership including 
participation in the Homebuyers Association. The Homebuyer agrees to 
participate in and cooperate fully in all official training and 
counseling activities.
    5. Homebuyers Association.\2\ Upon the signing of this Agreement, 
the Homebuyer's family automatically becomes a member of the Homebuyers 
Association having membership and purposes as set forth in the Articles 
of Incorporation of said Association. In the absence of a duly organized 
Homebuyers Association, the Authority shall be free to act without the 
HBA action required by this Agreement.
---------------------------------------------------------------------------

    \2\ There may be cases, such as where the homes are on scattered 
sites, where there is no Homebuyers Association but an alternative 
method for homebuyer representation and counseling is provided (see 24 
CFR 904.307). In such cases, section 5 and other portions of this 
Agreement referring to the Homebuyers Association should be modified to 
reflect the alternative method provided for homebuyer representation and 
counseling.
---------------------------------------------------------------------------

    6. Routine maintenance, repair and use of premises. a. Routine 
maintenance. The Homebuyer shall be responsible for the routine 
maintenance of his dwelling and grounds, to the satisfaction of the 
Homebuyers Association and the Authority. This routine maintenance 
includes the work (labor and materials) of keeping the dwelling 
structure, grounds and equipment in good repair, condition and 
appearance so that they may be utilized continually at their designed 
capacities and at the satisfactory level of efficiency for their 
intended purposes, and in conformity with the requirements of local 
housing codes and applicable regulations and guidelines of HUD. It 
includes repairs (labor and materials) to the dwelling structure, 
plumbing fixtures, dwelling equipment (such as range and refrigerator), 
shades and screens, water heaters, heating equipment and other component 
parts of the dwelling. It also includes all interior painting and 
maintenance of the grounds (lot) on which the dwelling is located. It 
does not include maintenance and replacements provided for by the 
Nonroutine Maintenance Reserve described in Section 11.
    b. Repair of damage. In addition to his obligation for routine 
maintenance, the Homebuyer shall be responsible for repair of any damage 
caused by the Homebuyer, members of his family, or visitors.
    c. Care of Home. The Homebuyer agrees to keep his dwelling in a 
sanitary condition; to cooperate with the Authority and the Homebuyers 
Association in keeping and maintaining the common area and property, 
including fixtures and equipment, in good condition and appearance; and 
to follow all rules of the Authority and of the Homebuyers Association 
concerning the use and care of the dwellings and the common areas and 
property.
    d. Inspections. The Homebuyer agrees to permit officials, employees, 
or agents of the Authority, and of the Homebuyers Association to inspect 
his Home at reasonable hours and intervals in accordance with rules 
established by the Authority and the Homebuyers Association.
    e. Use of Home. The Homebuyer shall not (1) sublet his Home without 
the prior written approval of the Authority and HUD, (2) use or occupy 
his home for any unlawful purpose nor for any purpose deemed hazardous 
by insurance companies on account of fire and other risks, or (3) 
provide accommodations (unless approved by the Homebuyers Association 
and the Authority) to boarders or lodgers. The Homebuyer agrees to use 
the Home only as a place to live for himself and his family (as 
identified in his initial application or by subsequent amendment with 
the approval of the Authority), for children thereafter born to or 
adopted by members of such family, and for aged or widowed parents of 
the Homebuyer or spouse who may join the household.
    f. Obligations with respect to other persons and property. Neither 
the Homebuyer nor any member of his family shall interfere with rights 
of other occupants of the Development, or damage the common property or 
the property of others, or create physical hazards.
    g. Structural changes. A Homebuyer shall not make any structural 
changes in or additions to his Home unless the Authority has first 
determined in writing that such change would not (1) impair the value of 
the unit, the surrounding units, or the Development as a whole, or (2) 
affect the use of the Home

[[Page 332]]

for residential purposes, or (3) violate HUD requirements as to 
construction and design. Any changes made in accordance with this 
paragraph shall be at the Homebuyer's expense, and in the event of 
termination of this Agreement before the Homebuyer acquires title to the 
Home, whether by reason of the Homebuyer's default or otherwise, the 
Homebuyer shall not be entitled to any compensation on account of his 
having made such changes.
    h. Statement of condition and repair. When the Homebuyer moves in, 
the Authority shall inspect the Home and shall give the Homebuyer a 
written statement, to be signed by the Authority and the Homebuyer, of 
the condition of the Home and the equipment in it. Should the Homebuyer 
vacate, the Authority shall inspect the Home and give the Homebuyer a 
written statement of the repairs and other work, if any, required to put 
the Home in good condition for the next occupant (see section 10k). The 
Homebuyer or his representative, or both, may join in any such 
inspections with the Authority and the Homebuyer Association.
    7. Monthly payments by Homebuyer-- a. Determination of amount. 
Except as otherwise provided hereinafter, the Homebuyer agrees to pay to 
the Authority, so long as this Agreement is in effect, a required 
Monthly Payment as lease rental in an amount determined in accordance 
with a schedule adopted by the Authority and approved by HUD. Although 
the total monthly housing cost consists of the sum of the break-even 
amount (see section 8) and the debt service (payment of principal and 
interest) on the applicable share of the capital cost of the 
Development, the Homebuyer, so long as he qualifies as low income, is 
not required to pay the full amount, but is assisted by HUD annual 
contributions. The schedule shall provide for payments to be based upon 
a percentage of the family's adjusted monthly income and shall indicate 
allowances for those utilities which the Homebuyer will pay for 
directly.
    b. Changes in monthly payment due to changes in family income or 
other circumstances. The required Monthly Payment may be adjusted as a 
result of the Authority's regularly or specially scheduled reexamination 
of the Homebuyer's family income and family composition. Interim changes 
may be made in accordance with the Authority's policy on reexaminations, 
or under unusual circumstances, at the request of the Homebuyer, if both 
the Authority and the Homebuyers Association agree that such action is 
warranted.
    c. Changes in monthly payment due to changes in rent schedules. The 
required Monthly Payment may also be adjusted by changes in the required 
percentage of income to reflect (1) changes in operating expense as 
described in section 9b and (2) changes in utility allowances.
    d. Acceptance of monthly payment. The Authority shall not refuse to 
accept monthly payments because of any other charges (i.e., other than 
overdue monthly payments) owed by the Homebuyer to the Authority; 
however, by accepting monthly payments under such circumstances the 
Authority shall not be deemed to have waived any of its rights and 
remedies with respect to such other charges.
    e. Application of monthly payment. The Homebuyer's Monthly Payment 
shall be applied by the Authority as follows: First, to the credit of 
the Homebuyer's EHPA pursuant to section 10 below; second, to the credit 
of the Nonroutine Maintenance Reserve for the Home pursuant to Section 
11 below; and third, for payment of Monthly Operating Expense, including 
contribution to Operating Reserve, as provided in section 9 below.
    8. Break-even amount-- a. Definition. The term ``Break-even Amount'' 
means the minimum monthly amount needed to provide funds for:
    (1) Monthly Operating Expense, including provision for a 
contribution to Operating Reserve, pursuant to section 9a below;
    (2) The monthly amount to be credited to the Homebuyer's EHPA 
pursuant to Section 10 below; and
    (3) The monthly amount to be credited to the Nonroutine Maintenance 
Reserve for the Home pursuant to section 11 below.
    b. Monthly payment in excess of break-even amount. When the 
Homebuyer's required Monthly Payment exceeds the applicable Break-even 
Amount, the excess shall constitute additional Project income and shall 
be deposited and used in the same manner as other Project income.
    c. Monthly payment below break-even amount. When the Homebuyer's 
required Monthly Payment is less than the applicable Break-even Amount, 
the deficit shall be applied as a reduction of that portion of the 
Monthly Payment designated for Operating Expense (i.e., as a reduction 
of project income). In all such cases, the EHPA and the NRMR shall be 
credited with the amount included in the Break-even Amount for these 
accounts.
    9. Monthly operating expense-- a. Definition and categories of 
monthly operating expense. The term ``monthly operating expense'' means 
the monthly amount needed for the following purposes:
    (1) Administration. Administrative salaries, travel, legal expenses, 
office supplies, postage, telephone and telegraph, etc.;
    (2) Homebuyer services. Authority expenses in the achievement of 
social goals, including costs such as salaries, publications, payments 
to the HBA to assist its operation, contract and other costs;
    (3) Utilities. Those utilities (such as water), if any to be 
furnished by the Authority as part of operating expense;

[[Page 333]]

    (4) Routine maintenance--Common property. For community building, 
grounds, and other common areas, if any. The amount required for routine 
maintenance of common property depends upon the type of common property 
included in the Development and the extent of the Authority's 
responsibility for maintenance (see also section 9c);
    (5) Protective services. The cost of supplemental protective 
services paid by the Authority for the protection of persons and 
property;
    (6) General expense. Premiums for fire and other insurance, payments 
in lieu of taxes to the local taxing body, collection losses, payroll 
taxes, etc.;
    (7) Nonroutine maintenance--Common property (contribution to 
operating reserve). Extraordinary maintenance of equipment applicable to 
the community building and grounds, and unanticipated items for non-
dwelling structures (see section 12).
    b. Monthly operating expense rate. The monthly operating expense 
rate for each fiscal year shall be established on the basis of the 
Authority's HUD-approved operating budget for that fiscal year. The 
operating budget may be revised during the course of the fiscal year in 
accordance with HUD requirements. If it is subsequently determined that 
the actual operating expense for a fiscal year was more or less than the 
amount provided by the monthly operating expense established for that 
fiscal year, the rate of monthly operating expense to be established for 
the next fiscal year may be adjusted to account for the difference (see 
section 12). Such adjustment may result in a change in the required 
monthly payment (see section 7c).
    c. Provision for common property maintenance. During the period the 
Authority is responsible for the maintenance of common property, the 
annual operating budget and the monthly operating expense rate shall 
include the amount required for routine maintenance of all common 
property in the Development, even though a number of the homes may have 
been acquired by homebuyers. During such period, this amount shall be 
computed on the basis of the total number of homes in the Development 
(i.e., the annual amount budgeted for routine maintenance of common 
property shall be divided by the number of Homes in the Development, 
resulting in the annual amount for each Home; this figure shall in turn 
be divided by 12 to determine the monthly amount to be included in the 
monthly operating expense (and in the break-even amount) for routine 
maintenance of common property). After the Homeowners Association 
assumes responsibility for maintenance of common property, the monthly 
operating expense (and break-even amount) shall include an amount equal 
to the monthly assessment by the homeowners association for the 
remaining homes owned by the Authority (see section 11 for nonroutine 
maintenance of common property).
    d. Posting of monthly operating expense statement. A statement 
showing the budgeted monthly amount allocated in the current operating 
budget to each operating expense category shall be provided to the HBA 
and a copy shall be provided to the Homebuyer upon request.
    10. Earned Home Payments Account (EHPA)-- a. Credits to the account. 
The Authority shall establish and maintain a separate EHPA for each 
Homebuyer. Since the Homebuyer is responsible for maintaining his Home 
as provided in section 6, a portion of his required Monthly Payment 
equal to the Authority's estimate, approved by HUD, of the monthly cost 
for such routine maintenance, taking into consideration the relative 
type and size of the Home, shall be set aside in his EHPA. In addition, 
this account shall also be credited with (1) any voluntary payments made 
pursuant to section 10g and (2) any amount earned through the 
performance of maintenance pursuant to paragraph e of this section. All 
amounts received by the Authority for credit to the Homebuyer's account, 
including credits for performance of maintenance pursuant to paragraph e 
of this section, shall be held by the Authority for the account of the 
Homebuyer.
    b. Use of EHPA funds. The unused balance in the Homebuyer's EHPA may 
be used toward purchase of the Home as provided in section 16 or 17 as 
applicable, or shall be payable to the Homebuyer if he leaves the 
Project as provided in paragraph k of this section.
    c. Charges to the account. (1) If for any reason the Homebuyer is 
unable or fails to perform any item of required maintenance as described 
in section 6, the Authority shall arrange to have the work done in 
accordance with the procedures established by the Authority and the HBA 
and the cost thereof shall be charged to the Homebuyer's EHPA. 
Inspections of the Home shall be made jointly by the Authority and the 
HBA.
    (2) To the extent nonroutine maintenance expense is made necessary 
by the negligence of the Homebuyer as determined by the HBA and the 
Authority (see section 11), the cost thereof shall be charged to the 
EHPA.
    d. Exercise of option; required amount in EHPA. The Homebuyer may 
exercise his option to buy the Home, by paying the applicable purchase 
price pursuant to section 16 or 17, only after satisfying the following 
conditions precedent:
    (1) Within the first two years of his occupancy, he has achieved a 
balance in his EHPA equal to 20 times the amount of the monthly EHPA 
credit as initially determined in accordance with paragraph a of this 
section;

[[Page 334]]

    (2) He has met, and is continuing to meet, the requirements of this 
Agreement;
    (3) He has rendered, and is continuing to render, satisfactory 
performance of his responsibilities to the HBA.
    When the Homebuyer has met these conditions precedent, the Authority 
shall give the Homebuyer a certificate to that effect. After achieving 
the required minimum EHPA balance within the first two years of his 
occupancy, the Homebuyer shall continue to be obligated to provide the 
required maintenance, thereby continuing to add to his EHPA. If the 
Homebuyer fails to meet either his obligation to achieve the minimum 
EHPA balance as specified or his obligation thereafter to continue 
adding to the EHPA, the Authority and the HBA shall investigate and take 
appropriate corrective action, including termination of this Agreement 
by the Authority in accordance with section 24.
    e. Additional equity through other maintenance. Besides the 
maintenance which the Homebuyer must provide pursuant to section 6, the 
Homebuyer may earn additional EHPA credits by providing in whole or in 
part any of the maintenance necessary to the common property of the 
Development or maintenance for which the Nonroutine Maintenance Reserve 
is established (see section 11). Such maintenance may be provided by the 
Homebuyer and credit earned therefor only pursuant to a prior written 
agreement between the Homebuyer and the Authority (or the Homeowners 
Association, depending on who has responsibility for maintenance of the 
property involved), covering the nature and scope of the work and the 
amount of credit the Homebuyer is to receive. Upon completion of such 
work, the agreed amount shall be charged to the appropriate maintenance 
account and credited to the Homebuyer's EHPA.
    f. Investment of excess. When the aggregate amount of all EHPA 
balances exceeds the estimated reserve requirements for 90 days, the 
Authority shall notify the HBA and shall invest the excess in federally-
insured savings accounts, federally insured credit unions, and/or 
securities approved by HUD and in accordance with any recommendations 
made by the HBA. If the HBA wishes to participate in the investment 
program it should submit periodically to the Authority a list of HUD 
approved securities, bonds, or obligations which the HBA reecommends for 
investment by the Authority of the funds in the EHPAs. Interest earned 
on the investment of such funds shall be prorated and credited to each 
Homebuyer's EHPA in proportion to the amount in each such reserve 
account.
    Periodically, but not less often than semi-annually, the Authority 
shall prepare a statement showing: (1) the aggregate amount of all EHPA 
balances; (2) the aggregate amount of investments (savings accounts and/
or securities) held for the account of all the Homebuyers' EHPAs, and 
(3) the aggregate uninvested balance of all the Homebuyers' EHPAs. This 
statement shall be made available to any authorized representative of 
the HBA.
    g. Voluntary payments. To enable the Homebuyer to acquire title to 
the Home within a shorter period, he may either periodically or in a 
lump sum voluntarily make payments over and above his required monthly 
payments. Such voluntary payments shall be deposited to his credit in 
his EHPA.
    h. Delinquent monthly payments. Under exceptional circumstances as 
determined by the HBA and the Authority, the Homebuyer's EHPA may be 
used to pay his delinquent required monthly payments, provided the 
amount used for this purpose does not seriously deplete the account and 
provided that the Homebuyer agrees to cooperate in such counseling as 
may be made available by the Authority or the HBA.
    i. Annual statement to homebuyer. The Authority shall provide an 
annual statement to the Homebuyer specifying at least (1) the amount in 
his EHPA, and (2) the amount in his Nonroutine Maintenance Reserve. 
During the year, any maintenance or repair done on the dwelling by the 
Authority which is chargeable to the EHPA or to the Nonroutine 
Maintenance Reserve, shall be accounted for through a work order. The 
Homebuyer shall receive a copy of all such work orders for his Home.
    j. Withdrawal and assignment. The Homebuyer shall have no right to 
assign, withdraw, or in any way dispose of the funds in his EHPA except 
as provided in this section or in sections 16 and 17.
    k. Application of EHPA upon vacating of dwelling. (1) In the event 
this Agreement is terminated or if the Homebuyer vacates the Home, the 
Authority shall charge against the Homebuyer's EHPA the amounts required 
to pay; (i) The amount due the Authority, including the monthly payments 
the Homebuyer is obligated to pay up to the date he vacates; (ii) the 
monthly payment for the period the Home is vacant, not to exceed 30 days 
from the date of notice of intention to vacate, or if the Homebuyer 
failed to give notice of intention to vacate, 30 days from the date the 
Home is put in good condition for the next occupant in conformity with 
section 6; and (iii) the cost of any routine maintenance, and of any 
nonroutine maintenance attributable to the negligence of the Homebuyer, 
required to put the Home in good condition for the next occupant in 
conformity with section 6.
    (2) If the Homebuyer's EHPA balance is not sufficient to cover all 
of these charges, the Authority shall require the Homebuyer to pay the 
additional amount due. If the amount in the EHPA exceeds these charges, 
the excess shall be paid the Homebuyer.

[[Page 335]]

    (3) Settlement with the Homebuyer shall be made promptly after the 
actual cost of repairs to the dwelling has been determined (see 
paragraph k(1)(iii) of this section), provided that the Authority shall 
make every effort to make such settlement within 30 days from the date 
the Homebuyer vacates. The Homebuyer may obtain a settlement within 7 
days of the date he vacates, even though the actual cost of such repairs 
has not yet been determined, if he has given the Authority notice of 
intention to vacate 30 days prior to the date he vacates and if the 
amount to be charged against his EHPA for such repairs is based on the 
Authority's estimate of the cost thereof (determined after consultation 
with the appropriate representative of the HBA).
    11. Nonroutine maintenance reserve (NRMR)-- a. Purpose of reserve. 
The Authority shall establish and maintain a separate nonroutine 
maintenance reserve (NRMR) for the Home, using a portion of the 
Homebuyer's monthly payment. The purpose of the NRMR is to provide funds 
for the nonroutine maintenance of the Home, which consists of the 
infrequent and costly items of maintenance and replacement shown on the 
Nonroutine Maintenance Schedule for the Home (see paragraph b of this 
section). Such maintenance may include the replacement of dwelling 
equipment (such as range and refrigerator), replacement of roof, 
exterior painting, major repairs to heating and plumbing systems, etc. 
The NRMR shall not be used for nonroutine maintenance of common 
property, or for nonroutine maintenance relating to the Home to the 
extent such maintenance is attributable to the Homebuyer's negligence or 
to defective materials or workmanship.
    b. Amount of reserve. The amount of the monthly payments to be set 
aside for NRMR shall be determined by the Authority, with the approval 
of HUD, on the basis of the Nonroutine Maintenance Schedule showing the 
amount estimated to be needed for nonroutine maintenance of the Home 
during the term of this Agreement, taking into consideration the type of 
construction and dwelling equipment. This Schedule shall (1) list each 
item of nonroutine maintenance (e.g., range, refrigerator, plumbing, 
heating system, roofing, tile flooring, exterior painting, etc.), (2) 
show for each listed item the estimated frequency of maintenance or 
useful life before replacement, the estimated cost of maintenance or 
replacement (including installation) for each occasion, and the annual 
reserve requirement, and (3) show the total reserve requirements for all 
the listed items, on an annual and a monthly basis. This Schedule shall 
be prepared by the Authority and approved by HUD as part of the 
Submission required to determine the financial feasibility of the 
Project. The Schedule shall be revised after approval of the working 
drawings and specifications, and shall thereafter be reexamined annually 
in the light of changing economic conditions and experience.
    c. Charges to reserve. (1) The Authority shall provide the 
nonroutine maintenance necessary for the Home and the cost thereof shall 
be funded as provided in paragraph c(2) and c(3) of this section. Such 
maintenance may be provided by the Homebuyer but only pursuant to a 
prior written agreement with the Authority covering the nature and scope 
of the work and the amount of credit the Homebuyer is to receive. The 
amount of any credit shall, upon completion of the work, be credited to 
the Homebuyer's EHPA and charged as provided in paragraph c(2) of this 
section.
    (2) The cost of nonroutine maintenance shall be charged to the NRMR 
for the Home except that (i) to the extent such maintenance is 
attributable to the fault or negligence of the Homebuyer, the cost shall 
be charged to the Homebuyer's EHPA after consultation with the HBA if 
the Homebuyer disagrees, and (ii) to the extent such maintenance is 
attributable to defective materials or workmanship not covered by 
warranty, or even though covered by warranty if not paid for through no 
fault or negligence of the Homebuyer, the cost shall be charged to the 
appropriate operating expense account of the Project.
    (3) In the event the amount charged against the NRMR exceeds the 
balance therein, the difference (deficit) shall be made up from 
continuing monthly credits to the NRMR based upon the Homebuyer's 
monthly payments. If there is still a deficit when the Homebuyer 
acquires title, the Homebuyer shall pay such deficit at settlement.
    d. Transfer of NRMR. (1) In the event this Agreement is terminated, 
the Homebuyer shall not receive any balance or be required to pay any 
deficit in the NRMR. When a subsequent Homebuyer moves in, the NRMR 
shall continue to be applicable to the Home in the same amount as if the 
preceding Homebuyer had continued in occupancy.
    (2) In the event the Homebuyer purchases the Home, and there remains 
a balance in the NRMR, the Authority shall pay such balance to the 
Homebuyer at settlement. In the event the Homebuyer purchases the Home 
and there is a deficit in the NRMR, the Homebuyer shall pay such deficit 
to the Authority at settlement.
    e. Investment of excess. (1) When the aggregate amount of the NRMR 
balances for all the Homes exceeds the estimated reserve requirements 
for 90 days, the Authority shall invest the excess in federally insured 
savings accounts, federally insured credit unions, and/or securities 
approved by HUD. Income earned on the investment of such funds shall

[[Page 336]]

be prorated and credited to each Homebuyer's NRMR in proportion to the 
amount in each reserve account.
    (2) Periodically, but not less often that semi-annually, the 
Authority shall prepare a statement showing (i) the aggregate amount of 
all NRMR balances, (ii) the aggregate amount of investments (savings 
accounts and/or securities) held for the account of the NRMR and (iii) 
the aggregate uninvested balance of the NRMRs. A copy of this statement 
shall be made available to any authorized representative of the HBA.
    12. Operating reserve-- a. Purpose of reserve. To the extent that 
total operating receipts (including subsidies for operations) exceeds 
total operating expenditures of the Project, the LHA shall establish an 
operating reserve up to the maximum approved by HUD in connection with 
its approval of the annual operating budgets for the Project. The 
purpose of this reserve is to provide funds for (1) the infrequent but 
costly items of nonroutine maintenance and replacements of common 
property, taking into consideration the types of items which constitute 
common property, such as nondwelling structures and equipment, and, in 
certain cases, common elements of dwelling structures, (2) nonroutine 
maintenance for the Homes to the extent such maintenance is attributable 
to defective materials or workmanship not covered by warranty, (3) 
working capital for payment of a deficit in a Homebuyer's NRMR, until 
such deficit is offset by future monthly payments by the Homebuyer or at 
settlement in the event the Homebuyer should purchase, and (4) a deficit 
in the operation of the Project for a fiscal year, including a deficit 
resulting from monthly payments totaling less than the break-even amount 
for the Project.
    b. Nonroutine maintenance------------  common property (contribution 
to operating reserve). The amount under this heading to be included in 
operating expense (and in the break-even amount) established for the 
fiscal year (see sections 8 and 9) shall be determined by the Authority, 
with the approval of HUD, on the basis of estimates of the monthly 
amount needed to accumulate an adequate reserve for the items described 
in paragraph a(1) of this section. This amount shall be subject to 
revision in the light of experience. This contribution to the Operating 
Reserve shall be made only during the period the Authority is 
responsible for the maintenance of any common property; and during such 
period, the amount shall be determined on the basis of the requirements 
of all common property in the Development in a manner similar to that 
explained in Section 9. When the Operating Reserve reaches the maximum 
authorized in paragraph c of this Section, the break-even (monthly 
operating expense) computations (see Sections 8 and 9) for the next and 
succeeding fiscal years need not include a provision for this 
contribution to the Operating Reserve unless the balance of the Reserve 
is reduced below the maximum during any such succeeding fiscal year.
    c. Maximum operating reserve. The maximum operating reserve that may 
be retained by the Authority at the end of any fiscal year shall be the 
sum of (1) one-half of total routine expense included in the operating 
budget approved for the next fiscal year and (2) one-third of total 
break-even amounts included in the operating budget approved for the 
next fiscal year; provided that such maximum may be increased if 
necessary as determined or approved by HUD. Total routine expense means 
the sum of the amounts budgeted for administration, homebuyer services. 
Authority-supplied utilities, routine maintenance of common property, 
protective services, and general expense or other category of day-to-day 
routine expense (see section 9 above for explanation of various 
categories of expense).
    d. Transfer to Homeowners Association. The Authority shall be 
responsible for and shall retain custody of the Operating Reserve until 
the Homeowners acquire voting control of the Homeowners Association (see 
sections 21c and 22f). When the Homeowners acquire voting control, the 
Homeowners Association shall then assume full responsibility for 
management and maintenance of common property under a plan approved by 
HUD, and there shall be transferred to the Homeowners Association a 
portion of the Operating Reserve then held by the Authority, as 
determined by the Authority with the approval of HUD.
    e. Disposition of reserve. If, at the end of a fiscal year, there is 
an excess over the maximum Operating Reserve, this excess shall be 
applied to the operating deficit of the Project, if any, and any 
remainder shall be paid to HUD. Following the end of the fiscal year in 
which the last Home has been conveyed by the Authority, the balance of 
the Operating Reserve held by the Authority shall be paid to HUD, 
provided that the aggregate amount of payments by the Authority under 
this paragraph shall not exceed the aggregate amount of annual 
contributions paid by HUD with respect to the Proj ect.
    13. Annual statement and copies of work orders to homebuyer. a. The 
Authority shall maintain books of accounts and provide a statement at 
least annually to each Homebuyer which will show (i) the amount in his 
EHPA, and (2) the amount in the NRMR for his Home.
    b. During the year, any maintenance or repair done on the dwelling 
by the Authority, which is chargeable to the EHPA or to the NRMR shall 
be accounted for through a work order. The Homebuyer shall receive a 
copy of all such work orders for his Home.
    14. Insurance. a. Until transfer of title to the Homebuyer, the 
Authority shall carry all

[[Page 337]]

insurance prescribed by HUD including fire and extended coverage 
insurance upon the Home in such form and amount and with such company or 
companies as it determines. The Authority shall not carry any insurance 
on the Homebuyer's furniture, clothing, automobile, or any other 
personal property, or personal liability insurance covering the 
Homebuyer.
    b. In the event the Home is damaged or destroyed by fire or other 
casualty, the Authority shall consult with the Homebuyer as to whether 
the Home shall be repaired or rebuilt. If the Authority determines that 
the Home should not be repaired or rebuilt but the Homebuyer disagrees, 
the matter shall be submitted to HUD for final determination. If the 
final determination is that the Home should not be repaired or rebuilt, 
the Authority shall terminate this Agreement upon reasonable notice to 
the Homebuyer. In such case, the Homebuyer shall be paid the balance in 
his EHPA and (to assist him in connection with relocation expenses) the 
balance in his NRMR, less amounts, if any, due from him to the 
Authority, including Monthly Payments he may be obligated to pay.
    c. In the event of termination or if the Home must be vacated during 
the repair period, the Authority will use its best efforts to assist in 
relocating the Homebuyer. If the Home must be vacated during the repair 
period, Monthly Payments shall be suspended during the vacancy period.
    15. Eligibility for continued occupancy. a. The Homebuyer shall 
cease to be eligible for continued occupancy with the aid of HUD annual 
contributions when the Authority determines the Homebuyer's adjusted 
monthly income has reached, and is likely to continue at, a level at 
which the Homebuyer's total payment equals or exceeds the monthly 
housing cost (see paragraph b of this section). In such an event, if the 
Authority determines, with HUD approval, that suitable financing is 
available, the Authority shall notify the Homebuyer that he or she must 
either: (1) Purchase the Home; or (2) move from the Development. If, 
however, the Authority determines that, because of special 
circumstances, the family is unable to find decent, safe and sanitary 
housing within the family's financial reach although making every 
reasonable effort to do so, the family may be permitted to remain for 
the duration of such a situation if it pays as rent a monthly payment 
consistent with its adjusted monthly income, in accordance with 
applicable HUD regulations prescribing rental payments for families in 
housing assisted under the United States Housing Act of 1937. Such a 
monthly payment shall also be payable by the family if it continues in 
occupancy without purchasing the home because suitable financing is not 
available.
    b. The term ``monthly housing cost,'' as used in this section means 
the sum of: (1) The monthly debt service amount shown on the Purchase 
Price Schedule (except where the Homebuyer can purchase the Home by the 
method described in section 16 below); (2) one-twelfth of the annual 
real property taxes which the Homebuyer will be required to pay as a 
Homeowner; (3) one-twelfth of the annual premium attributable to fire 
and extended coverage insurance carried by the Authority with respect to 
the Home; (4) the current monthly per unit amount budgeted for routine 
maintenance (EHPA) and routine maintenance-common property; and (5) the 
current Authority and HUD approved monthly allowance for utilities paid 
for directly by the Homebuyer plus the monthly cost of utilities 
supplied by the Authority.
    16. Achievement of ownership by initial homebuyer-- a. Determination 
of initial purchase price. The Authority shall determine the initial 
purchase prices of the Homes by two basic steps, as follows:
    Step 1. The Authority shall take the Estimated Total Development 
Cost (including the full amount for contingencies as authorized by HUD) 
of the Development as shown in the Development Cost Budget in effect 
upon award of the Main Construction Contract or execution of the 
Contract of Sale, and shall deduct therefrom the amounts, if any, 
attributed to (1) relocation costs, (2) counseling and training costs, 
and (3) the cost of any community, administration or management 
facilities including the land, equipment and furnishings attributable to 
such facilities as set forth in the development program for the 
Development.
    The resulting amount is herein called Estimated Total Development 
Cost for Homebuyers.
    Step 2. The Authority shall apportion the Estimated Total 
Development Cost for Homebuyers among all the Homes in the Development. 
This apportionment shall be made by obtaining an FHA appraisal of each 
Home, and adjusting such appraised values (upward or downward) by the 
percentage difference between the total of the appraisal for all the 
Homes and the Estimated Total Development Cost for Homebuyers. The 
adjusted amount for each Home shall be the Initial Purchase Price for 
that Home.
    b. Purchase Price Schedule. The Homebuyer shall be provided with a 
Purchase Price Schedule showing (1) the monthly declining purchase price 
over a 30-year period,\3\ commencing with the initial purchase price on 
the first day of the month following the effective date of this 
Agreement and (2) the monthly debt service amount upon which the

[[Page 338]]

Schedule is based. This Schedule and debt service amount shall be 
computed on the basis of the initial purchase price, a 30-year period, 
\3\ and a rate of interest equal to the minimum loan interest rate as 
specified in the Annual Contributions Contract for the Project on the 
date of HUD approval of the Development Cost Budget, described in 
paragraph a of this section, rounded up, if necessary, to the next 
multiple of one-fourth of one percent (\1/4\ percent).
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    \3\ Change to 25-year period where appropriate pursuant to Sec. 
904.101(b)(3) of this subpart.
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    c. Methods of Purchase. (1) The Homebuyer may achieve ownership when 
the amount in his EHPA, plus such portion of the NRMR as he wishes to 
use for the purchase, is equal to the purchase price as shown at that 
time on his Purchase Price Schedule plus all Incidental Costs 
(``Incidental Costs'' means the costs incidental to acquiring ownership, 
including, but not limited to, the costs for a credit report, field 
survey title examination, title insurance, and inspections, the fees for 
attorneys other than the LHA's attorney, mortgage application and 
organization, closing and recording, and the transfer taxes and loan 
discount payment if any). If for any reason title to the Home is not 
conveyed to the Homebuyer during the month in which such circumstances 
occur, the purchase price shall be fixed at the amount specified for 
such month and the Homebuyer shall be refunded (i) the net additions, if 
any, credited to his EHPA subsequent to such month, and (ii) such part 
of the monthly payments made by the Homebuyer after the purchase price 
has been fixed which exceeds the sum of the break-even amount 
attributable to the Home and the interest portion of the debt service 
shown in the Purchase Price Schedule.
    (2) Where the sum of the purchase price and Incidental Costs is 
greater than the amounts in the Homebuyer's EHPA and NRMR, the Homebuyer 
may achieve ownership by obtaining financing for or otherwise paying the 
excess amount. The purchase price shall be the amount shown on his 
Purchase Price Schedule for the month in which the settlement date for 
the purchase occurs.
    d. The maximum period for achieving ownership shall be 30 years, but 
depending upon increases in the Homebuyer's income and the amount of 
credit which the Homebuyer can accumulate through maintenance and 
voluntary payments, the period may be shortened accordingly.
    17. Achievement of Ownership by Subsequent Homebuyer--a. Definition. 
In the event the initial Homebuyer and his family vacate the Home before 
having acquired ownership, a subsequent occupant who enters into a 
Homebuyer's Ownership Opportunity Agreement and who is not a successor 
pursuant to section 25 is herein called ``Subsequent Homebuyer.''
    b. Determination of Initial Purchase Price. The initial purchase 
price for a subsequent Homebuyer shall be an amount equal to (1) the 
purchase price shown in the initial Homebuyer's Purchase Price Schedule 
as of the date of this Agreement with the subsequent Homebuyer plus (2) 
the amount, if any, by which the appraised fair market value of the Home 
determined or approved by HUD as of the same date, exceeds the purchase 
price specified in (1). In the event such appraised value has not been 
determined by the date of execution of this Agreement, the amount of the 
Initial Purchase Price shall be inserted in part I, section D after this 
determination has been made, with appropriate initialling or signing by 
the parties.
    c. Purchase Price Schedule. The Subsequent Homebuyer's Purchase 
Price Schedule shall be the same as the unexpired portion of the initial 
Homebuyer's Purchase Price Schedule except that where his purchase price 
includes an additional amount as specified in paragraph b(2) of this 
section, the initial Homebuyer's Purchase Price Schedule shall be 
followed by an Additional Purchase Price Schedule for such additional 
amount based upon the same monthly debt service and the same interest 
rate as applied to the initial Homebuyer's Purchase Price Schedule.
    18. Transfer of Title to Homebuyer. When the Homebuyer is to obtain 
ownership, a closing date shall be mutually agreed upon by the parties. 
On the closing date, the Homebuyer shall pay the required amount of 
money to the Authority, sign the promissory note pursuant to section 19, 
and receive a deed for the Home.
    19. Payment Upon Resale at Profit-- a. Promissory Note. (1) When a 
Homebuyer (whether Initial or Subsequent Homebuyer) achieves ownership, 
he shall sign a note obligating him to make a payment to the Authority, 
subject to the provisions of paragraph (a)(2) of this section, in the 
event he resells his Home at a profit within 5 years of actual residence 
in the Home after he becomes a Homeowner. If, however, the Homeowner 
should purchase and occupy another Home within one year (18 months in 
case of a newly constructed home) of the resale of the Turnkey III Home, 
the Authority shall refund to the Homeowner the amount previously paid 
by him under the note, less the amount, if any, by which the resale 
price of the Turnkey III Home exceeds the acquisition price of the new 
home, provided that application for such refund shall be made no later 
than 30 days after the date of acquisition of the new home.
    (2) The note to be signed by the Homebuyer pursuant to paragraph 
(a)(1) of this section shall be secured by a second mortgage. The 
initial amount of the note shall be computed by taking the appraised 
value of the Home at the time the Homebuyer becomes a Homeowner and 
subtracting (i) the Homebuyer's purchase price plus the Incidental Costs 
and (ii) the increase in value of the Home, determined by appraisal, 
caused by improvements

[[Page 339]]

paid for by the Homebuyer with funds from sources other than the EHPA or 
NRMR. The note shall provide that this initial amount shall be 
automatically reduced by 20 percent thereof at the end of each year of 
residency as Homeowner, with the note terminating at the end of the 
five-year period of residency, as determined by the Authority. To 
protect the Homeowner, the note shall provide that the amount payable 
under it shall in no event be more than the net profit on the resale, 
that is, the amount by which the resale price exceeds the sum of (i) the 
Homebuyer's purchase price plus the Incidental Costs, (ii) the costs of 
the resale, including commissions and mortgage prepayment penalties, if 
any, and (iii) the increase in value of the Home, determined by 
appraisal, resulting from improvements paid for by him as a Homebuyer 
(with funds other than from the EHPA or NRMR) or as a Homeowner.
    (b) Residency requirements. The five-year note periods does not end 
if the Homeowner rents or otherwise does not use the Home as his 
principal place of residence for any period within the first five years 
after he achieves ownership. Only the actual amount of time he is in 
residence is counted and the note shall be in effect until a total of 
five years time of residence has elapsed, at which time the Homeowner 
may request the Authority to release him from the note, and the 
Authority shall do so.
    20. Responsibilities of Homeowner. After acquisition of ownership, 
the Homeowner shall pay to the Authority or to the Homeowners 
Association, as appropriate, a monthly fee for (a) the maintenance and 
operation of community facilities including utility facilities, if any, 
(b) the maintenance of grounds and other common areas, and (c) such 
other purpose as determined by the Authority or the Homeowners 
Association, as appropriate, including taxes and a provision for a 
reserve.
    21. Homeowners Association--Planned Unit Development (PUD) \4\
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    \4\ If this Home is a Development of scattered sites, delete both 
sections 21 and 22. If this Home is in a Planned Unit Development, 
delete section 22. If this Home is in a Condominium, delete section 21.
---------------------------------------------------------------------------

    If the Development is organized as a planned unit development:
    a. The common areas, sidewalks, parking lots and other common 
property in the Development shall be owned and maintained as provided 
for in the approved planned unit development (PUD) program, except that 
the Authority shall be responsible for maintenance until such time as 
the Homeowners Association assumes such responsibility (see section 12 
above).
    b. The title ultimately conveyed to the Homebuyer shall be subject 
to restrictions and encumbrances to protect the rights and property of 
all other Homeowners. The Homeowners Association shall have the right 
and obligation to enforce such restrictions and encumbrances and to 
assess Homeowners for the costs incurred in connection with common areas 
and property and other responsibilities.
    c. There shall be as many votes in the Association as there are 
Homes in the Development, and at the outset all the voting rights will 
be held by the Authority. As each Home is conveyed to a Homebuyer, one 
vote shall automatically go to that Homebuyer so that when all the Homes 
have been conveyed, the Authority shall no longer have any interest in 
the Homeowners Association.
    d. The Authority shall not lose its majority voting interest in the 
Association as soon as a majority of the Homes have been conveyed, 
unless the law of the state requires control to be transferred at a 
particular time or the Authority so desires. If permitted by state law, 
provisions shall be made for each Home owned by the Authority to carry 
three votes while each Home owned by a Homeowner shall carry one vote. 
Under this weighted voting plan, the Authority will continue to have 
voting control until 75 percent of the Homes have been acquired by 
Homeowners. However, at its discretion, the Authority may transfer 
voting control to the Homeowners when at least 50 percent of the Homes 
have been acquired by the Homeowners.
    22. Homeowners Association--Condominium.\5\ If the Development is 
organized as a condominium:
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    \5\ If this Home is a Development of scattered sites, delete both 
sections 21 and 22. If this Home is in a Planned Unit Development, 
delete section 22. If this Home is in Condominium, delete section 21.
---------------------------------------------------------------------------

    a. The Authority at the outset shall own each condominium unit and 
the undivided interest of such unit in the common areas.
    b. All the land, including that land under the housing units, shall 
be a part of the common areas.
    c. The Homeowners Association shall own no property and shall merely 
maintain and operate the common areas for the individual owners of the 
condominium units, except that the Authority shall be responsible for 
maintenance until such time as the Homeowners Association assumes such 
responsibility (see section 12 above).
    d. The percentage of undivided interest attached to each condominium 
unit shall be based on the ratio of the value of the unit to the value 
of all units and shall be fixed when the Development is completed. This 
percentage shall determine the Homeowner's liability for the maintenance 
of the common areas and facilities.

[[Page 340]]

    e. Each Homeowner vote in the Homeowners Association will be 
identical with the percentage of undivided interest attached to his 
unit.
    f. The Authority shall not lose its majority voting interest in the 
Association as soon as units representing more than 50 percent of the 
value of all units have been conveyed, unless the law of the state 
requires control to be transferred at a particular time or the Authority 
so desires. For voting purposes, until units representing 75 percent of 
the value of all units have been acquired by Homeowners, the total 
undivided interest attributable to the Homes owned by the Authority 
shall be multiplied by three, if such weighted voting plan is permitted 
by state law. Under this plan, the Authority will continue to have 
voting control until units representing 75 percent of the value of all 
units have been acquired by Homeowners. However, at its discretion the 
Authority may transfer voting control to the Homeowners when units 
representing at least 50 percent of the value of all units have been 
acquired by the Homeowners.
    23. Relationship of Homeowners Association to Homebuyers 
Association. The Homebuyers Association and the Authority may make 
arrangements with the Homeowners Association to permit Homebuyers to 
participate in Homeowners Association matters which affect the 
Homebuyers. Such arrangements may include rights to attend meetings and 
to participate in Homeowners Association deliberations and decisions.
    24. Termination of Agreement-- a. Termination by the Authority--(1) 
In the event the Homebuyer should breach this Agreement by failure to 
make a required Monthly Payment within 10 days after its due date, by 
misrepresentation or withholding of information in applying for 
admission or in connection with any subsequent reexamination of income 
and family composition, or by failure to comply with any other Homebuyer 
obligation under this Agreement, the Authority may terminate this 
Agreement 30 days after giving the Homebuyer notice of its intention to 
do so in accordance with paragraph (2) of this section.
    (2) Notice of termination by the Authority shall be in writing. Such 
notice shall state (i) the reason for termination, (ii) that the 
Homebuyer may respond to the Authority, in writing or in person, within 
a specified reasonable period of time regarding the reason for 
termination, (iii) that in such response he may be represented or 
accompanied by a person of his choice, including a representative of the 
HBA, (iv) that the Authority will consult the HBA concerning the 
termination, and (v) that, unless the Authority rescinds or modifies the 
notice, the termination will be effective at the end of the 30-day 
notice period.
    b. Termination by the Homebuyer. The Homebuyer may terminate this 
Agreement by giving the Authority 30 days notice in writing of his 
intention to terminate and to vacate the Home. In the event that the 
Homebuyer vacates the Home without notice to the Authority, this 
Agreement shall be terminated automatically and the Authority may 
dispose of, in any manner deemed suitable by it, any items of personal 
property left by the Homebuyer in the Home.
    c. Transfer to rental unit. (1) Inasmuch as the Homebuyer was found 
eligible for admission to the Project on the basis of having the 
necessary elements, of potential for Homeownership, continuation of 
eligibility requires continuation of this potential, subject only to 
temporary unforeseen changes in circumstances. The standards of 
potential for Homeownership are the following:
    (i) Income sufficient to result in a required monthly payment which 
is not less than the sum of the amounts necessary to pay the EHPA, the 
NRMR, and the estimated average monthly cost of utilities attributable 
to the Home;
    (ii) Ability to meet all the obligations of a Homebuyer under the 
Homebuyers Ownership Opportunity Agreement;
    (iii) At least one member gainfully employed, or having an 
established source of continuing income.
    (2) Accordingly, in the event it should develop that the Homebuyer 
no longer meets one or more of these elements of Homeownership 
potential, the Authority shall investigate the circumstances and provide 
such counseling and assistance as may be feasible in order to help the 
family overcome the deficiency as promptly as possible. After a 
reasonable time, not to exceed 30 days from the date of evaluation of 
the results of the investigation, the Authority shall make a re-
evaluation as to whether the family has regained the potential for 
Homeownership or is likely to do so within a further reasonable time, 
not to exceed 30 days from the date of the re-evaluation. Further 
extension of time may be granted in exceptional cases, but in any event 
a final determination shall be made no later than 90 days from the date 
of evaluation of the results of the initial investigation. The Authority 
shall invite the HBA to participate in all investigations and 
evaluations.
    (3) If the final determination of the Authority, after considering 
the views of the HBA, is that the Homebuyer should be transferred to a 
suitable dwelling unit in an Authority rental project, the Authority 
shall give the Homebuyer written notice of the Authority determination 
of the loss of Homeownership potential and of the offer of transfer to a 
rental unit. The notice shall state that the transfer shall occur as 
soon as a suitable rental unit is available for occupancy but no earlier 
than 30 days from the

[[Page 341]]

date of the notice, provided that an eligible successor for the 
Homebuyer unit has been selected by the Authority. The notice shall also 
state that if the Homebuyer should refuse to move under such 
circumstances, the family may be required to vacate the Homebuyer unit, 
without further notice. The notice shall include a statement (i) that 
the Homebuyer may respond to the Authority in writing or in person, 
within a specified reasonable time, regarding the reason for the 
determination and offer of transfer, (ii) that in such response he may 
be represented or accompanied by a person of his choice including a 
representative of the HBA, and (iii) that the Authority has consulted 
the HBA concerning this determination and offer of transfer.
    (4) When a Homebuyers Ownership Opportunity Agreement is terminated 
pursuant to this paragraph 24c, the amount in the Homebuyer's EHPA shall 
be paid in accordance with the provisions of paragraph 10k of this 
Agreement.
    25. Survivorship. (1) In the event of death, mental incapacity or 
abandonment of the family by the Homebuyer, the person designated as the 
successor in part I of this Agreement shall succeed to the rights and 
responsibilities under the Agreement if that person is an occupant of 
the Home at the time of the event and is determined by the Authority to 
meet all of the standards of potential for homeownership as set forth in 
section 24a. This designation may be changed by the Homebuyer at any 
time. If there is no such designation or the designee is no longer an 
occupant of the Home or does not meet the standards of potential for 
homeownership, the Authority may consider as the Homebuyer any family 
member who was in occupancy at the time of the event and who meets the 
standards of potential for homeownership.
    (2) If there is no qualified successor in accordance with the above, 
the Authority shall terminate the Agreement and another family shall be 
selected, except under the following circumstances: where a minor child 
or children of the Homebuyer family are in occupancy, then in order to 
protect their continued occupancy and opportunity for acquisition of 
ownership of the Home, the Authority may approve as occupants of the 
unit, an appropriate adult(s) who has been appointed legal guardian of 
the children with a duty to perform the obligations of the Homebuyers 
Ownership Opportunity Agreement in their interest and behalf.
    26. Nonassignability and Use of Reserves and Accounts-- a. 
Nonassignability. The Homebuyer shall not assign this Agreement, or 
assign, mortgage or pledge any right or interest in the Home or in this 
Agreement including any right or interest in any reserve or account, 
except with the prior written approval of the Authority and HUD.
    b. Use of Reserves and Accounts. It is understood and agreed that 
the Homebuyer shall have no right to receive or use the money in any 
reserve or account created pursuant to this Agreement except for the 
limited purposes and under the special circumstances set forth by the 
terms of this Agreement. It is further understood and agreed that both 
the Authority and HUD have a financial and a governmental interest in 
the Earned Home Payments Account and other reserves as security for the 
financial integrity of the Development, as a means of savings in cost to 
the Government by minimizing the amount and period over which HUD annual 
contributions must be paid, and as a means of advancing the public 
interest and welfare by assisting low-income families to achieve 
homeownership.
    27. Notices. Any notice required hereunder or by law shall be 
sufficient if delivered in writing to the Homebuyer personally or to an 
adult member of his family residing in the dwelling unit or if sent by 
certified mail, return receipt requested, properly addressed to the 
Homebuyer, postage prepaid. Notice to the Authority shall be in writing, 
and either delivered to any Authority employee at the office of the 
Authority or sent to the Authority by certified mail, properly 
addressed, postage prepaid.
    28. Grievance Procedure. All grievances or appeals arising under 
this Agreement shall be processed and resolved pursuant to the grievance 
procedure of the Authority, which procedure shall provide for 
participation of the HBA in the grievance process. This grievance 
procedure shall be posted in the Authority's Office.

[39 FR 10966, Mar. 22, 1974. Redesignated at 49 FR 15580, Apr. 7, 1975. 
Redesignated at 49 FR 6714, Feb. 23, 1984, and amended at 49 FR 21490, 
May 21, 1984]

Appendix III to Subpart B of Part 904--Certification of Homebuyer Status

                               (Subpart B)

State of ----------
County of ----------
This is to certify that_________________________________________________
                                                             (Homebuyer)
of the Home located at --------------:
    (1) Has achieved, within the first two years of his occupancy a 
balance in his Earned Home Payments Account (EHPA) of at least --------
-- dollars (representing 20 times the amount of the monthly EHPA credit 
applicable to said Home);
    (2) Has met and is continuing to meet the requirements of his 
Homebuyers Ownership Opportunity Agreement; and

[[Page 342]]

    (3) Has rendered and is continuing to render satisfactory 
performance of his responsibilities to the Homebuyers Association.
    Accordingly, said Homebuyer may, upon payment of the purchase price, 
exercise the option to purchase the Home in accordance with and subject 
to the provisions of his Homebuyers Ownership Opportunity Agreement.
Housing Authority_______________________________________________________
By______________________________________________________________________
 (Signature and official title)

(Date) --------------------
Homebuyers Association__________________________________________________
By______________________________________________________________________
 (Signature and official title)

(Date) --------------------

 Appendix IV to Subpart B of Part 904--Promissory Note for Payment upon 
                      Resale by Homebuyer at Profit

                               (Subpart B)

FOR VALUE RECEIVED,_____________________________________________________
(Homeowner) promises to pay to__________________________________________
(Authority) or order, the principal sum of -------------------- \1\ 
Dollars ($--------), without interest, on the date of resale by the 
Homeowner of the property conveyed by the Authority to the Homeowner.
    Such principal sum shall be reduced automatically by 20 percent of 
the initial amount at the end of each year of such residency, as a 
Homeowner, and this note shall terminate at the end of five years of 
such residency, as determined by the Authority; Provided, however, that 
the amount payable under this note shall in no event be more than the 
net profit on the resale, that is, the amount by which the resale price 
exceeds the sum of (1) the Homeowner's purchase price, (2) the costs 
incidental to his acquisition of ownership, (3) the costs of the resale, 
including commissions and mortgage prepayment penalties, if any, and (4) 
the increase in value of the Home, determined by appraisal, due to 
improvements paid for by the Homeowner whether as a Homebuyer (with 
funds from sources other than his Earned Home Payments Account or his 
Nonroutine Maintenance Reserve) or as a Homeowner.
---------------------------------------------------------------------------

    \1\ Amount determined in accordance with section 19 of the 
Homebuyers Ownership Opportunity Agreement.
---------------------------------------------------------------------------

    If the Homeowner shall pay this note at the time and in the manner 
set forth above, or if, by its provisions, the amount of this note shall 
be zero, then the note shall terminate and the Authority shall, within 
thirty (30) days after written demand therefor by the Homeowner, execute 
a release and satisfaction of this note. The Homeowner hereby waives the 
benefits of all statutes or laws which require the earlier execution or 
delivery of such release and satisfaction by the Authority.
    Presentment, protest, and notice are hereby waived.

Dated ----------, 19----
Local Housing Authority_________________________________________________

By: --------------------(Homeowner)
-------------------- (Homeowner's Spouse)



             Subpart C_Homeownership Counseling and Training



Sec. 904.201  Purpose.

    The purpose of the counseling and training program shall be to 
assure that the homebuyers, individually and collectively through their 
homebuyers association (HBA), will be more capable of dealing with 
situations with which they may be confronted, making decisions related 
to these situations, and understanding and accepting the responsibility 
and consequences that accompany those decisions.



Sec. 904.202  Objectives.

    The counseling and training program should seek to achieve the 
following objectives:
    (a) Enable the potential homebuyer to have a full understanding of 
the responsibilities that accompany his participation in the 
Homeownership Opportunity Program;
    (b) Enable the potential homebuyer to have an understanding of 
homeownership tasks with specific training given to individuals as the 
need and readiness for counseling or training indicates;
    (c) Assure that the role of the HBA is understood and plans for its 
organization are initiated at the earliest practical time;
    (d) Develop an understanding of the role of the LHA and of the need 
for a cooperative relationship between the homebuyer and the LHA;
    (e) Encourage the development of self-help by the homebuyer through 
reducing dependency and increasing independent action;
    (f) Develop an understanding of mutual assistance and cooperation 
that will develop a feeling of self-respect, pride and community 
responsibility;
    (g) Develop local resources that can be of assistance to the 
individual and the community on an on-going basis.

[[Page 343]]



Sec. 904.203  Planning.

    (a) The counseling and training program shall be flexible and 
responsive to the needs of each prospective homebuyer. While many 
subjects lend themselves to group sessions, consideration shall be given 
to individual counseling. Individuals should not be required to attend 
training classes on subject matter they are familiar with unless they 
can actively participate in the instruction process.
    (b) The program may be provided by contract with an outside 
organization, or by the LHA staff, in either case with voluntary 
involvement and assistance of groups and individuals within the 
community. It is essential that the training entity be completely 
knowledgeable and supportive of the entire Homeownership Opportunity 
Program. It may be recognized that most of the objectives stated require 
specialized instructional skill and content knowledge. There shall be 
recognition of the differences in communication and in value systems, 
and an understanding and respect for past experience of the individual. 
Maximum possible use shall be made of indigenous trainers to insure good 
communication and rapport. Special attention shall be directed to the 
needs of working members of the family for counseling and training 
sessions to be held where and during the time they can attend. Where the 
services of outside contractors are utilized, there shall be a close 
working relationship with the LHA and a program for phasing in LHA staff 
who will have the on-going responsibility for the program. The value of 
local agencies, educational institutions, etc., for implementing the 
program rather than an outside firm shall be carefully considered since 
the continuing presence of such agencies and institutions in the 
community can often develop into an on-going resource beyond the 
contract period.
    (c) In planning a homeownership counseling and training program, 
whether self-administered or contracted, the LHA shall consult with HUD 
for advice and information on programs, qualified contractors, local 
resources, reasonable costs, and other similar matters.
    (d) Where the program is to be contracted to an outside group, 
proposals shall be secured either by public advertising or by sending 
requests for proposals to a number of competent public or private 
organizations.
    (e) In areas where there are large concentrations of homebuyers who 
do not read, write, or understand English fluently, the native language 
of the people shall be used. If feasible all instructional materials 
shall be in both languages.



Sec. 904.204  General requirements and information.

    (a) The counseling and training program shall be designed to meet 
the needs of the homebuyers and be sufficiently flexible to meet new 
needs as they arise. The nature of the program suggests four phases of 
counseling: (1) Pre-occupancy; (2) move-in; (3) post-occupancy; (4) 
assistance to the HBA. While some elements of the program lend 
themselves more to one phase than another, the program areas shall be 
coordinated and interrelated. It is recommended that the entity 
providing these services work closely with the participants and ensure 
that policies established are agreeable to both the LHA and the 
homebuyer.
    (b) The following is a description of major elements of the program 
which experience thus far has shown to be relevant. More detailed 
information is set forth in Appendix I, ``Content Guide for Counseling 
and Training Program.''
    (1) Pre-occupancy phase. The purpose of this phase is to prepare the 
selected families to assume the responsibilities of homeownership, and 
to provide an opportunity for the LHA and each family to reassess the 
family's potential for successful participation in the homeownership 
development.
    (i) An overload of information should be avoided in this phase since 
many of the subjects will be dealt with in greater depth after the 
family is in occupancy, and experience has shown that much of the 
information will be more relevant at that time.
    (ii) This phase should be completed for each family before the 
beginning of its occupancy.
    (2) Move-in phase. During this phase, the counseling and training 
staff

[[Page 344]]

should be available to the homebuyers on an individual basis. Services 
may include (i) inspecting the units, interior and exterior, with the 
homebuyers and a representative of the LHA, (ii) testing appliances and 
equipment, (iii) providing information on the moving process (packing, 
trucks, etc.), and (iv) assisting homebuyers in making adjustments 
occasioned by the move, serving as liaison among homebuyers, LHA, 
builder and other agencies, and assisting homebuyers in meeting new 
neighbors.
    (3) Post-occupancy phase. Before this phase begins, a period 
(possibly one month) should elapse to allow homebuyers an opportunity to 
adjust to their new surroundings. This is a time when new questions and 
problems come to light that can be dealt with in further counseling and 
training. This phase should be designed to cover many of the same basic 
subjects as the pre-occupancy phase, both by review and refresher where 
necessary but in much greater depth.
    (4) Assistance to the HBA. The parties responsible for the 
counseling and training program shall be responsible for the formation, 
incorporation, and development of the HBA, including the execution of 
the Recognition Agreement between the LHA and HBA, as provided in 
subpart D of this part.



Sec. 904.205  Training methodology.

    Equal in importance to the content of the pre- and post-occupancy 
training is the training methodology. Because groups vary, there should 
be adaptability in the communication and learning experience. Methods to 
be utilized may include group presentations, small discussion groups, 
special classes, and workshops. Especially important to a successful 
program are individual family home visits for discussion and instruction 
on unique problems and operation of equipment.



Sec. 904.206  Funding.

    (a) Source of funds. For purpose of funding counseling and training 
pursuant to this subpart and for establishing the HBA, the LHA shall 
include an amount equal to $500 per dwelling unit in the development 
cost budget. If additional funds should be needed for any of these 
purposes, the LHA with the assistance of the CPC, if any, shall explore 
all other possible sources of services and funds.
    (b) Planned use of $500-per-unit funds. These funds are to be used 
to pay for:
    (1) Pre- and post-occupancy counseling and training;
    (2) Establishment and initial operation of the HBA (for operation in 
the management phase, see Sec. 904.305).

In planning the use of these funds, the LHA shall recognize that for a 
number of years after the initial counseling and training there is 
likely to be some turnover and follow-up counseling and training needs. 
Therefore, the LHA shall limit the amounts for the counseling and 
training of the initial homebuyers and shall reserve a reasonable amount 
for future counseling and training needs during the management phase of 
the development.
    (c) Period of availability of $500-per-unit funds. These funds shall 
be available during the development phase, and a specific amount shall 
be set aside, in accordance with paragraph (b) of this section, to be 
used for ongoing needs after the close of the development period.
    (d) Budgeting of $500-per-unit funds. (1) The Development Cost 
Budget submitted with the Development Program shall include an estimated 
amount for counseling and training program costs. However, such costs 
shall not be incurred until after HUD approval of the counseling and 
training program.
    (2) Upon HUD approval of the counseling and training program, the 
LHA shall include the approved amount in its Contract Award Development 
Cost Budget. This amount shall constitute the maximum amount that may be 
included for such purposes in the project development cost; provided 
that, if the approved amount is less than $500 per dwelling unit, it 
may, if necessary, be amended with HUD approval, but not later than the 
Final Development Cost Budget and subject to the $500-per-unit 
limitation.
    (e) Application for approval of counseling and training program. (1) 
The LHA shall submit an application for approval of a counseling and 
training program and for approval of funds therefor. This application 
shall be submitted

[[Page 345]]

to HUD at the time of the submission of the development program or as 
soon thereafter as possible but no later than the submission of the 
working drawings and specifications.
    (2) The application shall include a narrative statement outlining 
the counseling and training program, including any services and funds to 
be obtained from other sources, together with copies of any proposed 
contract and other pertinent documents. This statement shall include the 
following:
    (i) Indication that the training entity is completely knowledgeable 
of the Homeownership Opportunity Program and is aware of the needs and 
problems of prospective homebuyers;
    (ii) The method and/or instruments to be used to determine 
individual training and counseling needs;
    (iii) The scope of the proposed program, including a detailed 
breakdown of tasks to be performed, products to be produced, and a time 
schedule, including provision for progress payments for specific tasks;
    (iv) An outline of the proposed content of the counseling and 
training to be provided, and the local community resources to be 
utilized;
    (v) The methods of counseling and training to be utilized;
    (vi) The experience and qualifications of the organization and of 
personnel who will directly provide the counseling and training;
    (vii) The estimated cost, source of funds, and methods of payment 
for the tasks and products to be performed or produced, including 
estimates of costs for each of the following categories:
    (a) Counseling and training during development phase:

Salaries
Materials, supplies and expendable equipment
Contract costs
Other costs

    (b) Establishment and initial operation of HBA
    (c) Counseling and training during management phase



Sec. 904.207  Use of appendix.

    A Content Guide for Counseling and Training Program (Appendix I) is 
provided as further detailed information for consideration in designing 
the counseling and training program. The items set forth therein are not 
to be considered mandatory.

 Appendix I to Subpart C of Part 904--Content Guide for Counseling and 
                            Training Program

                               (Subpart C)

    Inclusion of the following items in the Counseling and Training 
Program should be considered, keeping in mind that the extent to which 
they are covered will depend on specific needs of homebuyers in the 
given development.

                           preoccupancy phase

    1. Explanation of program. Includes the background and a full 
description of the program with special emphasis on the financial and 
legal responsibilities of the homebuyers, the HBA, and the LHA; and a 
review for homebuyers of the computation of the monthly payment and of 
the accumulation and purpose of EHPA and reserves.
    2. Property care and maintenance. Includes making homebuyers 
generally familiar with the overall operation of the home, including 
fixtures, equipment, interior designing, and building and equipment 
warranties, and the appropriate procedures for obtaining services and 
repairs to which the homebuyers may be entitled. (This aspect will 
probably have to be covered in more detail during the Post-Occupancy 
Phase.)
    3. Money management. Includes budgeting, consumer education, credit 
counseling, insurance, utility costs, etc.
    4. Developing community. Includes a view of the surrounding 
community, and especially how the homebuyer relates to it as an 
individual and as a member of the HBA.
    5. Referrals. Includes information as to community resources and 
services where assistance can be obtained in relation to individual or 
family problems beyond the scope of the contract agency. This may 
include referrals to community services that can upgrade employment 
skills, provide legal services, offer educational opportunities, care 
for health and dental needs, care for children of working mothers, 
provide guidance in marital problems and general family matters, 
including drugs and alcohol.

                          post-occupancy phase

    1. Home maintenance. This should include builder responsibility, 
identification of minor and major repairs, instructions on do-it-
yourself repairs and methods of having major repairs completed.
    2. Money management. This should involve an in-depth study of the 
legal and financial aspects of consumer credit, savings and investments, 
and budget counseling.

[[Page 346]]

    3. Developing community. This will consist primarily of creating an 
awareness on the part of the homebuyer of the nature and function of the 
HBA and the value of his participation in, and working through, the HBA 
as a responsible member of his community. By this means much will be 
learned about relationships with neighbors, community cooperation, and 
the ways in which individual and group problems are solved.

                               other items

    In addition to the above, there are other needs and concerns, 
especially those expressed by the homebuyers, that may be dealt with in 
special classes or workshops. These may include such topics as child 
care, selection of furnishings, decorating and furnishing, refinishing 
of furniture, upholstery, sewing, food and nutrition, care of clothing, 
etc.



                 Subpart D_Homebuyers Association (HBA)



Sec. 904.301  Purpose.

    (a) It is essential that the homebuyers have an organized vehicle 
for pursuing their common interests, for effectively representing the 
needs of residents in dealing with the LHA, and for undertaking eventual 
management responsibility for the development. Although this 
organization, called the homebuyers association (HBA), shall be 
representative of the homebuyers and independent of the LHA, it shall be 
the responsibility of the LHA and the training and counseling staff to 
assist the homebuyers in their initial efforts at organization.
    (b) Except as noted in Sec. 904.307, each Turnkey III development 
shall have an HBA. There shall be a separate HBA for each development or 
developments where there is a physical and financial community of 
interest.



Sec. 904.302  Membership.

    Every family entitled to occupancy pursuant to a Homebuyers 
Ownership Opportunity Agreement and every family which is a homeowner 
shall automatically be a member of the HBA.



Sec. 904.303  Organizing the HBA.

    (a) The HBA should be organized and incorporated as early in the 
life of the development as is feasible, in order to allow selected 
homebuyers an opportunity to meet each other and begin forging a sense 
of community, but in any case the HBA shall be organized and 
incorporated no later than the date on which 50 percent of the 
homebuyers have been selected. Interim officers and directors shall be 
designated as part of the initial organization of the HBA to serve until 
full-term officers and directors are elected. Such full-term officers 
and directors shall be elected when 60 percent of the homebuyers are in 
occupancy, but, in any event, not later than one year from the date the 
first home is occupied.
    (b) The LHA, in cooperation with the CPC, if any, shall be 
responsible for assuring that competent counseling and training 
assistance pursuant to Subpart C of this part will be provided in 
organizing the HBA. These services shall be continued until the HBA is 
fully operational.
    (c) The provision of such services shall include at least the 
following functions:
    (1) Assembling homebuyers for initial orientation and planning;
    (2) Explaining to homebuyers the structure and functions of an HBA 
and the rights and responsibilities of the HBA and the LHA;
    (3) Aiding in the preparation of charters, by-laws, contracts with 
the LHA and other appropriate documents;
    (4) Assisting in the formation of the organization, including such 
things as the initial designation of interim officers and directors and 
subsequent election of full-term HBA officers and directors, and the 
establishment of necessary committees, if any.
    (d) The LHA and the HBA shall execute an agreement recognizing the 
HBA as the official representative of the homebuyers, and establishing 
the functions, rights, and responsibilities of both parties (see 
Appendix II). This agreement shall be executed as soon as possible after 
incorporation of the HBA.



Sec. 904.304  Functions of the HBA.

    (a) Subject to possible variations agreed to by the HBA and approved 
by HUD, the functions of the HBA shall include the following:
    (1) Representing its members, individually and collectively, with 
respect to any deficiencies in the development

[[Page 347]]

or in the homes and with respect to fulfillment of the construction 
contract and related warranties;
    (2) Representing its members, individually and collectively, in 
their relationships with the LHA and others in regard to financial 
matters such as monthly payments, credits to and charges against 
reserves, settlement upon vacating the home, acquisition of ownership, 
and other matters pertaining to operation and management of the 
development;
    (3) Recommending policies and rules to the LHA for operation and 
management including rules concerning use of the common areas and 
community facilities;
    (4) Participating in the operation of official grievance mechanisms;
    (5) Advising and assisting its members regarding procedures and 
practices relative to the Earned Home Payments Account and the 
acquisition of homeownership;
    (6) Participating with the LHA in periodic maintenance inspections 
of homes after occupancy, and making recommendations in case of 
disagreements arising out of maintenance inspections;
    (7) Participating with the LHA in the selection of subsequent 
homebuyers;
    (8) Coordinating, supervising, or managing the operation of credit 
union, child care, or other supportive services established for the 
development;
    (9) Participating with the LHA in the establishment and 
implementation of policies related to collection of monthly payments, 
termination of occupancy, and resolution of hardship situations; and
    (10) Performing management services as specified under contract with 
the Authority or with the Homeowners Association and participating in 
other activities pursuant to agreement with the LHA or with the 
Homeowners Association.
    (b) In addition, the HBA may offer such special services as the 
following:
    (1) The development of self-help such as consumer clubs, furniture 
and other co-ops, credit unions, transportation pools, and skill pools;
    (2) Assisting homebuyers in acquiring group insurance;
    (3) Developing programs and contracting for services such as child 
care centers to be located in the community facility where such a 
facility exists;
    (4) Assisting homebuyers in their employment, especially by 
participating in skill development and apprenticeship programs in 
cooperation with local educational organizations;
    (5) Assisting homebuyers in planning the management role of the HBA 
and in negotiating any contract for management services with the LHA.



Sec. 904.305  Funding of HBA.

    (a) In addition to providing the HBA with noncash contributions such 
as office space and duplicating services, the LHA shall make cash 
contributions for operating expenses of the HBA, in the amount provided 
for in paragraph (b) of this section. Until the project goes into 
management, these contributions shall be made from the development funds 
budgeted for the counseling and training program (see Sec. 904.206). 
Thereafter, these contributions shall be provided for in the annual 
operating budgets of the LHA.
    (b) The cash contributions pursuant to paragraph (a) of this section 
shall be in the amount provided for in the LHA budget (development cost 
budget or annual operating budget, as the case may be) and approved by 
HUD. Such contributions shall be subject to whatever restrictions are 
applied by HUD to the funding of tenant councils generally, but they 
shall not exceed $3 per year per dwelling unit; provided that as an 
incentive to the HBA to provide additional funds from other sources such 
as homebuyer's dues, contributions, revenues from special projects or 
activities, etc., the LHA shall, to the extent approved by HUD in the 
LHA budget, match such additional funds beyond the $3 up to a maximum of 
$4.50, for a total LHA share of $7.50 where the total funding for the 
HBA is $12 or more. The HBA shall not be precluded from seeking to 
achieve total funding in excess of $12 per unit where this can be done 
with additional funds from sources other than the LHA. Furthermore, 
funding by the LHA for the normal expenses of the HBA is not to be 
confused with fees paid pursuant to

[[Page 348]]

management services contracts as described in Sec. 904.306.



Sec. 904.306  Performing management services.

    The LHA may also contract with the HBA to perform some or all of the 
functions of project management for which the HBA may be better suited 
or located than the LHA. Such functions may include security, 
maintenance of common property, or collection of monthly payments. For 
this purpose, the HBA may form a management corporation and the officers 
of the HBA shall be the directors of such corporation. This corporation 
and the LHA shall then negotiate a management services contract. Such 
arrangements are consistent with the objective of providing for maximum 
participation by residents in the management of their developments. As 
an alternative, the HBA and the LHA may elect to undertake any other 
arrangement approved by HUD.



Sec. 904.307  Alternative to HBA.

    Where the homes are on scattered sites (noncontiguous lots 
throughout a multi-block area, with no common property), or where the 
number of homes may be too few to support an HBA, and where an 
alternative method for homebuyer representation and continuing 
counseling is provided, an HBA shall not be required. For such cases, a 
modified form of homebuyers association may be called for or a less 
formal organization may be desirable. This decision shall be made 
jointly by the LHA and the homebuyers, acting on the recommendation of 
HUD.



Sec. 904.308  Relationship with homeowners association.

    The HBA and the homeowners association are, in legal terms, separate 
and distinct organizations with different functions. The homeowners 
association may hold title to and be responsible for maintenance of 
common property (see Sec. Sec. 904.119 and 904.120), while the HBA has 
more general service and representative functions. While all residents 
are members of the HBA, only those who have acquired title to their 
homes are members of the homeowners association.



Sec. 904.309  Use of appendices.

    Use of the Articles of Incorporation (Part I of Appendix I) and the 
Recognition Agreement between the Local Housing Authority and Homebuyers 
Association (Appendix II) is mandatory for projects developed under 
subpart B of this part which have homebuyers associations. No 
modification may be made in format, content or text of these Appendices 
except (1) as required under state or local law as determined by HUD or 
(2) with approval of HUD. The By-Laws of the Homebuyers Association is 
provided as a guide for such projects and it may be used or modified to 
the extent required by the HBA and LHA respectively to meet local needs 
and desires.

 Appendix I to Subpart D of Part 904--Articles of Incorporation and By-
              Laws of -------------- Homebuyers Association

                               (Subpart D)

Part I--Articles of Incorporation

In compliance with the requirements of__________________________________
________________________________________________________________________
(reference to statute under which incorporation is sought) the 
undesigned, all of whom are natural persons, residents of --------------
------, of full age, have this day voluntarily associated themselves 
together for the purpose of forming a Corporation, not-for-profit, and 
do hereby certify:

                             Article I--Name

The name of the corporation is__________________________________________
-------------- Homebuyers Association (hereinafter referred to as the 
``Association'').

                           Article II--Office

    The principal office of the Association is
located at______________________________________________________________

                           Article III--Agent

    ------------------------, whose address is ------------------------, 
is hereby appointed the initial registered agent of the Association.

                          Article IV--Duration

    The period of duration of the Association is perpetual.

                          Article V--Membership

    Membership in the Association shall be limited to families who are 
entitled to occupancy of a Home in the Development pursuant to a 
Homebuyers Ownership Opportunity

[[Page 349]]

Agreement and families who are Homeowners in the Development, and all 
such families shall automatically be members so long as they are in 
occupancy of a Home. For purposes of these Articles, the term 
``Development'' includes the following described Development or 
Developments in the Homeownership Opportunity Program of --------------
------ (hereinafter referred to as the Authority):
________________________________________________________________________
________________________________________________________________________

                          Article VI--Purposes

    The purposes for which this Association is formed shall not result 
in pecuniary gain or profit to the members thereof. These purposes are 
to provide organization and representation for its members in their 
relationships with the Authority in all matters regarding the 
homeownership opportunity program and, if appropriate, to perform 
management responsibilities for the Development under contract with the 
Authority.
    1. In order to carry out these purposes, the Association shall 
perform the following functions:
    a. Represent its members, individually and collectively, with 
respect to any deficiencies in the Development or in the Homes and with 
respect to fulfillment of the construction contract and related 
warranties;
    b. Represent its members, individually and collectively, in their 
relationships with the Authority and others in regard to financial 
matters such as monthly payments, credits to and charges against 
reserves, settlement upon vacating a Home, and acquisition of ownership, 
and other matters pertaining to operation and management of the 
development;
    c. Recommend policies and rules to the Authority for operation and 
management including rules concerning use of the common areas and 
community facilities;
    d. Participate in the operation of official grievance mechanisms;
    e. Advise and assist its members regarding procedures and practices 
relative to their Earned Home Payments Accounts and to their acquisition 
of homeownership;
    f. Participate with the Authority in periodic maintenance 
inspections of the Homes after occupancy and make recommendations in 
case of disagreement arising out of maintenance inspections;
    g. Participate with the Authority in the selection of subsequent 
homebuyers;
    h. Coordinate, supervise, or manage the operation of credit union, 
child care, or other supportive services established for the 
Development;
    i. Participate with the Authority in the establishment and 
implementation of policies related to collection of monthly payments, 
termination of occupancy, and resolution of hardship situations;
    j. Perform management services as specified under contract with the 
Authority or with the Homeowners Association and participate in other 
activities pursuant to agreement with the Authority or with the 
Homeowners Association.
    2. The Association may also offer special services such as:
    a. The development of self-help such as consumer clubs, furniture 
and other co-ops, credit unions, transportation pools, and skill pools;
    b. Assisting Homebuyers in acquiring group insurance;
    c. Developing programs and contracting for services such as child 
care centers to be located in the community facility, where such a 
facility exists;
    d. Assisting Homebuyers in their employment, especially by 
participating in skill development and apprenticeship programs in 
cooperation with local educational organizations; and
    e. Assisting Homebuyers in planning the management role of the 
Association and in negotiating any contract for management services with 
the Authority.

                           Article VII--Powers

    This Association shall have all the powers, privileges, rights and 
immunities which are necessary or convenient for carrying out its 
purposes and which are conferred by the provisions of all applicable 
laws of the State of ------------------ pertaining to non-profit 
corporations.

                          Article VIII--Voting

    There shall be only one vote per Home regardless of the number of 
persons in the family that occupies the Home.

               Article IX--Board of Directors and By-laws

    The affairs of the Association shall be managed by a Board of 
Directors, all of whom shall be members of the Association. The number 
of Directors shall be as provided in the By-Laws of the Association. The 
following persons shall serve as the first Board of Directors and as the 
first officers:

------------------------------------------------------------------------
                       Office                              Address
------------------------------------------------------------------------
                                                     ...................
                                                     ...................
                                                     ...................
------------------------------------------------------------------------

This Board shall manage the affairs of the Association until election of 
their successors by the membership.
    Promptly after 60 percent of the Homes are occupied, or one year 
from the date the first Home is occupied, whichever occurs sooner, the 
Board shall call the first annual meeting of the Association at which 
the members shall adopt By-Laws and elect one-third of

[[Page 350]]

the Board for a term of one year, one-third for a term of two years, and 
one-third for a term of three years. At each annual meeting thereafter 
the members shall elect one-third of the Board for a term of three 
years.

                         Article X--Dissolution

    After all members have acquired ownership of their Homes, the 
Association shall be dissolved with the assent given in writing and 
signed by not less than two-thirds of the members. The dissolution shall 
be effective when all of the assets of the Association remaining after 
payment of its liabilities have been granted, conveyed and assigned in 
such manner as the Association and Authority may mutually agree.

                          Article XI--Amendment

    Amendment of these Articles shall require the assent of 75 percent 
of the entire membership.
    In witness whereof, for the purposes of incorporating this 
Association under the laws of the State of --------------, we, the 
undersigned constituting the incorporators of this Association, have 
executed these Articles of Incorporation this ------ day of ----------, 
19----.

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________
[Witness, Notary, or Acknowledgment as required by state law]

    Note: The following is a suggested form of By-Laws. Different format 
and content to meet local needs may be used. For example, it may be 
considered desirable to combine HBA offices, eliminate or change 
functions of various committees, provide for other committees, etc.

Part II--By-Laws

    The members of the ------------------ Homebuyers Association 
(hereinafter referred to as the ``Association'') do hereby adopt in 
accordance with Article IX of the Articles of Incorporation the 
following By-Laws:
    Section 1. Organization--The affairs of the Association shall be 
managed by a Board of Directors elected by and from the members of the 
Association. The Board shall elect officers of the Association, 
including a President, Vice President, Secretary, and Treasurer, who 
shall carry out such functions and duties as are prescribed by these By-
Laws and the Board.
    Sec. 2. Association meetings-- A. Annual meetings. The Association 
shall have an annual meeting at -------------- (time) on the ----------
-------- (day of week and month) each year for the purpose of 
transacting such business as may be necessary or appropriate. If the 
date of the annual meeting is a legal holiday, the meeting shall be held 
at the same hour on the first day following which is not a legal 
holiday.
    B. Quarterly and special meetings. Between annual meetings, 
quarterly meetings shall be called by the President and be held for the 
purpose of advising the membership of activities of the Board and 
enabling the members to bring up matters of common concern. Special 
meetings may be called at any time (1) by the President with the written 
concurrence of at least two of the other officers or (2) by a petition 
filed with the Secretary stating the purpose of the meeting and signed 
by at least one-fifth of the total number of members in the Association.
    C. Notice of meetings. Written notice of each annual, quarterly or 
special meeting of the members shall be given by, or at the direction 
of, the Secretary by mailing a copy of such notice at least fifteen days 
before an annual or quarterly meeting or at least seven days before a 
special meeting, addressed to each member at the member's address shown 
on the records of the Association. Such notice shall specify the place, 
date, and hour of the meeting and, in the case of a special meeting, the 
purpose of such meeting. No business shall be transacted at any special 
meeting other than that stated in the notice unless by consent of at 
least one-half of the total number of votes of the Association.
    D. Quorum. A quorum at any meeting shall consist of members entitled 
to cast votes which represent at least one-tenth of the votes of the 
Association. If such a quorum is not present, those present shall have 
the power to reschedule the meeting from time to time without notice 
other than an announcement at the meeting until there is a quorum. At 
any rescheduled meeting at which a quorum is present, the only business 
which may be transacted is that which might have been transacted at the 
original meeting.
    E. Voting. Each family shall designate in writing to the Secretary 
the family member who is to cast the family vote. That designee may 
appoint as a proxy for a specific meeting any other member of the 
Association. A proxy must be in writing and filed with the Secretary not 
later than the time that meeting is called to order. Every proxy shall 
be revocable and shall be automatically revoked when the person who 
appointed the proxy attends the meeting or ceases to have voting 
privileges in the Association. Votes represented by proxy shall be 
counted in determining the presence or absence of a quorum at any 
meeting.
    F. Agenda. An agenda shall be prepared for every meeting.
    Sec. 3. Board of Directors-- A. Number of directors. The affairs of 
the Association shall be managed by a Board of ------ Directors,

[[Page 351]]

all of whom shall be members of the Association. The number of Directors 
may be changed by amendment of the By-Laws of the Association.
    B. Term of Office. The Board of Directors shall be elected at the 
annual meeting of the Association. At the first annual meeting, the 
members shall elect ------ \1\ Directors for a term of one year, ------ 
\1\ Directors for a term of two years, and ------ \1\ Directors for a 
term of three years. At each annual meeting thereafter the members shall 
elect ------ \1\ Directors for a term of three years.
---------------------------------------------------------------------------

    \1\ Each group shall be one-third of the total number of Directors.
---------------------------------------------------------------------------

    C. Removal and other vacancies of Directors. Any Director may be 
removed from the Board, for cause, by a majority of the votes of the 
Association at any annual or quarterly meeting or any special meeting 
called for such purpose, provided that the Director has been given an 
opportunity to be heard at such meeting. In the event of death, 
resignation or removal of a Director, his successor shall be elected by 
the remaining members of the Board and shall serve for the unexpired 
term of his predecessor.
    D. Chairman of the Board. At the first regular Board meeting after 
each annual meeting, the Board of Directors shall elect a Chairman from 
among their number.
    E. Compensation. No compensation shall be paid to the Board for its 
services. However, any Director may be reimbursed for his actual expense 
incurred in the performance of his duties, as long as such expense 
receives approval of the Board and is within the approved Association 
budget.
    Sec. 4. Nomination and election of the board-- A. Nomination. 
Nomination for election to the Board of Directors (other than for 
filling of vacancies under section 3. C.) shall be made by the 
Nomination Committee; provided, however, that nominations may also be 
made from the floor at the annual meeting by motion properly made and 
seconded, or by a petition which states the name of the person 
nominated, is signed by members representing at least ten votes, and is 
filed with the Secretary not later than the day prior to the annual 
meeting. Persons nominated must be members of the Association.
    B. Election. Election of the Board of Directors shall be in 
accordance with Section 2.E., and by secret written ballot. The ballots 
shall be prepared by the Secretary. Cumulative voting is not permitted 
(that is, a voter who refrains from voting with respect to one or more 
vacancies may not on that account cast any extra vote or votes with 
respect to another vacancy). The persons receiving the largest number of 
votes shall be elected.
    Sec. 5. Meetings of Directors-- A. Regular meetings. Regular 
meetings of the Board of Directors shall be held monthly at such time 
and hours as may be fixed from time to time by resolution of the Board. 
Notice of time and place of the meetings shall be mailed to each 
Director no later than seven days before the meeting.
    B. Special meetings. Special meetings of the Board of Directors 
shall be held when called by the President of the Association, the 
Chairman of the Board or by any two Directors, after not less than three 
days notice to each Director.
    C. Quorum. A simple majority of the Board shall constitute a quorum 
for the transaction of business. Every act or decision done or made by a 
majority of the Board present at a duly held meeting shall be regarded 
as an act of the Board.
    D. Action taken without a meeting. Any action which could be 
otherwise taken at a Board meeting may be taken in the absence of a 
meeting, by obtaining the written approval of all Directors. Any action 
so approved shall have the same effect as though taken at a meeting of 
the Board.
    Sec. 6. Power and duties of the Board of Directors-- A. Power and 
duties generally. The Board of Directors shall have and exercise all the 
powers, duties, and authority necessary for the administration of the 
affairs and to carry out the purposes of the Association, excepting only 
those acts and things as are required by law, by the Articles of 
Incorporation, or by these By-Laws to be exercised and done by the 
members or their officers.
    B. Powers. The Board shall have the power to: (1) Adopt and publish 
such rules and regulations as are appropriate in the exercise of its 
powers and duties, including but not limited to rules and regulations 
governing the amount and payment of dues, use of common areas and 
facilities and the conduct of the members and their guests thereon, and 
the establishment of penalties for violation of such rules and 
regulations; (2) appoint or designate officers, agents, and employees, 
and make such delegations of authority as in its judgment are in the 
best interest of the Association; (3) declare the office of a member of 
the Board of Directors to be vacant in the event such member shall be 
absent from at least three consecutive regular meetings of the Board of 
Directors.
    C. Duties. It shall be the duty of the Board of Directors to: (1) 
Cause to be kept a complete record of all its acts and Association 
affairs, and to present a statement thereof to the members at the annual 
meeting, or at any special meeting when such statement is requested in 
writing by members representing at least one-fifth of the votes of the 
Association; (2) cause to be prepared an annual audit of the Association 
books to be made at the completion of each fiscal year; (3) cause to be 
supervised all officers, agents, and employees of the Association, and 
see that their duties are properly performed; (4)

[[Page 352]]

procure and maintain adequate liability and hazard insurance on any 
property owned by the Association; (5) cause such officers or employees 
having fiscal responsibilities to be bonded as the Board may deem 
appropriate; (6) cause to be performed the functions listed in Article V 
of the Articles of Incorporation.
    Sec. 7. Association officers and their duties-- A. Election. The 
Board of Directors shall elect the following officers of the 
Association: a President, a Vice President, a Secretary, a Treasurer, 
and such other special officers as, in the opinion of the Board, the 
Association may require. The President and Vice President shall be 
elected from members of the Board. The election of officers shall take 
place biennially at the first meeting of the Board of Directors 
following the annual meeting of the members.
    B. Term. The officers shall hold office for two years unless they 
shall resign sooner, be removed, or otherwise be disqualified to serve; 
provided, however, that special officers shall hold office for such 
period as the Board may determine, but not to exceed one year.
    C. Removal and resignation. Any officer may be removed from office, 
for cause, by the Board. Any officer may resign at any time by giving 
written notice to the Board, the President or the Secretary. Such 
resignation shall take effect on the date of receipt of such notice or 
at any later time specified therein; and unless otherwise specified 
therein, the acceptance of such resignation shall not be necessary to 
make it effective.
    D. Vacancies. A vacancy in any office may be filled by appointment 
by the Board. The officer appointed to such vacancy shall serve for the 
remainder of the term of the officer he replaces.
    E. Multiple Officers. No person shall simultaneously hold more than 
one of the offices required by these By-Laws.
    F. Duties. The duties of the officers are as follows:
    (1) President. The President shall preside at all Association 
meetings; shall execute the orders and resolutions of the Board; shall 
sign all leases, mortgage, deeds, and other written instruments; and 
shall cosign with the Treasurer all checks and promissory notes.
    (2) Vice President. The Vice President shall act in place and stead 
of the President in the event of his absence or disability and shall 
exercise and discharge such other duties as may be required of him by 
the Board.
    (3) Secretary. The Secretary shall record the votes and keep the 
minutes of all meetings and proceedings of the Board and of the 
Association; shall keep the corporate seal of the Association and affix 
it on all papers requiring said seal; shall serve notice of the meetings 
of the Board and of the Association; shall keep appropriate current 
records showing the names and addresses of the members of the 
Association; and shall perform such duties as may be required by the 
Board.
    (4) Treasurer. The Treasurer shall receive and deposit in 
appropriate bank accounts all funds of the Association and shall 
disburse such funds as directed by resolution of the Board of Directors; 
shall cosign with the President all checks and promissory notes of the 
Association; shall keep proper books of account; and shall prepare an 
annual budget and statement of income and expenditures which shall be 
approved by the Board before presentation to the Association at its 
regular annual meeting, and furnish a copy to each of the members.
    (5) Special officers. Special officers shall have such authority and 
perform such duties as the Board may determine.
    (6) Compensation. Officers may not be compensated except as may be 
determined by the Board, in accordance with the approved Association 
budget.
    Sec. 8. Committees. A. Committees to be established. The Board of 
Directors shall establish the following committees:
    (1) Representation Committee which shall represent members, 
individually and collectively, with respect to: any deficiencies in the 
Development or the individual Homes therein; fulfillment of the 
construction contract and related warranties; relationships with the 
Authority and others in regard to financial matters such as monthly 
payments, credits to and charges against reserves, settlement upon 
vacating the home, and acquisition of ownership; matters pertaining to 
project management; and matters in the Authority's official grievance 
mechanisms.
    (2) Rules Committee which shall present to the Board for 
recommendation to the Authority policies for operation and management 
and, where appropriate, assist the Board in establishing Association 
rules in that respect.
    (3) Homeownership Committee which shall advise and assist members in 
regard to maintenance and acquisition of ownership of their homes, 
financial matters and other matters related to homeownership and home 
management.
    (4) Selection Committee which shall recommend proposed homebuyers 
from a list of eligible applicants.
    (5) Nominating Committee which shall consist of a chairman, who 
shall be a member of the Board of Directors, and two or more members of 
the Association, none of whom are Directors. The Nominating Committee 
shall be appointed by the Board of Directors prior to each annual 
meeting, to serve from the close of such annual meeting until the close 
of the next annual meeting and such appointment shall be announced at 
each annual meeting. The Nominating Committee shall make as many 
nominations for election

[[Page 353]]

to the Board of Directors as it shall in its discretion determine, but 
not less than the number of vacancies to be filled.
    B. Other committees. The Board may establish other committees, 
permanent or temporary, which it deems necessary or desirable to carry 
out the purposes of the Association.
    C. Committee Chairman and Members. The chairmen of all committees, 
except the Nominating Committee, shall be appointed by and serve at the 
pleasure of the President. Committee members shall be appointed by the 
chairman of the committee on which they are to serve and shall serve 
until a new chairman is appointed.
    D. Committee Reports. The chairman of each committee shall make a 
report to the President in writing of committee meetings and activities 
prior to each regular monthly meeting of the Board of Directors.
    E. Authority. Unless specifically authorized in writing by the Board 
of Directors or the President, a committee chairman or a committee shall 
have no authority to legally obligate the Association or incur any 
expenditure on behalf of the Association.
    Sec. 9. Suspension of rights. The Board may suspend, by a majority 
vote of the Board, the voting rights and rights to use the recreational 
facilities, of a member, and his family and guests, during any period in 
which the member shall be in default in the payment of any dues or 
assessment imposed by the Association. Such rights may also be 
suspended, after notice and hearing, for a period not to exceed sixty 
days, for violation of the Association's rules and regulations.
    Sec. 10. Books and records. The books, records and papers of the 
Association shall at all times, during reasonable business hours, be 
subject to inspection by any member.
    Sec. 11. Amendments. Amendments to these By-Laws may be introduced 
and discussed at any annual or special meeting of the Association, 
provided that copies of any proposed amendment shall be mailed to all 
the members with the notice of the meeting at which such amendment will 
be introduced. A vote on adopting such amendment shall be taken at the 
first Association meeting held at least two weeks subsequent to the 
meeting at which the amendment was introduced. Amendments shall be 
adopted by a vote of a majority of the members of the Association.
    Sec. 12. Corporate seal. The Association shall have a seal which 
shall appear as follows: [seal]
    Sec. 13. Fiscal year. The first fiscal year of the Association shall 
begin on the date of incorporation and shall end on the last day of ----
------ (month, year). Each successive fiscal year shall begin on the 
first day of ---------- (month) and end on the last day of ---------- 
(month).
    The foregoing By-Laws were adopted at the first annual meeting of 
the Association held ---------- by the undersigned members of the 
Association.

  Appendix II to Subpart D of Part 904--Recognition Agreement Between 
           Local Housing Authority and Homebuyers Association

                               (Subpart D)

    WHEREAS, the -------------------- (``Authority''), a public body 
corporate and politic, has developed or acquired with the aid of loans 
and annual contributions from the Department of Housing and Urban 
Development (``HUD''), the following Development or Developments in its 
homeownership opportunity program (hereinafter referred to as the 
``Development''): \1\
---------------------------------------------------------------------------

    \1\ List here the specific Development or Developments whose 
Homebuyers are represented by the Homebuyers Association with which this 
Agreement is entered into.
---------------------------------------------------------------------------

________________________________________________________________________
________________________________________________________________________
    WHEREAS, an organization of residents (``Homebuyers'') is an 
essential element in such Development for purposes of effective 
participation of the Homebuyers in the management of the Development and 
representation of the Homebuyers in their relationships with the 
Authority, and for other purposes; and
    WHEREAS, the -------------------- Homebuyers Association 
(``Association'') fully represents the Homebuyers of the Development;
    NOW, THEREFORE, this agreement is entered into by and between the 
Authority and the Association and they do hereby agree as follows:
    1. The Association, whose Articles of Incorporation are attached 
hereto and made a part hereof, is hereby recognized as the established 
representative of the Homebuyers of the Development and is the sole 
group entitled to represent them as tenants or Homebuyers before the 
Authority;
    2. For each fiscal year, the Authority shall make available funds to 
the Association for its normal expenses, in such amounts as may be 
available to the Authority for such purposes and subject to whatever 
applicable HUD regulations;
    3. The Association shall be entitled to the use of office space in 
---------- at the Development without charge by the Authority for such 
use;
    4. The Authority and the officers of the Association shall meet at a 
location convenient to both parties on the ---------- (day) of each 
month to discuss matters of interest to either party;
    5. In the event the parties later agree that the Association should 
assume management

[[Page 354]]

responsibilities now held by the Authority, a contract for such purpose 
will be negotiated by -------------------- the Association;
    -------------------- terminate upon dissolution of the Association.
    IN WITNESS HEREOF, the parties have executed this Agreement on ----
------, 19----.
    Local Housing Authority
By (Official Title)_____________________________________________________
    Homebuyers Association
By (Official Title)_____________________________________________________
WITNESSES:______________________________________________________________
                                                ------------------------



PART 905_THE PUBLIC HOUSING CAPITAL FUND PROGRAM--Table of Contents




Sec.
905.10 Capital Fund formula (CFF).
905.120 Penalties for slow obligation or expenditure of CFP assistance.

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

    Source: 65 FR 14426, March 16, 2000, unless otherwise noted.



Sec. 905.10  Capital Fund formula (CFF).

    (a) General. This section describes the formula for allocation of 
capital funds to PHAs. The formula is referred to as the Capital Fund 
formula (CFF).
    (b) Emergency reserve and use of amounts. (1) In each Federal fiscal 
year after Federal Fiscal Year (FFY) 1999, from amounts approved in the 
appropriation act for funding under this part, HUD:
    (i) Shall reserve an amount not to exceed that authorized by 42 
U.S.C. 1437g(k) for--
    (A) Use for assistance in connection with emergencies and other 
disasters, and
    (B) Housing needs resulting from any settlement of litigation; and
    (ii) May reserve such other amounts for other purposes authorized by 
42 U.S.C. 1437g(k).
    (2) Amounts set aside under paragraph (b) of this section may be 
used for assistance for any eligible use under the Capital Fund, 
Operating Fund, or tenant-based assistance in accordance with section 8 
of the U.S. Housing Act of 1937 (42 U.S.C. 1437f).
    (3) The use of any amounts as provided under paragraph (b) of this 
section relating to emergencies (other than disasters and housing needs 
resulting from settlement of litigation) shall be announced subsequently 
through Federal Register notice.
    (c) Formula allocation based on relative needs. After determining 
the amounts to be reserved under paragraph (b) of this section, HUD 
shall allocate the amount remaining in accordance with the CFF. The CFF 
measures the existing modernization needs and accrual needs of PHAs.
    (d) Allocation for existing modernization needs under the CFF. HUD 
shall allocate one-half of the available Capital Fund amount based on 
the relative existing modernization needs of PHAs, determined in 
accordance with this paragraph (d) of this section.
    (1) For PHAs greater than or equal to 250 or more units in FFY 1999, 
except the New York City and Chicago Housing Authorities, estimates of 
the existing modernization need will be based on the following:
    (i) Objective measurable data concerning the following PHA, 
community and development characteristics applied to each development:
    (A) The average number of bedrooms in the units in a development. 
(Equation co-efficient: 4604.7);
    (B) The total number of units in a development as of FFY 1999. 
(Equation co-efficient: 10.17);
    (C) The proportion of units, as of FFY 1998, in a development in 
buildings completed in 1978 or earlier. In the case of acquired 
developments, HUD will use the Date of Full Availability (DOFA) date 
unless the PHA provides HUD with the actual date of construction. When 
provided with the actual date of construction, HUD will use this date 
(or, for scattered sites, the average dates of construction of all the 
buildings), subject to a 50-year cap. (Equation co-efficient: 4965.4);
    (D) The cost index of rehabilitating property in the area as of FFY 
1999. (Equation co-efficient: -10608);
    (E) The extent to which the units of a development were in a non-
metropolitan area as defined by the Census Bureau during FFY 1996. 
(Equation co-efficient: 2703.9);
    (F) The PHA is located in the southern census region, as defined by 
the Census Bureau. (Equation co-efficient: -269.4);

[[Page 355]]

    (G) The PHA is located in the western census region, as defined by 
the Census Bureau. (Equation co-efficient: -1709.5);
    (H) The PHA is located in the midwest census region as defined by 
the Census Bureau. (Equation co-efficient: 246.2)
    (ii) An equation constant of 13851.
    (A) Newly constructed units. Units with a DOFA date of October 1, 
1991, or thereafter, will be considered to have a zero existing 
modernization need.
    (B) Acquired developments. Developments acquired by a PHA with a 
DOFA date of October 1, 1991, or thereafter, will be considered by HUD 
to have a zero existing modernization need.
    (2) For New York City and Chicago Housing Authorities, based on a 
large sample of direct inspections. For purposes of this formula, prior 
to the cost calibration in paragraph (d)(4) of this section, the number 
used for the existing modernization need of family developments is 
$16,680 in New York, and $24,286 in Chicago, and the number for elderly 
developments is $14,622 in New York, and $16,912 in Chicago.
    (i) Newly constructed units. Units with a DOFA date of October 1, 
1991, or thereafter, will be considered to have a zero existing 
modernization need.
    (ii) Acquired developments. Developments acquired by a PHA with a 
DOFA date of October 1, 1991, or thereafter, will be considered by HUD 
to have a zero existing modernization need.
    (3) For PHAs with fewer than 250 units in FFY 1999, estimates of the 
existing modernization need will be based on the following:
    (i) Objective measurable data concerning the following PHA, 
community and development characteristics applied to each development:
    (A) The average number of bedrooms in the units in a development. 
(Equation co-efficient: 1427.1);
    (B) The total number of units in a development as of FFY 1999. 
(Equation co-efficient: 24.3);
    (C) The proportion of units, as of FFY 1998, in a development in 
buildings completed in 1978 or earlier. In the case of acquired 
developments, HUD will use the DOFA date unless the PHA provides HUD 
with the actual date of construction, in which case HUD will use the 
actual date of construction (or, for scattered sites, the average dates 
of construction of all the buildings), subject to a 50-year cap. 
(Equation co-efficient: -1389.7);
    (D) The cost index of rehabilitating property in the area, as of FFY 
1999. (Equation co-efficient: -20163);
    (E) The extent to which the units of a development were in a non-
metropolitan area as defined by the Census Bureau during FFY 1996. 
(Equation co-efficient: 6157.7);
    (F) The PHA is located in the southern census region, as defined by 
the Census Bureau. (Equation co-efficient: 4379.2);
    (G) The PHA is located in the western census region, as defined by 
the Census Bureau. (Equation co-efficient: 3747.7);
    (H) The PHA is located in the midwest census region as defined by 
the Census Bureau. (Equation co-efficient: -2073.5)
    (ii) An equation constant of 24762.
    (A) Newly constructed units. Units with a DOFA date of October 1, 
1991, or thereafter, will be considered to have a zero existing 
modernization need.
    (B) Acquired developments. Developments acquired by a PHA with a 
DOFA date of October 1, 1991, or thereafter, will be considered by HUD 
to have a zero existing modernization need.
    (4) Calibration of existing modernization need for cost index of 
rehabilitating property in the area. The estimated existing 
modernization need, as determined under paragraphs (d)(1), (d)(2) or 
(d)(3) of this section, shall be adjusted by the values of the cost 
index of rehabilitating property in the area.
    (e) Allocation for accrual needs under the CFF. HUD shall allocate 
the other half of the remaining Capital Fund amount based on the 
relative accrual needs of PHAs, determined in accordance with paragraph 
(e) of this section.
    (1) For PHAs greater than or equal to 250 or more units, except the 
New York City and Chicago Housing Authorities, estimates of the accrual 
need will be based on the following:
    (i) Objective measurable data concerning the following PHA, 
community and development characteristics applied to each development:

[[Page 356]]

    (A) The average number of bedrooms in the units in a development. 
(Equation co-efficient: 324.0);
    (B) The extent to which the buildings in a development average fewer 
than 5 units. (Equation co-efficient: 93.3);
    (C) The age of a development as of FFY 1998, as determined by the 
DOFA date. In the case of acquired developments, HUD will use the DOFA 
date unless the PHA provides HUD with the actual date of construction, 
in which case HUD will use the actual date of construction (or, for 
scattered sites, the average dates of construction of all the 
buildings), subject to a 50-year cap. (Equation co-efficient: -7.8);
    (D) Whether the development is a family development. (Equation co-
efficient: 184.5);
    (E) The cost index of rehabilitating property in the area, as of FFY 
1999. (Equation co-efficient: -252.8);
    (F) The extent to which the units of a development were in a non-
metropolitan area as defined by the Census Bureau during FFY 1996. 
(Equation co-efficient: -121.3);
    (G) PHA size of 6600 or more units in FFY 1999. (Equation co-
efficient: -150.7);
    (H) The PHA is located in the southern census region, as defined by 
the Census Bureau. (Equation co-efficient: 28.4);
    (I) The PHA is located in the western census region, as defined by 
the Census Bureau. (Equation co-efficient: -116.9);
    (J) The PHA is located in the midwest census region as defined by 
the Census Bureau. (Equation co-efficient: 60.7)
    (ii) An equation constant of 1371.9,
    (2) For New York City and Chicago Housing Authorities, based on a 
large sample of direct inspections. For purposes of this formula, prior 
to the cost calibration in paragraph (e)(4) of this section the number 
used for the accrual need of family developments is $1,395 in New York, 
and $1,251 in Chicago, and the number for elderly developments is $734 
in New York, and $864 in Chicago.
    (3) For PHAs with fewer than 250 units, estimates of the accrual 
need will be based on the following:
    (i) Objective measurable data concerning the following PHA, 
community and development characteristics applied to each development:
    (A) The average number of bedrooms in the units in a development. 
(Equation co-efficient: 325.5);
    (B) The extent to which the buildings in a development average fewer 
than 5 units. (Equation co-efficient: 179.8);
    (C) The age of a development as of FFY 1998, as determined by the 
DOFA date. In the case of acquired developments, HUD will use the DOFA 
date unless the PHA provides HUD with the actual date of construction. 
When provided with the actual date of construction, HUD will use this 
date (or, for scattered sites, the average dates of construction of all 
the buildings), subject to a 50-year cap. (Equation co-efficient: -9.0);
    (D) Whether the development is a family development. (Equation co-
efficient: 59.3);
    (E) The cost index of rehabilitating property in the area, as of FFY 
1999. (Equation co-efficient: -1570.5);
    (F) The extent to which the units of a development were in a non-
metropolitan area as defined by the Census Bureau during FFY 1996. 
(Equation co-efficient: -122.9);
    (G) The PHA is located in the southern census region, as defined by 
the Census Bureau. (Equation co-efficient: -564.0);
    (H) The PHA is located in the western census region, as defined by 
the Census Bureau. (Equation co-efficient: -29.6);
    (I) The PHA is located in the midwest census region as defined by 
the Census Bureau. (Equation co-efficient: -418.3)
    (ii) An equation constant of 3193.6.
    (4) Calibration of accrual need for the cost index of rehabilitating 
property in the area. The estimated accrual need, as determined under 
either paragraph (e)(2) or (e)(3) of this section, shall be adjusted by 
the values of the cost index of rehabilitation.
    (f) Calculation of number of units. (1) General. For purposes of 
determining the number of a PHA's public housing units, and the relative 
modernization needs of PHAs:
    (i) HUD shall count as one unit:
    (A) Each public housing and section 23 bond-financed unit under the 
ACC, except that it shall count as one-fourth

[[Page 357]]

of a unit each existing unit under Turnkey III program. Units receiving 
operating subsidy only shall not be counted.
    (B) Each existing unit under the Mutual Help program.
    (ii) HUD shall add to the overall unit count units that are added to 
a PHA's inventory so long as the units are under ACC amendment and have 
reached DOFA by the date that HUD establishes for the Federal Fiscal 
Year in which the CFF is being run (hereafter called the ``reporting 
date''). Any such increase in units shall result in an adjustment 
upwards in the number of units under the CFF. New units reaching DOFA 
after the reporting date will be counted for CFF purposes as of the 
following Federal Fiscal Year.
    (2) Replacement units. Replacement units newly constructed as of and 
after October 1, 1998 that replace units in a development funded in FFY 
1999 by the Comprehensive Grant formula system or the Comprehensive 
Improvement Assistance Program (CIAP) formula system will be given a new 
ACC number as a separate development and will be treated as a newly 
constructed development.
    (3) Conversion of units. The total estimated need (total units times 
need per unit) of the development is unchanged by conversion of unit 
sizes within buildings.
    (4) Reduction of units. For developments losing units as a result of 
demolition and disposition, the number of units on which capital funding 
is based will be the number of units reported as eligible for capital 
funding as of the reporting date. Units are eligible for funding until 
they are removed due to demolition and disposition in accordance with a 
schedule approved by HUD.
    (g) Computation of formula shares under the CFF. (1) Total estimated 
existing modernization need. The total estimated existing modernization 
need of a PHA under the CFF is the result of multiplying for each 
development the PHA's total number of formula units by its estimated 
existing modernization need per unit, as determined by paragraph (d) of 
this section, and calculating the sum of these estimated development 
needs.
    (2) Total accrual need. The total accrual need of a PHA under the 
CFF is the result of multiplying for each development the PHA's total 
number of formula units by its estimated accrual need per unit, as 
determined by paragraph (e) of this section, and calculating the sum of 
these estimated accrual needs.
    (3) PHA's formula share of existing modernization need. A PHA's 
formula share of existing modernization need under the CFF is the PHA's 
total estimated existing modernization need divided by the total 
existing modernization need of all PHAs.
    (4) PHA's formula share of accrual need. A PHA's formula share of 
accrual need under the CFF is the PHA's total estimated accrual need 
divided by the total existing accrual need of all PHAs.
    (5) PHA's formula share of capital need. A PHA's formula share of 
capital need under the CFF is the average of the PHA's share of existing 
modernization need and its share of accrual need (by which method each 
share is weighted 50%).
    (h) CFF capping. (1) For units that are eligible for funding under 
the CFF (including replacement housing units discussed below) a PHA's 
CFF share will be its share of capital need, as determined under the 
CFF, subject to the condition that no PHA's CFF share for units funded 
under CFF can be less than 94% of its formula share had the FFY 1999 
formula system been applied to these CFF eligible units. The FFY 1999 
formula system is based upon the FFY 1999 Comprehensive Grant formula 
system for PHAs with 250 or more units in FFY 1999 and upon the FFY 1999 
Comprehensive Improvement Assistance Program (CIAP) formula system for 
PHAs with fewer than 250 units in FFY 1999.
    (2) For a Moving to Work PHA whose agreement provides that its 
capital formula share is to be calculated in accordance with the 
previously existing formula, the PHA's CFF share, during the term of the 
agreement, may be approximately the formula share that the PHA would 
have received had the FFY 1999 formula funding system been applied to 
the CFF eligible units.

[[Page 358]]

    (i) Replacement housing factor to reflect formula need for 
developments with demolition and disposition occurring on or after 
October 1, 1998--(1) Replacement housing factor generally. PHAs that 
have a reduction in units attributable to demolition and disposition of 
units during the period (reflected in data maintained by HUD) that 
lowers the formula unit count for the CFF calculations qualify for 
application of a replacement housing factor, subject to satisfaction of 
criteria stated in paragraph (i)(5) of this section.
    (2) When applied. The replacement housing factor will be added, 
where applicable:
    (i) For the first 5 years after the reduction in units described in 
paragraph (i)(1) of this section, and
    (ii) For an additional 5 years if the planning, leveraging, 
obligation and expenditure requirements are met. As a prior condition of 
a PHA's receipt of additional funds for replacement housing provided for 
the second 5-year period or any portion thereof, a PHA must obtain a 
firm commitment of substantial additional funds other than public 
housing funds for replacement housing, as determined by HUD.
    (3) Computation of replacement housing factor. The replacement 
housing factor consists of the difference between the CFF share without 
the CFF share reduction of units attributable to demolition and 
disposition, and the CFF share that resulted after the reduction of 
units attributable to demolition and disposition.
    (4) Replacement housing funding in FFY 1998 and 1999. Units that 
received replacement housing funding in FFY 1998 will be treated as if 
they had received two years of replacement housing funding by FFY 2000. 
Units that received replacement housing funding in FFY 1999 will be 
treated as if they had received one year of replacement housing funding 
as of FFY 2000.
    (5) PHA eligibility for replacement housing factor. A PHA is 
eligible for application of this factor only if the PHA satisfies the 
following criteria:
    (i) The PHA requests the application of the replacement factor;
    (ii) The PHA will use the funding in question only for replacement 
housing;
    (iii) The PHA will use the restored funding that results from the 
use of the replacement factor to provide replacement housing in 
accordance with the PHA's five-year PHA plan, as approved by HUD under 
part 903 of this chapter;
    (iv) The PHA has not received funding for public housing units that 
will replace the lost units under the public housing development, Major 
Reconstruction of Obsolete Public Housing, HOPE VI programs, or programs 
that otherwise provide for replacement with public housing units;
    (v) The PHA, if designated troubled by HUD and not already under the 
direction of HUD or a court-appointed receiver, in accordance with part 
902 of this chapter, uses an Alternative Management Entity as defined in 
part 902 of this chapter for development of replacement housing and 
complies with any applicable provisions of its Memorandum of Agreement 
executed with HUD under that part; and
    (vi) The PHA undertakes any development of replacement housing in 
accordance with applicable HUD requirements and regulations.
    (6) Failure to provide replacement housing in a timely fashion. (i) 
A PHA will be subject to the actions described in paragraph (i)(7)(ii) 
of this section if the PHA does not:
    (A) Use the restored funding that results from the use of the 
replacement housing factor to provide replacement housing in a timely 
fashion, as provided in paragraph (i)(7)(i) of this section and in 
accordance with applicable HUD requirements and regulations; and
    (B) Make reasonable progress on such use of the funding, in 
accordance with HUD requirements and regulations.
    (ii) If a PHA fails to act as described in paragraph (i)(6)(i), HUD 
will require appropriate corrective action under these regulations; may 
recapture and reallocate the funds; or may take other appropriate 
action.
    (7) Requirement to obligate and expend replacement housing factor 
funds within specified period. (i) In addition to the requirements 
otherwise applicable to obligation and expenditure of funds, PHAs are 
required to obligate assistance received as a result of the replacement 
housing factor within:

[[Page 359]]

    (A) 24 months from the date that funds become available to the PHA; 
or
    (B) With specific HUD approval, 24 months from the date that the PHA 
accumulates adequate funds to undertake replacement housing.
    (ii) To the extent the PHA has not obligated any funds provided as a 
result of the replacement housing factor within the times required by 
this paragraph, or expended such funds within a reasonable time, HUD 
shall reduce the amount of funds to be provided to the PHA as a result 
of the application of the second 5 years of the replacement housing 
factor.
    (j) Performance reward factor. (1) PHAs that are designated high 
performers under the Public Housing Assessment System (PHAS) for their 
most recent fiscal year can receive a performance bonus that is:
    (i) 3% above their base formula amount in the first five years these 
awards are given (for any year in this 5-year period in which the 
performance reward is earned); and
    (ii) 5% above their base formula amount in future years (for any 
year in which the performance reward is earned).
    (2) The performance bonus is subject only to the condition that no 
PHA will lose more than 5% of its base formula amount as a result of the 
redistribution of funding from non-high performers to high performers.
    (k) Eligible expenses. (1) Eligible expenses include the following:
    (i) Development, financing, and modernization of public housing 
projects, including the redesign, reconstruction, and reconfiguration of 
public housing sites and buildings (including accessibility 
improvements) and the development of mixed-finance projects;
    (ii) Vacancy reduction;
    (iii) Addressing deferred maintenance needs and the replacement of 
obsolete utility systems and dwelling equipment;
    (iv) Planned code compliance;
    (v) Management improvements;
    (vi) Demolition and replacement;
    (vii) Resident relocation;
    (viii) Capital expenditures to facilitate programs to improve the 
empowerment and economic self-sufficiency of public housing residents 
and to improve resident participation;
    (ix) Capital expenditures to improve the security and safety of 
residents; and
    (x) Homeownership activities, including programs under section 32 of 
the 1937 Act (42 U.S.C. 1437z-4).
    (2) Such assistance may involve the drawdown of funds on a schedule 
commensurate with construction draws for deposit into an interest 
earning escrow account to serve as collateral or credit enhancement for 
bonds issued by a public agency for the construction or rehabilitation 
of the development.

[65 FR 14426, March 16, 2000, as amended at 65 FR 25446, May 2, 2000]



Sec. 905.120  Penalties for slow obligation or expenditure of CFP 
assistance.

    In addition to any other statutory, regulatory, or contractual 
sanctions available to HUD, the penalties for slow obligation or 
expenditure of CFP assistance will be applied as follows:
    (a) Obligation of amounts. (1) Except as provided in paragraph (b) 
of this section, a PHA must obligate any assistance received under this 
part not later than 24 months after, as applicable:
    (i) The date on which the funds become available to the PHA for 
obligation in the case of modernization; or
    (ii) The date on which the PHA accumulates adequate funds to 
undertake modernization, substantial rehabilitation, or new construction 
of units.
    (2) Notwithstanding paragraph (a)(1) of this section, any funds 
appropriated to a PHA for Fiscal Year 1997 or prior fiscal years shall 
be fully obligated by the PHA not later than September 30, 1999.
    (b) Exceptions to obligation requirement--(1) Extension before 
expiration of obligation period. A PHA may request and HUD may approve a 
longer timeframe or HUD may, by prior approval granted before the 
expiration of the time period in paragraph (a) of this section, extend 
the time period under paragraph (a) of this section for an additional 
period not to exceed 12 months, based on:
    (i) The size of the PHA;
    (ii) The complexity of the capital program of the PHA;

[[Page 360]]

    (iii) Any limitation on the ability of the PHA to obligate the 
amounts allocated for the PHA from the Capital Fund in a timely manner 
as a result of state or local law; or
    (iv) Such other factors as HUD determines to be relevant.
    (2) Extension of obligation period. HUD may extend the time period 
under paragraph (a) of this section for a PHA, for such period as HUD 
determines to be necessary, if HUD determines that the failure of the 
agency to obligate assistance in a timely manner is attributable to:
    (i) Litigation;
    (ii) Obtaining approvals of the federal government or a state or 
local government;
    (iii) Complying with environmental assessment and abatement 
requirements;
    (iv) Relocating residents;
    (v) An event beyond the control of the PHA; or
    (vi) Any other reason established by HUD by notice published in the 
Federal Register.
    (3) Disregard of minimal unobligated amounts. HUD will disregard the 
requirements of paragraph (a) of this section with respect to any 
unobligated amounts made available to a PHA, to the extent that the 
total of such amounts does not exceed 10 percent of the original amount 
made available to the PHA.
    (c) Effect of failure to comply--(1) Prohibition of new assistance. 
A PHA will not be awarded CFP assistance for any month during any fiscal 
year in which the PHA has funds unobligated in violation of paragraph 
(a) or (b) of this section.
    (2) Withholding of assistance. During any fiscal year described in 
paragraph (c)(1) of this section, HUD will withhold all assistance that 
would otherwise be provided to the PHA. If the PHA cures its failure to 
comply during the year, it shall be provided with the share attributable 
to the months remaining in the year.
    (3) Redistribution. The total amount of any funds not provided PHAs 
by operation of this section shall be allocated for PHAs determined to 
be high-performing under the Public Housing Assessment System (at 24 CFR 
part 902) (or the applicable performance evaluation program for public 
housing).
    (d) Expenditure of amounts--(1) In general. A PHA must spend any 
assistance received under this part not later than four years (plus the 
period of any extension approved by HUD under paragraph (b) of this 
section) after the date on which funds become available to the PHA for 
obligation.
    (2) Enforcement. HUD will enforce the requirement of paragraph 
(d)(1) of this section through default remedies up to and including 
withdrawal of the CFP funding.
    (e) Right of recapture. Any obligation entered into by a PHA is 
subject to the HUD's right to recapture the obligated amounts for 
violation by the PHA of the requirements of this section.

[68 FR 45731, Aug. 1, 2003]



PART 906_PUBLIC HOUSING HOMEOWNERSHIP PROGRAMS--Table of Contents




                            Subpart A_General

Sec.
906.1 Purpose.
906.2 Definitions.
906.3 Requirements applicable to homeownership programs previously 
          approved by HUD.

                  Subpart B_Basic Program Requirements

906.5 Dwelling units and types of assistance that a PHA may make 
          available under a homeownership program under this part.
906.7 Physical requirements that a property offered for sale under this 
          part must meet.
906.9 Title restrictions and encumbrances on properties sold under a 
          homeownership program.

                    Subpart C_Purchaser Requirements

906.11 Eligible purchasers.
906.13 Right of first refusal.
906.15 Requirements applicable to a family purchasing a property under a 
          homeownership program.
906.17 PHA handling of homeownership applications.
906.19 Requirements applicable to a purchase and resale entity (PRE).

                    Subpart D_Program Administration

906.23 Protections available to non-purchasing public housing residents.

[[Page 361]]

906.24 Protections available to non-purchasing residents of housing 
          other than public housing.
906.25 Ownership interests that may be conveyed to a purchaser.
906.27 Limitations applicable to net proceeds on the sale of a property 
          acquired through a homeownership program.
906.29 Below-Market sales and financing.
906.31 Requirements applicable to net proceeds resulting from sale.
906.33 Reporting and recordkeeping requirements.
906.35 Inapplicability of section 18 of the United States Housing Act of 
          1937.
906.37 Davis-Bacon and HUD wage rate requirements.

                Subpart E_Program Submission and Approval

906.38 Requirement of HUD approval to implement a homeownership program 
          under this part.
906.39 Contents of a homeownership program.
906.40 Supporting documentation.
906.41 Additional supporting documentation for acquisition of non-public 
          housing for homeownership.
906.43 Where a PHA is to submit a homeownership program for HUD 
          approval.
906.45 HUD criteria for reviewing a proposed homeownership program.
906.47 Environmental requirements.
906.49 HUD approval; implementing agreements.

    Authority: 42 U.S.C. 1437z-4 and 3535(d).

    Source: 68 FR 1172, Mar. 11, 2003, unless otherwise noted.



                            Subpart A_General



Sec. 906.1  Purpose.

    (a) This part states the requirements and procedures governing 
public housing homeownership programs involving sales of individual 
dwelling units to families or to purchase and resale entities (PREs) for 
resale to families carried out by public housing agencies (PHAs), as 
authorized by section 32 of the United States Housing Act of 1937 (42 
U.S.C. 1437z-4) (1937 Act). A PHA may only transfer public housing units 
for homeownership under a homeownership program approved by HUD under 
this part, except as provided under Sec. 906.3. This section does not 
govern new construction or substantial rehabilitation of units sold 
under this part. Such construction or rehabilitation is governed by the 
public housing development and modernization regulations.
    (b) Under a public housing homeownership program, a PHA makes 
available for purchase by low-income families for use as their principal 
residences public housing dwelling units, public housing developments, 
and other housing units or developments owned, assisted, or operated, or 
otherwise acquired by the PHA for sale under a homeownership program in 
connection with the use of assistance provided under the 1937 Act (1937 
Act funds). A PHA may sell all or a portion of a property for purposes 
of homeownership in accordance with a HUD-approved homeownership 
program, and in accordance with the PHA's annual plan under part 903 of 
this title.



Sec. 906.2  Definitions.

    Annual Contributions Contract (ACC) is defined in 24 CFR 5.403.
    Low-income family is defined in the 1937 Act, 42 U.S.C. 1437a(b)(2).
    Non-public housing unit means a housing unit that does not receive 
assistance under the 1937 Act (other than Section 8 assistance).
    PHA Plan means the 5-year or annual plan required under section 5A 
of the 1937 Act, 42 U.S.C. 1437c-1, and its implementing regulations at 
24 CFR part 903.
    Purchase and Resale Entity (PRE) means an entity that acquires units 
for resale to low-income families in accordance with this part.



Sec. 906.3  Requirements applicable to homeownership programs previously 
approved by HUD.

    (a) Any existing section 5(h) or Turnkey III homeownership program 
continues to be governed by the requirements of part 906 or part 904 of 
this title, respectively, contained in the April 1, 2002, edition of 24 
CFR, parts 700 to 1699. The use of other program income for 
homeownership activities continues to be governed by agreements executed 
with HUD.
    (b) A PHA may convert an existing homeownership program, or a 
specific number of the units in such a program, to a homeownership 
program under this part with HUD approval.

[[Page 362]]



                  Subpart B_Basic Program Requirements



Sec. 906.5  Dwelling units and types of assistance that a PHA may make 
available under a homeownership program under this part.

    (a) A homeownership program under this part may provide for sale of:
    (1) Units that are public housing units; and
    (2) Other units owned, operated, assisted, or acquired for 
homeownership sale and that have received the benefit of 1937 Act funds 
or are to be sold with the benefit of 1937 Act funds (non-public housing 
units). In selecting such units to be sold in a homeownership program 
under this part, the PHA shall not select units such that it could not 
comply with Sec. 906.7(a).
    (b) A homeownership program under this part may provide for 
financing to eligible families (see Sec. 905.15 of this title) 
purchasing dwelling units eligible under paragraph (a) of this section 
under the program, or for acquisition of housing units or developments 
by the PHA for sale under the program.
    (1) Under this part, a PHA may use assistance from amounts it 
receives under the Capital Fund under section 9(d) of the 1937 Act or 
from other income earned from its 1937 Act programs to provide 
assistance to public housing residents only to facilitate the purchase 
of homes (e.g., counseling, closing costs, that portion of the down 
payment not required to be supplied from the purchaser's funds under the 
provisions of Sec. 906.15(c), financing, and moving assistance). Public 
housing residents may use such assistance to purchase the unit in which 
they reside, another public housing unit, or a residence not located in 
a public housing development.
    (2) A PHA may provide financing assistance for other eligible 
purchasers from other income, i.e., funds not from 1937 Act programs, 
such as proceeds from selling public housing units, loan repayments, and 
public housing debt forgiveness funding not already committed to another 
purpose.
    (3) In accordance with the rules and regulations governing the 
Section 8(y) Homeownership Option, found in 24 CFR part 982 subpart M, a 
PHA may make its housing choice voucher funds available to provide 
assistance to a family purchasing a unit under this part. A family 
receiving assistance under the Section 8(y) program and participating in 
a homeownership program under this part must meet the requirements of 
both programs.
    (c) A PHA must not use 1937 Act funds to rehabilitate units that are 
not public housing units.



Sec. 906.7  Physical requirements that a property offered for sale under 
this part must meet.

    (a) Property standards. A property offered for sale under a 
homeownership program must meet local code requirements (or, if no local 
code exists, the housing quality standards established by HUD for the 
Section 8 Housing Choice Voucher Program, 24 CFR part 982) and the 
relevant requirements of the Lead-Based Paint Poisoning Prevention Act 
(42 U.S.C. 4821-4846), the Residential Lead-Based Paint Hazard Reduction 
Act of 1992 (42 U.S.C. 4851-4856), and the implementing regulations at 
24 CFR part 35, subparts A, B, L, and R of this title. When a 
prospective purchaser who has known disabilities, or who has a family 
member with known disabilities requires accessible features, the 
features must be added as a reasonable accommodation to the disability, 
in accordance with the requirements of Sec. 8.29 of this title. 
Further, the property must be in good repair, with the major components 
having a remaining useful life that is sufficient to justify a 
reasonable expectation that homeownership will be affordable by the 
purchasers. These standards must be met as a condition for conveyance of 
a dwelling to an individual purchaser.
    (b) A unit in this program for which the purchasing family is 
receiving assistance under Section 8(y) must be an eligible unit for 
purposes of the Homeownership Option under 24 CFR part 982, subpart M.

[[Page 363]]



Sec. 906.9  Title restrictions and encumbrances on properties sold under 
a homeownership program.

    (a) If the property is subject to indebtedness under the Annual 
Contributions Contract (ACC), HUD will continue to make any debt service 
contributions for which it is obligated under the ACC, and the property 
sold will not be subject to the encumbrance of that indebtedness.
    (b) Upon sale of a public housing unit to a public housing tenant or 
eligible family, or to a PRE operating the units as non-public housing, 
in accordance with the HUD-approved homeownership program, HUD will 
execute a release of the title restrictions prescribed by the ACC. 
Because the property will no longer be subject to the ACC after sale, it 
will cease to be eligible for public housing Operating Fund or Capital 
Fund payments.



                    Subpart C_Purchaser Requirements



Sec. 906.11  Eligible purchasers.

    Entities that purchase units from the PHA for resale to low-income 
families (purchase and resale entities or PREs) and low-income families 
are eligible to purchase properties made available for sale under a PHA 
homeownership program.



Sec. 906.13  Right of first refusal.

    (a) In selling a public housing unit under a homeownership program, 
the PHA or PRE must initially offer the unit to the resident occupying 
the unit, if any, notwithstanding the requirements of Sec. Sec. 
906.15(a) and 906.15(c).
    (b) This program does not require the PHA, when selling a unit that 
is a non-public housing unit, to offer the unit for sale first to the 
current resident of the unit.



Sec. 906.15  Requirements applicable to a family purchasing a property 
under a homeownership program.

    (a) Low-income requirement. Except in the case of a PHA's offer of 
first refusal to a resident occupying the unit under Sec. 906.13, a 
family purchasing a property under a PHA homeownership program must be a 
low-income family, as defined in section 3 of the 1937 Act (42 U.S.C. 
1437a), at the time the contract to purchase the property is executed.
    (b) Principal residence requirement. The dwelling unit sold to an 
eligible family must be used as the principal residence of the family.
    (c) Financial capacity requirement. Eligibility must be limited to 
families who are capable of assuming the financial obligations of 
homeownership, under minimum income standards for affordability, taking 
into account the unavailability of public housing operating subsidies 
and modernization funds after conveyance of the property by the PHA. A 
homeownership program may, however, take account of any available 
subsidy from other sources. Under this affordability standard, an 
applicant must meet the following requirements:
    (1) Cost/income ratio. On an average monthly estimate, the amount of 
the applicant's payments for mortgage principal and interest, plus 
insurance, real estate taxes, utilities, maintenance, and other 
regularly recurring homeownership costs (such as condominium, 
cooperative, or other homeownership association fees) will not exceed 
the sum of:
    (i) 35 percent of the applicant's adjusted income as defined in 24 
CFR part 913; and
    (ii) Any subsidy that will be available for such payments;
    (2) Down payment requirement. Each family purchasing housing under a 
homeownership program must provide a down payment in connection with any 
loan for acquisition of the housing, in an amount determined by the PHA 
or PRE, in accordance with an approved homeownership program. Except as 
provided in paragraph (c)(3) of this section, the PHA or PRE must permit 
the family to use grant amounts, gifts from relatives, contributions 
from private sources, and other similar amounts in making the down 
payment;
    (3) The family must use its own resources other than grants, gifts, 
contributions, or similar amounts, to contribute an amount of the down 
payment that is not less than one percent of the purchase price of the 
housing. The PHA or PRE must maintain records that are verifiable by HUD

[[Page 364]]

through audits regarding the source of this one percent contribution.
    (d) Other requirements established by the PHA. A PHA may establish 
requirements or limitations for families to purchase housing under a 
homeownership program, including but not limited to requirements or 
limitations regarding:
    (1) Employment or participation in employment counseling or training 
activities;
    (2) Criminal activity;
    (3) Participation in homeownership counseling programs; and
    (4) Evidence of regular income.



Sec. 906.17  PHA handling of homeownership applications.

    Families who are interested in purchasing a unit must submit 
applications to the PHA or PRE for that specific purpose, and those 
applications must be handled separately from applications for other PHA 
programs. Application for homeownership must not affect an applicant's 
place on any other PHA waiting list for rental units.



Sec. 906.19  Requirements applicable to a purchase and resale entity (PRE).

    (a) In general. In the case of a purchase of units for resale to 
low-income families by a PRE, the PHA must have an approved 
homeownership program that describes the use of a PRE to sell the units 
to low-income families within 5 years from the date of the PRE's 
acquisition of the units.
    (b) PRE requirements. The PHA must demonstrate in its homeownership 
program that the PRE has the necessary legal capacity and administrative 
capability to carry out its responsibilities under the program. The 
PHA's homeownership program also must contain a written agreement (not 
required to be submitted as part of the homeownership plan) that 
specifies the respective rights and obligations of the PHA and the PRE, 
and which includes:
    (1) Assurances that the PRE will comply with all provisions of the 
HUD-approved homeownership program;
    (2) Assurances that the PRE will be subject to a title restriction 
providing that the property must be resold or otherwise transferred only 
by conveyance of individual dwellings to eligible families, in 
accordance with the HUD-approved homeownership program, or by 
reconveyance to the PHA, and that the property will not be encumbered by 
the PRE without the written consent of the PHA;
    (3) Protection against fraud or misuse of funds or other property on 
the part of the PRE, its employees, and agents;
    (4) Assurances that the resale proceeds will be used only for the 
purposes specified by the HUD-approved homeownership program;
    (5) Limitation of the PRE's administrative and overhead costs, and 
of any compensation or profit that may be realized by the PRE, to 
amounts that are reasonable in relation to its responsibilities and 
risks;
    (6) Accountability to the PHA and residents for the recordkeeping, 
reporting, and audit requirements of Sec. 906.33;
    (7) Assurances that the PRE will administer its responsibilities 
under the plan on a nondiscriminatory basis, in accordance with the Fair 
Housing Act, its implementing regulations, and other applicable civil 
rights statutes and authorities, including the authorities cited in 
Sec. 5.105(a) of this title; and
    (8) Adequate legal remedies for the PHA and residents, in the event 
of the PRE's failure to perform in accordance with the agreement.
    (c) Sale to low-income families. The requirement for a PRE to sell 
units under a homeownership program only to low-income families must be 
recorded as a deed restriction at the time of purchase by the PRE.
    (d) Resale within five years. A PRE must agree that, with respect to 
any units it acquires under a homeownership program under this part, it 
will transfer ownership to the PHA if the PRE fails to resell the unit 
to a low-income family within 5 years of the PRE's acquisition of the 
unit.



                    Subpart D_Program Administration



Sec. 906.23  Protections available to non-purchasing public housing residents.

    (a) If a public housing resident does not exercise the right of 
first refusal under Sec. 906.13, and the PHA determines

[[Page 365]]

to move the tenant for the purpose of transferring possession of the 
unit, the PHA must provide the notice stated in this section 90 days 
before the date the resident is displaced, and may not displace the 
resident, except as stated in paragraph (a)(1) of this section, for the 
full 90-day period. The PHA:
    (1) Must notify the resident residing in the unit 90 days prior to 
the displacement date, except in cases of imminent threat to health or 
safety, that:
    (i) The public housing unit will be sold;
    (ii) The transfer of possession of the unit will not occur until the 
resident is relocated; and
    (iii) Each resident displaced by such action will be offered 
comparable housing (as defined in paragraph (b) of this section);
    (2) Must provide for the payment of the actual costs and reasonable 
relocation expenses of the resident to be displaced;
    (3) Must ensure that the resident is offered comparable housing 
under paragraph (a)(1)(iii) of this section;
    (4) Must provide counseling for displaced residents regarding their 
rights to comparable housing, including their rights under the Fair 
Housing Act to choice of a unit on a nondiscriminatory basis, without 
regard to race, color, religion, national origin, disability, age, sex, 
or familial status; and
    (5) Must not transfer possession of the unit until the resident is 
relocated.
    (b) For purposes of this section, the term ``comparable housing'' 
means housing:
    (1) That meets housing quality standards;
    (2) That is located in an area that is generally not less desirable 
than the displaced resident's original development; and
    (3) Which may include:
    (i) Tenant-based assistance (tenant-based assistance must only be 
provided upon the relocation of the resident to the comparable housing);
    (ii) Project-based assistance; or
    (iii) Occupancy in a unit owned, operated, or assisted by the PHA at 
a rental rate paid by the resident that is comparable to the rental rate 
applicable to the unit from which the resident is vacating.



Sec. 906.24  Protections available to non-purchasing residents of housing 
other than public housing.

    Residents of non-public housing that would be displaced by a 
homeownership program are eligible for assistance under the Uniform 
Relocation Act and part 42 of this title. For purposes of this part, a 
family that was over-income (i.e., an individual or family that is not a 
low-income family) at the time of initial occupancy of public housing 
and was admitted in accordance with section 3(a)(5) of the 1937 Act, is 
treated as a non-purchasing resident of non-public housing.



Sec. 906.25  Ownership interests that may be conveyed to a purchaser.

    A homeownership program may provide for sale to the purchasing 
family of any ownership interest that the PHA considers appropriate 
under the homeownership program, including but not limited to:
    (a) Ownership in fee simple;
    (b) A condominium interest;
    (c) An interest in a limited dividend cooperative;
    (d) A shared appreciation interest with a PHA providing financing; 
or
    (e) A leasehold under a bona fide lease-purchase arrangement.



Sec. 906.27  Limitations applicable to net proceeds on the sale of a 
property acquired through a homeownership program.

    (a) Where the family has owned a unit under this part, the following 
rules apply:
    (1) In this section, the term gain from appreciation means the 
financial gain on resale attributable solely to the home's appreciation 
in value over time, and not attributable to government-provided 
assistance or any below-market financing provided under Sec. 906.29.
    (2) In this section, the term net proceeds means the financial gain 
on resale received by the seller after satisfying all amounts owing 
under mortgages, paying closing costs, and receiving an amount equal to 
the down payment (made from the seller's own funds) and principal 
payments on the mortgage(s).

[[Page 366]]

    (3) A PHA must have a policy that provides for the recapture of net 
proceeds in an amount that the PHA considers appropriate under the 
guidelines in this section.
    (4) A PHA must have a policy that provides the recapture of the 
following amounts, if a family resells a homeownership unit it purchased 
under this part during the 5-year period beginning upon purchase of the 
dwelling unit:
    (i) All or a portion of the gain from appreciation; and
    (ii) All or a portion of the assistance provided (which includes 
below-market financing, but which does not include Section 8(y) 
assistance used for mortgage payments under this part) under the 
homeownership program to the family to the extent there are net 
proceeds, considering the factors the PHA establishes under paragraphs 
(b)(1)-(7) of this section.
    (b) The PHA's program under this part may provide for consideration 
of any factors the PHA considers appropriate in determining how much of 
the gain from appreciation and assistance to recapture, including but 
not limited to the following:
    (1) The aggregate amount of assistance provided under the 
homeownership program to the family;
    (2) The contribution of equity by the purchasing family;
    (3) The period of time elapsed between purchase by the homebuyer 
under the homeownership program and resale by the homebuyer;
    (4) The reason for resale;
    (5) Any improvements made by the family purchasing under the 
homeownership program;
    (6) Any appreciation in the value of the property; and
    (7) Any other factors that the PHA considers appropriate in making 
the recapture determination under this section.
    (c) After the expiration of the 5-year period in paragraph (a)(4) of 
this section, the PHA must recapture all or a portion of the assistance 
provided under the homeownership program to the family to the extent 
there are net proceeds.
    (d) The PHA must enforce its recapture policy through an appropriate 
form of title restriction.



Sec. 906.29  Below-Market sales and financing.

    A homeownership plan may provide for below-market purchase prices or 
below-market financing to enable below-market purchases, or a 
combination of the two. Discounted purchase prices may be determined on 
a unit-by-unit basis, based on the particular purchaser's ability to 
pay, or may be determined by any other fair and reasonable method (e.g., 
uniform prices for a group of comparable dwellings, within a range of 
affordability by potential purchases). Below-market financing may 
include any lawful type of public or private financing, including but 
not limited to purchase-money mortgages, non-cash second mortgages, 
promissory notes, guarantees of mortgage loans from other lenders, 
shared equity, or lease-purchase arrangements.



Sec. 906.31  Requirements applicable to net proceeds resulting from sale.

    (a) PHA use of net proceeds. The PHA must use any net proceeds of 
any sales under a homeownership program remaining after payment of all 
costs of the sale for purposes relating to low-income housing and in 
accordance with its PHA plan.
    (b) PRE use of resale net proceeds. The PHA may require the PRE to 
return the net proceeds from the resale of the units to the PHA. If the 
PHA permits the PRE to retain the net proceeds, the PRE must use these 
proceeds for low-income housing purposes.
    (c) Transfer of unsold unit to PHA. In a situation where the PRE 
fails to sell a unit to an eligible family within 5 years, and the 
provision of Sec. 906.19(d) requiring that the unit be transferred to 
the PHA applies:
    (1) If the unit has not been operated by the PRE as a public housing 
unit at any time during the 5-year period, the PHA may resell the unit 
in accordance with this part or any successor homeownership program of 
the department, or apply to have the unit included in its public housing 
program, if it meets all statutory and regulatory requirements of the 
public housing program; or
    (2) If the unit has been operated by the PRE as a public housing 
unit within such a 5-year period, the PHA must

[[Page 367]]

return the unit to operation in its regular public housing program.
    (d) Transfer of unsold unit operated as public housing to PHA. Where 
the PRE operates the unit as public housing during the 5-year interim 
period under Sec. 960.40, and fails to sell the unit to an eligible 
family within such 5-year period and the provision of Sec. 906.19(d) 
applies, the PHA must return the unit to operation in its regular public 
housing program.



Sec. 906.33  Reporting and recordkeeping requirements.

    The PHA is responsible for the maintenance of records (including 
sale and financial records) for all activities incident to 
implementation of the HUD-approved homeownership program. Where a PRE is 
responsible for the sale of units, the PHA must ensure that the PRE's 
responsibilities include proper recordkeeping and accountability to the 
PHA, sufficient to enable the PHA to monitor compliance with the 
approved homeownership program and to meet its audit responsibilities. 
All books and records must be subject to inspection and audit by HUD and 
the General Accounting Office (GAO). The PHA must report annually to HUD 
on the progress of each program approved under this part. The PHA must 
report as part of the Annual Plan process under Sec. 903.7(k) of this 
title, except for those PHAs under Sec. Sec. 903.11(c)(1) and (2) of 
this title who are not required to include information on their public 
housing homeownership programs in their Annual Plan. Those PHAs must 
report by providing a description of the homeownership program to HUD, 
including the cumulative number of units sold.



Sec. 906.35  Inapplicability of section 18 of the United States Housing 
Act of 1937.

    The provisions of section 18 of the 1937 Act (42 U.S.C. 1437p) do 
not apply to disposition of public housing dwelling units under a 
homeownership program approved by HUD under this part, or to the sale of 
a unit to a PRE to operate as public housing and sell to a low-income 
family within 5 years, under the requirements of Sec. 906.19.



Sec. 906.37  Davis-Bacon and HUD wage rate requirements.

    (a) Wage rates applicable to laborers and mechanics. Wage rate 
requirements in accordance with Sec. 968.110(e) of this title apply to 
the following activities:
    (1) Rehabilitation, repairs, and accessibility modifications 
performed under an agreement or contract with the PHA or by the PHA, 
pursuant to Sec. 906.7. Davis-Bacon or HUD-determined wage rates apply 
as follows:
    (i) Existing public housing units that will be sold under a 
homeownership program: Davis-Bacon rates apply, except that HUD rates 
apply to nonroutine maintenance as defined in Sec. 968.105 of this 
title;
    (ii) Non-public housing units acquired by a PHA using Capital Funds 
that will be sold under a homeownership program: Davis-Bacon rates 
apply; and
    (iii) Non-public housing units owned or acquired by a PHA with the 
intent to use 1937 Act funds to finance the sale of the units, or 
otherwise provide assistance to purchasers of the units: Davis-Bacon 
rates apply;
    (2) New construction of non-public housing units pursuant to a 
contract for acquisition by a PHA for the purpose of sale under a 
homeownership program: Davis-Bacon rates apply;
    (3) Operation, rehabilitation, and repair of units operated as 
public housing units by a PRE: HUD rates apply to nonroutine 
maintenance, as defined in Sec. 968.105 of this title, and routine 
maintenance. Davis-Bacon rates apply to rehabilitation and repair that 
does not qualify as nonroutine maintenance.
    (b) Technical wage rates. All architects, technical engineers, 
draftsmen, and technicians employed in the development of units under a 
homeownership program shall be paid not less than the HUD-determined 
wage rates in accordance with Sec. 968.100(f) of this title.



                Subpart E_Program Submission and Approval



Sec. 906.38  Requirement of HUD approval to implement a homeownership 
program under this part.

    A PHA must obtain HUD approval before implementing a homeownership

[[Page 368]]

program under this part. A homeownership program under this part must be 
carried out in accordance with the requirements of this part and the PHA 
Plan submitted under part 903 of this title.



Sec. 906.39  Contents of a homeownership program.

    A homeownership program must include the following matters, as 
applicable to the particular factual situation:
    (a) Method of Sale: The PHA should indicate how units will be sold, 
including a description of the exact method of sale, such as, for 
example, fee simple conveyance, lease-purchase, or sale of a cooperative 
share. PHAs may sell units directly to a tenant or eligible family 
directly or via a bona fide lease-purchase arrangement. The PHA must 
indicate whether it, or a PRE will sell units to families directly or 
via such lease-purchase method. If the PHA or PRE will use a lease-
purchase method the proposal should indicate the terms of the lease-
purchase arrangement. The terms of the lease-purchase arrangement shall 
include, but are not limited to the periodic documentation to be 
provided to the family regarding the amount they have accrued toward the 
down payment, and the length of the lease period (with regard to PREs 
the sales must be completed within the statutory 5-year period.);
    (b) Property description. (1) If the program involves only financing 
assistance to the family purchasing the unit, the PHA need not specify 
property addresses, but it must describe the area(s) in which the 
assistance is to be used;
    (2) If the PHA is selling existing public housing, it must describe 
the property, including identification of the property by project 
number, or street address if there is no project number, and the 
specific dwellings to be sold, with bedroom distribution by size and 
type broken down by development;
    (3) If the PHA is acquiring units with 1937 Act funds to sell under 
the program, it must comply with the provisions of Sec. 906.40 
concerning this element of the program;
    (c) Repair or rehabilitation. If applicable, a plan for any repair 
or rehabilitation needed to meet the requirements of Sec. 906.7, based 
on the assessment of the physical condition of the property that is 
included in the supporting documentation. The restriction in 906.5(c) of 
this part applies to such repair or rehabilitation;
    (d) Purchaser eligibility and selection. The standards and 
procedures to be used for homeownership applications and the eligibility 
and selection of purchasers, consistent with the requirements of Sec. 
906.15. If the homeownership program allows application for purchase of 
units by families who are not presently public housing or Section 8 
residents and not already on the PHA's waiting lists for those programs, 
the program must include an affirmative fair housing marketing strategy 
for such families, including specific steps to inform them of their 
eligibility to apply, and to solicit applications from those in the 
housing market who are least likely to apply for the program without 
special outreach, including persons with disabilities;
    (e) Sale and financing. Terms and conditions of sale and financing, 
including any below-market financing under Sec. 906.29;
    (f) Consultation with residents and purchasers. A description of 
resident input obtained during the resident consultation process 
required by the PHA Plan under part 903 of this title. If the PHA is one 
whose Plan does not require information regarding homeownership under 
Sec. 903.11(b)(1) of this title, the PHA must consult with the Resident 
Advisory Board or Boards regarding the homeownership plan, and provide 
the information required in this paragraph;
    (g) Counseling. Counseling, training, and technical assistance to be 
provided to purchasers;
    (h) Sale via PRE. If the program contemplates sale to residents by 
an entity other than the PHA, a description of that entity's 
responsibilities and information demonstrating that the requirements of 
Sec. 906.19 have been met or will be met in a timely fashion;
    (i) Non-purchasing residents. If applicable, a plan for non-
purchasing residents, in accordance with Sec. 906.23;
    (j) Sale proceeds. An estimate of the sale proceeds and an 
explanation of

[[Page 369]]

how they will be used, in accordance with Sec. 906.31;
    (k) Records, accounts, and reports. A description of the 
recordkeeping, accounting, and reporting procedures to be used, 
including those required by Sec. 906.33;
    (l) Budget. A budget estimate, showing any rehabilitation or repair 
cost, any financing assistance, and the costs of implementing the 
program, and the sources of the funds that will be used;
    (m) Timetable. An estimated timetable for the major steps required 
to carry out the program;
    (n) Deed restrictions. A deed restriction or covenant running with 
the land that will assure to HUD's satisfaction that the requirements of 
Sec. Sec. 906.27 and 906.15(b) are met.



Sec. 906.40  Supporting documentation.

    The following supporting documentation must be submitted to HUD with 
the proposed homeownership program, as appropriate for the particular 
program:
    (a) Supporting documentation--PREs. In approving homeownership 
programs in which the PHA contemplates selling public housing units to a 
PRE for operation as public housing during the 5 year interim period the 
department will require evidentiary materials including but not limited 
to:
    (1) Organizational documents of the PRE;
    (2) Regulatory and operating agreement between the PHA and PRE 
regarding the provision of operating subsidy and the operation of the 
public housing units in accordance with all applicable public housing 
requirements;
    (3) Management agreement and plan;
    (4) Financing documents, if any;
    (5) A description of the use of operating subsidy during the PRE's 
period of ownership, in the form of an operating pro forma;
    (6) A mixed-finance ACC amendment governing these units;
    (7) A deed restriction or covenant running with the land that will 
assure to HUD's satisfaction that the PRE will operate the units in 
accordance with public housing laws and regulations, including Sec. 
906.19.
    (8) A bond for repairs or proof of insurance to cover any damage to 
the property during the period of PRE ownership and operation;
    (9) Such other materials as may be required by HUD.
    (b) Physical assessment. An assessment of the physical condition of 
the properties, based on the standards specified in Sec. 906.7;
    (c) Feasibility. A statement demonstrating the practical feasibility 
of the program, based on analysis of data on such elements as purchase 
prices, costs of repair or rehabilitation, accessibility costs, if 
applicable, homeownership costs, family incomes, availability of 
financing, and the extent to which there are eligible residents who are 
expected to be interested in purchase (See Sec. 906.45(a));
    (d) PHA performance in homeownership. A statement of the commitment 
and capability of the PHA (and any other entity with substantial 
responsibility for implementing the homeownership program) to 
successfully carry out the homeownership program. The statement must 
describe the PHA's (and other entity's) past experience in carrying out 
homeownership programs for low-income families, and (if applicable) its 
reasons for considering such programs to have been successful. A PHA 
that has not previously implemented a homeownership program for low-
income families instead must submit a statement describing its 
experience in carrying out public housing modernization and development 
projects under part 905 of this title, respectively;
    (e) Nondiscrimination certification. The PHA's or PRE's 
certification that it will administer the plan on a nondiscriminatory 
basis, in accordance with the Fair Housing Act, Title VI of the Civil 
Rights Act of 1964, Executive Order 11063, other authorities cited in 
Sec. 5.105(a) of this title, and the implementing regulations, and will 
assure compliance with those requirements by any other entity that may 
assume substantial responsibilities for implementing the program;
    (f) Legal opinion. An opinion by legal counsel to the PHA, stating 
that counsel has reviewed the program and finds

[[Page 370]]

it consistent with all applicable requirements of federal, state, and 
local law, including regulations as well as statutes. At a minimum, the 
attorney must certify that the documents to be used will ensure sales 
only to eligible families under Sec. 906.15, compliance with the 5-year 
PRE sale guarantee in Sec. 906.19(d), and compliance with the 
restriction of use of resale proceeds of Sec. 906.27;
    (g) Board resolution. A resolution by the PHA's Board of 
Commissioners, evidencing its approval of the program;
    (h) Section 8(y). In any case where the PHA plans to provide 
families with assistance under the Section 8(y) homeownership option in 
connection with homeownership under this part, a certification that the 
PHA will comply with the requirements of the Section 8(y) statute and 
implementing regulations;
    (i) Other information. Any other information that may reasonably be 
required for HUD review of the program. Except for the PHA-HUD 
implementing agreement under Sec. 906.49 and the deed restriction 
required by Sec. 906.39(n), HUD approval is not required for documents 
to be prepared and used by the PHA in implementing the program (such as 
contracts, applications, deeds, mortgages, promissory notes, and 
cooperative or condominium documents), if their essential terms and 
conditions are described in the program. Consequently, those documents 
need not be submitted as part of the program or the supporting 
documentation.



Sec. 906.41  Additional supporting documentation for acquisition of 
non-public housing for homeownership.

    (a) Proposal contents. The PHA must submit an acquisition proposal 
to the HUD field office for review and approval before its homeownership 
plan containing acquisition of non-public housing can be approved. This 
proposal must contain the following:
    (1) Property description. A description of the properties, including 
the number of housing units, unit types, and number of bedrooms, and any 
non-dwelling facilities on the properties to be acquired;
    (2) Certification. If the housing units were constructed under a 
contract or an agreement that they be sold to the PHA, a certification 
that the developer/owner complied with all Davis-Bacon wage rate 
requirements under Sec. 906.37, including all required contractual 
provisions and compliance measures, and that the PHA received all 
applicable HUD environmental approvals and all applicable HUD releases 
of funds before executing the contract or agreement, in accordance with 
Sec. 906.47(d).
    (3) Site information. A description of the proposed general location 
of the properties to be acquired, or where specific properties have been 
identified, street addresses of the properties;
    (4) Property costs. The detailed budget of costs for acquiring the 
properties, including relocation and closing costs, and an 
identification of the sources of funding;
    (5) Appraisal. An appraisal of the proposed properties by an 
independent, state-certified appraiser (when the sites have been 
identified);
    (6) Property acquisition schedule. A copy of the PHA acquisition 
schedule;
    (7) Environmental information. (i) The environmental information 
required by Sec. 906.47(f), where HUD will perform the environmental 
review under 24 CFR part 50, or a statement identifying the responsible 
entity that has performed or will perform the review under 24 CFR part 
58. This paragraph (a)(7)(i) does not apply to a property where a 
contract or agreement for sale to the PHA has already been executed and 
HUD has already given prior approval of the property following 
environmental review under 24 CFR part 50.
    (ii) Where the PHA's homeownership program is submitted for approval 
to HUD and contemplates acquisition of properties not identified at the 
time of submission or approval, the procedures at Sec. 906.47(e) apply.
    (8) Market analysis. An analysis of the potential market of eligible 
purchasers for the homeownership units.
    (9) Additional HUD-requested information. Any additional information 
that may be needed for HUD to determine whether it can approve the 
proposal.

[[Page 371]]

    (b) Cost limit. The acquisition cost of each property is limited by 
the housing cost cap limit, as determined by HUD.



Sec. 906.43  Where a PHA is to submit a homeownership program for HUD approval.

    A PHA must submit its proposed homeownership program together with 
supporting documentation, in a format prescribed by HUD, to the Special 
Applications Center with a copy to the appropriate HUD field office.



Sec. 906.45  HUD criteria for reviewing a proposed homeownership program.

    HUD will use the following criteria in reviewing a homeownership 
program:
    (a) Feasibility. The program must be practically feasible, with 
sound potential for long-term success. Financial viability, including 
the capability of purchasers to meet the financial obligations of 
homeownership, is a critical requirement.
    (b) Legality. Counsel for the PHA shall certify that the 
homeownership program is consistent with applicable law, including the 
requirements of this part and any other applicable federal, state, and 
local statutes and regulations, including existing contracts, and HUD 
shall accept such certification unless HUD has information indicating 
that the certification is incorrect.
    (c) Documentation. The program must be clear and complete enough to 
serve as a working document for implementation, as well as a basis for 
HUD review.
    (d) PHA performance in homeownership. The PHA (and any other entity 
with substantial responsibility for implementing the homeownership 
program) must have demonstrated the commitment and capability to 
successfully implement the homeownership program based upon the criteria 
stated in Sec. 906.41(d).



Sec. 906.47  Environmental requirements.

    (a) General. HUD environmental regulations at 24 CFR part 58 apply 
to this part, unless, under Sec. 58.11 of this title, HUD itself 
performs the environmental review under 24 CFR part 50. The PHA 
conducting a homeownership program under this part must comply with this 
section and part 50 or 58, as applicable.
    (b) Assistance to facilitate the purchase of homes. Where the PHA's 
homeownership program involves assistance provided under the 1937 Act 
solely to assist homebuyers to purchase existing dwelling units or 
dwelling units under construction, an environmental review is not 
required under part 58 or part 50 of this title. However, the 
requirements of Sec. 58.6 or Sec. 50.19(b)(15) of this title are still 
applicable.
    (c) Public housing units in the PHA's inventory. Before the PHA 
rehabilitates or repairs units in its inventory for use for 
homeownership, or expends or commits HUD or local funds for such 
activities, the responsible entity must comply with part 58 and the PHA, 
where required, must submit and receive HUD approval of its request for 
release of funds, or HUD must have completed any part 50 environmental 
review and notified the PHA of its approval of the property. HUD may not 
release funds under this part before the appropriate approval is 
obtained.
    (d) Units to be acquired with federal funds and used for public 
housing homeownership. A PHA may not enter into any contract for 
acquisition of real property to be used in a homeownership program 
unless the required environmental reviews have been performed and 
approvals have been obtained.
    (e) Specific units unidentified. Where the PHA's homeownership 
program contemplates acquisition of properties not identified at the 
time of submission, the PHA must certify that it will comply with this 
section, including paragraph (f) of this section, prior to such 
acquisition or construction. HUD may conditionally approve such a 
homeownership program; however, HUD will not give final approval of any 
site or unit until the required environmental review has been completed.
    (f) Information. The PHA shall supply all relevant information 
necessary for the responsible entity, or HUD, if applicable, to perform 
the environmental review for each property included in the homeownership 
program, and, if necessary, shall carry out mitigating measures or 
select alternate eligible properties. Where HUD performs the 
environmental review, the PHA shall comply with 24 CFR 50.3(h).

[[Page 372]]

    (g) Non-exclusivity. Nothing in this section relieves the 
participating PHA, and its partners and contractors, from complying with 
all requirements of 24 CFR part 50 or part 58, as applicable.



Sec. 906.49  HUD approval; implementing agreement.

    HUD may approve a homeownership program as submitted, conditionally 
approve it under Sec. 906.47(e), or return it to the PHA for revision 
and resubmission. Where such conditional approval is given, the PHA, 
partners, and contractors remain subject to the restrictions in Sec. 
906.47. Upon HUD notification to the PHA that the homeownership program 
is approvable (in final form that satisfies all applicable requirements 
of this part), the PHA and HUD will execute a written implementing 
agreement, in a form prescribed by HUD, to evidence HUD approval and 
authorization for implementation. The program itself, as approved by 
HUD, must be incorporated in the implementing agreement. Any of the 
items of supporting documentation may also be incorporated, if agreeable 
to the PHA and HUD. The PHA is obligated to carry out the approved 
homeownership program and other provisions of the implementing agreement 
without modification, except with written approval by HUD.



PART 908_ELECTRONIC TRANSMISSION OF REQUIRED FAMILY DATA FOR PUBLIC HOUSING, 

INDIAN HOUSING, AND THE SECTION 8 RENTAL CERTIFICATE, RENTAL VOUCHER, AND 
MODERATE REHABILITATION PROGRAMS--Table of Contents




Sec.
908.101 Purpose.
908.104 Requirements.
908.108 Cost.
908.112 Extension of time.

    Authority: 42 U.S.C. 1437f, 3535(d), 3543, 3544, and 3608a.

    Source: 60 FR 11628, Mar. 2, 1995, unless otherwise noted.



Sec. 908.101  Purpose.

    The purpose of this part is to require Housing Agencies (HAs) that 
operate public housing, Indian housing, or Section 8 Rental Certificate, 
Rental Voucher and Moderate Rehabilitation programs to electronically 
submit certain data to HUD for those programs. This electronically 
submitted data is required for HUD Forms HUD-50058, Family Report, and 
HUD-50058-FSS, Family Self-Sufficiency Addendum.



Sec. 908.104  Requirements.

    (a) Automated HAs. Housing agencies that currently use automated 
software packages to transmit Forms HUD-50058 and HUD-50058-FSS 
information by tape or diskette to the Department's data processing 
contractor must convert to telephonic electronic transmission of that 
data in a HUD specified format by June 30, 1995.
    (b) Nonautomated HAs. Housing agencies that currently prepare and 
transmit the HUD-50058 and HUD-50058-FSS information to HUD paper must:
    (1) Complete a vendor search and obtain either:
    (i) The necessary hardware and software required to develop and 
maintain an in-house automated data processing system (ADP) used to 
generate electronic submission of the data for these forms via 
telephonic network; or
    (ii) A service contract for the operation of an automated system to 
generate electronic submission of the data for these forms via 
telephonic network;
    (2) Complete their data loading; and
    (3) Begin electronic transmission by March 2, 1996.
    (c) Electronic transmission of data. Electronic transmission of data 
consists of submission of all required data fields (correctly formatted) 
from the forms HUD-050058 and HUD-50058-FSS telephonically, in 
accordance with HUD instructions. Regardless of whether an HA obtains 
the ADP system itself or contracts with a service bureau to provide the 
system, the software must be periodically updated to incorporate changes 
or revisions in legislation, regulations, handbooks, notices, or HUD 
electronic transmission data format requirements.
    (d) Service contract. HAs that determine that the purchase of 
hardware and/or software is not cost effective may contract out the 
electronic data transmission function to organizations

[[Page 373]]

that provide such services, including, but not limited to the following 
organizations: local management associations and management agents with 
centralized facilities. HAs that contract out the electronic 
transmission function must retain the ability to monitor the day-to-day 
operations of the project at the HA site and be able to demonstrate the 
ability to the relevant HUD Field Office.
    (e) Notwithstanding the provisions of paragraphs (a) and (b) of this 
section, the Department may approve transmission of the data by tape or 
diskette if it determines that the cost of telephonic transmission would 
be excessive.

(Approved by the Office of Management and Budget under control number 
2577-0083)



Sec. 908.108  Cost.

    (a) General. The costs of the electronic transmission of the 
correctly formatted data, including either the purchase and maintenance 
of computer hardware or software, or both, the cost of contracting for 
those services, or the cost of centralizing the electronic transmission 
function, shall be considered Section 8 Administrative expenses, or 
eligible public and Indian housing operating expenses that can be 
included in the public and Indian housing operating budget. At the HA's 
option, the cost of the computer software may include service contracts 
to provide maintenance or training, or both.
    (b) Sources of funding. For public and Indian housing, costs may be 
covered from operating subsidy for which the HA is already eligible, or 
the initial cost may be covered by funds received by the HA under HUD's 
Comprehensive Improvement Assistance Program (CIAP) or Comprehensive 
Grant Program (CGP). For Section 8 programs, the costs may be covered 
from ongoing administrative fees or the Section 8 operating reserve.



Sec. 908.112  Extension of time.

    The HUD Field Office may grant an HA an extension of time, of a 
reasonable period, for implementation of the requirements of Sec. 
908.104, if it determines that such electronic submission is infeasible 
because of one of the following:
    (a) Lack of staff resources;
    (b) Insufficient financial resources to purchase the required 
hardware, software or contractual services; or
    (c) Lack of adequate infrastructure, including, but not limited to, 
the inability to obtain telephone service to transmit the required data.



PART 941_PUBLIC HOUSING DEVELOPMENT--Table of Contents




                            Subpart A_General

Sec.
941.101 Purpose and scope.
941.102 Development methods and funding.
941.103 Definitions.

           Subpart B_PHA Eligibility and Program Requirements

941.201 PHA eligibility.
941.202 Site and neighborhood standards.
941.203 Design and construction standards.
941.205 PHA contracts.
941.207 Displacement, relocation, and acquisition.
941.208 Other Federal requirements.
941.209 Audit.

                   Subpart C_Application and Proposal

Sec.
941.301 Application.
941.302 Annual contributions contract; drawdowns and advances.
941.303 Site acquisition proposal.
941.304 Full proposal content.
941.305 Technical processing and approval.
941.306 Maximum project cost.

                      Subpart D_Project Development

Sec.
941.401 Site and property acquisition.
941.402 Project design and construction.
941.403 Acceptance of work and contract settlement.
941.404 Completion of development.

                      Subpart E_Performance Review

941.501 HUD review of PHA performance; sanctions.

Subpart F_Public/Private Partnerships for the Mixed Finance Development 
                         of Public Housing Units

Sec.
941.600 Purpose.
941.602 Applicability of other requirements.
941.604 Definitions.
941.606 Proposal.
941.608 Technical processing and approval.

[[Page 374]]

941.610 Evidentiary materials and other documents.
941.612 Disbursement of grant funds.
941.614 HUD monitoring and review.
941.616 Sanctions.

    Authority: 42 U.S.C. 1437b, 1437c, 1437g, and 3535(d).

    Source: 45 FR 60838, Sept. 12, 1980, unless otherwise noted. 
Redesignated at 49 FR 6714, Feb. 23, 1984.



                            Subpart A_General



Sec. 941.101  Purpose and scope.

    (a) Purpose. The U.S. Housing Act of 1937 (Act), 42 U.S.C. 1437, 
authorizes HUD to assist public housing agencies (PHAs) with the 
development and operation of low-income housing projects and financial 
assistance in the form of grants (42 U.S.C. 1437c, 1437g, and 1437l). 
The purpose of the program is to develop units which serve the needs of 
public housing residents over the long term and have the lowest possible 
life cycle costs, taking into account future operating and replacement 
costs, as well as original capital investments.
    (b) Scope. This part is the regulation under which a PHA develops 
low-income housing (excluding Indian housing), herein called public 
housing.
    (c) Approved information collections. The following sections of this 
part have been approved by the Office of Management and Budget in 
accordance with the Paperwork Reduction Act of 1995 (42 U.S.C. 3501-
3520) and assigned the OMB approval numbers indicated:

------------------------------------------------------------------------
  Approval
    No.                                Sections
------------------------------------------------------------------------
  2577-0033  941.207, 941.301, 941.303, 941.304, 941.606, 941.610.
  2577-0036  941.205, 941.404.
  2577-0039  941.402.
------------------------------------------------------------------------


[61 FR 38016, July 22, 1996, as amended at 64 FR 13511, Mar. 19, 1999]

    Effective Date Notes: At 61 FR 38016, July 22, 1996, Sec. 941.101 
was revised. This section contains information collection and 
recordkeeping requirements and will not become effective until approval 
has been given by the Office of Management and Budget. When approval is 
obtained, HUD will publish notice of the effective date in the Federal 
Register.



Sec. 941.102  Development methods and funding.

    (a) Methods. A PHA may use any generally accepted method of 
development including, but not limited to, conventional, turnkey, 
acquisition with or without rehabilitation, mixed-finance, and force 
account.
    (1) Conventional. Under this method, the PHA is responsible for 
selecting a site or property and designing the project. The PHA 
advertises for competitive bids to build or rehabilitate the development 
on the PHA-owned site. The PHA awards a construction contract in 
accordance with 24 CFR part 85. The contractor receives progress 
payments from the PHA during construction or rehabilitation and a final 
payment upon completion of the project in accordance with the 
construction contract. The conventional method may be used for either 
new construction or rehabilitation.
    (2) Turnkey. The turnkey method involves the advertisement and 
selection of a turnkey developer by the PHA, based on the best housing 
package for a site or property owned or to be purchased by the 
developer. Following HUD approval of the PHA's full proposal, the 
developer prepares the design and construction documents. The PHA and 
the developer execute the contract of sale to implement the PHA's full 
proposal. The developer is responsible for providing a completed housing 
project, which includes obtaining construction financing. Upon 
completion of project construction or rehabilitation in accordance with 
the contract of sale, the PHA purchases the development from the 
developer. This method may be used for either new construction or 
rehabilitation.
    (3) Acquisition. The acquisition method involves a purchase of 
existing property that requires little or no repair work. Any needed 
repair work is completed after acquisition, either by the PHA 
contracting to have the work done or by having the staff of the PHA 
perform the work.
    (4) Mixed-finance. This method involves financing from both public 
and private sources and may involve ownership of the public housing 
units by an entity other than the PHA. This method of development may be 
carried out

[[Page 375]]

by a PHA only in accordance with the requirements set forth in subpart 
F.
    (5) Force account. The force account method involves use of PHA 
staff to carry out new construction or rehabilitation. A PHA may only 
develop a full proposal based on the force account method if HUD has 
determined that the PHA has the capability to develop successfully the 
public housing units using this method.
    (b) Funding. A PHA may develop public housing with:
    (1) Development funds reserved by HUD for that purpose;
    (2) Modernization funds under section 14 of the Act (42 U.S.C. 
1437l), to the extent authorized by law and under procedures approved by 
HUD; and/or
    (3) Funds available to it from any other source, consistent with 
Sec. 941.306(e), or as may be otherwise approved by HUD.
    (c) Limit on number of units. (1) General. A PHA may not develop 
public housing pursuant to this part beyond the lesser of the number of 
units that the PHA had under ACC on August 21, 1996, or the number of 
units for which it was receiving operating subsidy on that date, unless 
authorized by HUD. HUD may condition such authorization on the PHA's 
agreement that such incremental units, once developed, will be 
ineligible for capital and/or operating subsidies from HUD.
    (2) Replacement housing units. With respect to units constructed to 
replace public housing units that were demolished or disposed of, a PHA 
may use (in whole or in part) funding from non-HUD sources or from HUD 
funding not provided under the Act. However, development of such units 
must be approved by HUD in advance for them to be eligible for inclusion 
under the ACC.

[61 FR 38016, July 22, 1996, as amended at 67 FR 76101, Dec. 10, 2002]



Sec. 941.103  Definitions.

    The terms HUD and Public Housing Agency (PHA) are defined in 24 CFR 
part 5.
    Act. The U.S. Housing Act of 1937 (42 U.S.C. 1437).
    Additional Project Costs (APC) means the sum of the following HUD-
approved costs related to the development of a public housing project, 
which costs are not subject to the Total Development Cost limit but are 
included in the maximum project cost, as described in Sec. 941.306:
    (1) Demolition of, or remediation of environmental hazards 
associated with, public housing units that will not be replaced on the 
site; and
    (2) Extraordinary site costs that have been verified by an 
independent registered engineer (e.g., removal of underground utility 
systems, and replacement of off-site underground utility systems, 
extensive rock and/or soil removal and replacement, and amelioration of 
unusual site conditions such as unusual slopes, terraces, water 
catchments, lakes, etc.)
    Annual Contributions Contract (ACC). A contract (in the form 
prescribed by HUD) for loans and contributions, which may be in the form 
of grants, whereby HUD agrees to provide financial assistance and the 
PHA agrees to comply with HUD requirements for the development and 
operation of a public housing project.
    Community Renewal Cost (CRC) means the sum of the following HUD-
approved costs related to the development of a public housing project: 
planning (including proposal preparation), administration, site 
acquisition, relocation, demolition of, and site remediation of 
environmental hazards associated with, public housing units that will be 
replaced on the project site, interest and carrying charges, off-site 
facilities, community buildings and non-dwelling facilities, contingency 
allowance, insurance premiums, any initial operating deficit, on-site 
streets, on-site utilities, and other costs necessary to develop the 
project that are not covered under APC or Housing Construction Cost.
    Construction Contract. A contract between the PHA and a contractor 
to build or rehabilitate a project using the conventional development 
method.
    Construction documents. The working drawings and construction 
specifications and the rehabilitation work write-ups, where applicable, 
that set forth the work to be done under a construction contract or 
contract of sale.
    Contract of sale. A contract between the PHA and a developer whereby 
the PHA agrees to purchase a completed

[[Page 376]]

project after construction or rehabilitation by a developer using the 
turnkey development method.
    Cooperation Agreement. An agreement between a PHA and the applicable 
local governing body or bodies which assures exemption from real and 
personal property taxes, provides for local support and services for the 
development and operation of a public housing project, and provides for 
PHA payments in lieu of taxes.
    Design documents. The preliminary drawings and specifications and 
the preliminary rehabilitation work write-ups, where applicable, in 
sufficient detail to define the extent of construction or rehabilitation 
and demonstrate compliance with HUD design and construction standards.
    Housing Construction Cost (HCC) means the sum of the following HUD-
approved costs related to the development of a public housing project: 
dwelling unit hard costs (including construction and equipment); 
builder's overhead and profit; the cost of extending utilities from the 
street to the public housing project; finish landscaping; and the 
payment of Davis-Bacon wage rates.
    Proposal. A document submitted by a PHA to HUD, in accordance with 
subpart C of this part, for approval of the development of a public 
housing project. As used in this part, ``proposal'' refers to both the 
``site acquisition proposal'' (Sec. 941.303), and the ``full proposal'' 
(Sec. 941.304), unless specifically indicated otherwise.
    Public housing capital assistance means assistance provided by HUD 
under the Act or the HOPE VI program in connection with the development 
of public housing under this part, including: Capital Fund assistance 
provided under section 9(d) of the Act, public housing development 
assistance provided under section 5 of the Act, Operating Fund 
assistance used for capital purposes under section 9(g)(1) or (g)(2) of 
the Act, and HOPE VI grant assistance.
    Reformulation. The procedure by which HUD approves division of a 
project (including units and related funds) into two or more projects, 
or combining two or more projects into one, or redistributing units and 
related funds in a project among two or more projects, in order to 
provide PHAs with the flexibility to adapt to site availability, to 
resolve development problems, to acquire buildings ready for development 
(before acquisition of other buildings), and to save on interest and 
initial operating costs.
    Total Development Cost (TDC) limit. The maximum amount of public 
housing capital assistance that can be used to pay for Housing 
Construction Costs and Community Renewal Costs in connection with the 
development of a public housing project, as determined under Sec. 
941.306(b)(2). The TDC limit does not apply to Additional Project Costs.

[45 FR 60838, Sept. 12, 1980, as amended at 56 FR 13282, Apr. 1, 1991; 
58 FR 62524, Nov. 29, 1993; 61 FR 5214, Feb. 9, 1996; 61 FR 38017, July 
22, 1996; 62 FR 27125, May 16, 1997; 67 FR 76101, Dec. 10, 2002]



           Subpart B_PHA Eligibility and Program Requirements



Sec. 941.201  PHA eligibility.

    (a) General. In order to participate in the public housing program, 
a PHA must be approved as an eligible PHA. HUD will determine 
eligibility based on a showing that the PHA has the legal authority and 
local cooperation required by this part.
    (b) Legal authority. The PHA must demonstrate that it has the legal 
authority to develop, own, and operate a public housing project under 
the Act.
    (c) Troubled PHAs. Unless HUD determines that a PHA that has been 
classified as troubled or modernization-troubled, in accordance with 24 
CFR part 901, has adequate capacity to develop public housing units, the 
PHA so classified shall engage a HUD-approved program manager to develop 
and implement the PHA's proposal. HUD shall review the solicitation and 
the selection before award of a contract is made by such a PHA.
    (d) Local cooperation. The PHA must provide a cooperation agreement 
between the PHA and the applicable local governing body for the area in 
which the public housing project is to be located as evidence that the 
local governing body will provide the local cooperation required by HUD 
pursuant to the Act. This local cooperation shall

[[Page 377]]

include exemption from real and personal property taxes, acceptance of 
PHA payments in lieu of taxes, and the provision at no cost or at no 
greater cost by the local governing body of the same public services and 
facilities normally furnished to others in the community.

[45 FR 60838, Sept. 12, 1980. Redesignated at 49 FR 6714, Feb. 23, 1984, 
as amended at 61 FR 38017, July 22, 1996]



Sec. 941.202  Site and neighborhood standards.

    Proposed sites for public housing projects to be newly constructed 
or rehabilitated must be approved by the field office as meeting the 
following standards:
    (a) The site must be adequate in size, exposure and contour to 
accommodate the number and type of units proposed, and adequate 
utilities (e.g., water, sewer, gas and electricity) and streets must be 
available to service the site.
    (b) The site and neighborhood must be suitable from the standpoint 
of facilitating and furthering full compliance with the applicable 
provisions of Title VI of the Civil Rights Act of 1964, Title VIII of 
the Civil Rights Act of 1968, E.O. 11063, and HUD regulations issued 
pursuant thereto.
    (c)(1)The site for new construction projects must not be located in:
    (i) An area of minority concentration unless (A) sufficient, 
comparable opportunities exist for housing for minority families, in the 
income range to be served by the proposed project, outside areas of 
minority concentration, or (B) the project is necessary to meet 
overriding housing needs which cannot otherwise feasibly be met in that 
housing market area. An ``overriding need'' may not serve as the basis 
for determining that a site is acceptable if the only reason the need 
cannot otherwise feasibly be met is that discrimination on the basis of 
race, color, religion, creed, sex, or national origin renders sites 
outside areas of minority concentration unavailable; or
    (ii) A racially mixed area if the project will cause a significant 
increase in the proportion of minority to non-minority residents in the 
area.
    (2) Notwithstanding any other provision of this paragraph (c), 
public housing units constructed after demolition of public housing 
units may be built on the original public housing site, or in the same 
neighborhood, if one of the following criteria is satisfied:
    (i) The number of public housing units being constructed is no more 
than 50 percent of the number of units in the original project;
    (ii) In the case of replacement of a currently occupied project, the 
number of public housing units being constructed is the minimum number 
needed to house current residents who want to remain at the site; or
    (iii) The public housing units being constructed constitute no more 
than twenty-five units.
    (d) The site must promote greater choice of housing opportunities 
and avoid undue concentration of assisted persons in areas containing a 
high proportion of low-income persons.
    (e) The site must be free from adverse environmental conditions, 
natural or manmade, such as instability, flooding, septic tank back-ups, 
sewage hazards or mudslides; harmful air pollution, smoke or dust; 
excessive noise vibration, vehicular traffic, rodent or vermin 
infestation; or fire hazards. The neighborhood must not be one which is 
seriously detrimental to family life or in which substandard dwellings 
or other undesirable elements predominate, unless there is actively in 
progress a concerted program to remedy the undesirable conditions.
    (f) The site must comply with any applicable conditions in the local 
plan approved by HUD.
    (g) The housing must be accessible to social, recreational, 
educational, commercial, and health facilities and services, and other 
municipal facilities and services that are at least equivalent to those 
typically found in neighborhoods consisting largely of similar 
unassisted standard housing.
    (h) Travel time and cost via public transportation or private 
automobile, from the neighborhood to places of employment providing a 
range of jobs for low-income workers, must not be excessive. (While it 
is important that elderly housing not be totally isolated from 
employment opportunities, this requirement need not be adhered to 
rigidly for such projects.)

[[Page 378]]

    (i) The project may not be built on a site that has occupants unless 
the relocation requirements referred to in Sec. 941.207 are met.
    (j) The project may not be built in an area that has been identified 
by HUD as having special flood hazards and in which the sale of flood 
insurance has been made available under the National Flood Insurance Act 
of 1968, unless the project is covered by flood insurance as required by 
the Flood Disaster Protection Act of 1973, and it meets any relevant HUD 
standards and local requirements.

[45 FR 60838, Sept. 12, 1980. Redesignated at 49 FR 6714, Feb. 23, 1984, 
as amended at 61 FR 38017, July 22, 1996]



Sec. 941.203  Design and construction standards.

    (a) Physical structures shall be designed, constructed and equipped 
so as to improve or harmonize with the neighborhoods they occupy, meet 
contemporary standards of modest comfort and liveability, promote 
security, and be attractive and marketable to the people they are 
intended to serve. Building design and construction shall strive to 
encourage in residents a proprietary sense, whether or not homeownership 
is intended or contemplated.
    (b) Projects must comply with:
    (1) A national building code, such as Uniform Building Code, Council 
of American Building Officials Code, or Building Officials Conference of 
America Code;
    (2) Applicable State and local laws, codes, ordinances, and 
regulations; and
    (3) Other Federal requirements, including any Federal fire-safety 
requirements and HUD minimum property standards (e.g., 24 CFR part 200, 
subpart S, and Sec. 941.208).
    (c) Projects for families with children shall consist to the maximum 
extent practicable of low-density housing (e.g., non-elevator 
structures, scattered sites or other types of low-density developments 
appropriate in the community).
    (d) High-rise elevator structures shall not be provided for families 
with children regardless of density, unless the PHA demonstrates and HUD 
determines that there is no practical alternative. High-rise buildings 
for the elderly may be used if the PHA demonstrates and HUD determines 
that such construction is appropriate, taking into consideration land 
costs, the safety and security of the prospective occupants, and the 
availability of community services.

[61 FR 38017, July 22, 1996]



Sec. 941.205  PHA contracts.

    (a) ACC requirements. In order to be considered as eligible project 
expenses, all development related contracts entered into by the PHA 
shall provide for compliance with the provisions of the ACC.
    (b) Contract forms. HUD may prescribe the form of any development 
related contracts, and the PHA shall use such forms. If a form is not 
prescribed, the PHA may develop its own form; however, it must contain 
all applicable federal requirements.
    (c) When HUD approval is required. The PHA is authorized to execute 
all development-related contracts without prior HUD review or approval 
with the exception of:
    (1) All forms of site or property acquisition contracts regardless 
of development method; and
    (2) Contracts whose amount exceeds a contract approval threshold 
established by HUD for that PHA; and
    (3) A contract for the selection of a program manager to develop and 
implement the PHA's proposal (see Sec. 941.201(c)).
    (d) Each PHA shall certify before executing any contract with a 
contractor that the contractor is not suspended, debarred, or otherwise 
ineligible under 24 CFR part 24. The PHA also shall ensure that all 
subgrantees, contractors, and subcontractors select only contractors who 
are not listed as suspended, debarred, or otherwise ineligible under 24 
CFR part 24.

[61 FR 38018, July 22, 1996]

    Effective Date Note: At 61 FR 38018, July 22, 1996, Sec. 941.205 
was revised. This section contains information collection and 
recordkeeping requirements and will not become effective until approval 
has been given by the Office of Management and Budget. When approval is 
obtained, HUD will publish notice of the effective date in the Federal 
Register.

[[Page 379]]



Sec. 941.207  Displacement, relocation, and acquisition.

    (a) Minimizing displacement. Consistent with the other goals and 
objectives of this part, the PHA shall assure that it has taken all 
reasonable steps to minimize the displacement of persons (households, 
businesses, nonprofit organizations, and farms) as a result of a project 
assisted under this part.
    (b) Temporary relocation. Only residential tenants who are eligible 
under 24 CFR 913.103 and who meet the PHA standards for tenancy 
established pursuant to 24 CFR 960.204 will be permitted to continue in 
occupancy. Any residential tenant who (though not required to move 
permanently) must relocate temporarily (e.g., to permit rehabilitation 
or major reconstruction) 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, any increase in monthly rent/
utility costs and incidental expenses.
    (2) Appropriate advisory services, including reasonable advance 
written notice of:
    (i) The date and approximate duration of the temporary relocation;
    (ii) The location of the suitable, decent, safe and sanitary housing 
to be made available for the temporary period;
    (iii) The terms and conditions under which the tenant may lease and 
occupy a suitable, decent, safe, and sanitary dwelling in the building/
complex following completion of the project; and
    (iv) The provisions of paragraph (b)(1) of this section.
    (c) Relocation assistance for displaced persons. A ``displaced 
person'' (defined in paragraph (h) of this section) must be provided 
relocation assistance at the levels described in, and in accordance with 
the requirements of, the Uniform Relocation Assistance and Real Property 
Acquisition Policies Act of 1970, as amended (URA) (42 U.S.C. 4601-4655) 
and implementing regulations at 49 CFR part 24. A ``displaced person'' 
shall be advised of his/her rights under the Fair Housing Act (42 U.S.C. 
3601-19), and, if the representative comparable replacement dwelling 
used to establish the amount of the replacement housing payment to be 
provided to a minority person is located in an area of minority 
concentration, such person also shall be given, if possible, referrals 
to comparable and suitable, decent, safe, and sanitary replacement 
dwellings not located in such areas.
    (d) Real property acquisition requirements. The acquisition of real 
property for a project is subject to the URA and the requirements in 49 
CFR part 24, subpart B. With respect to the Turnkey method of 
development (see 24 CFR 941.102(b)), 49 CFR 24.101(a) (1) and (2) apply 
to the PHA/developer and developer/owner transactions, respectively.
    (e) Notices. (1) As soon as possible after the date described in 
paragraph (h)(1)(i) of this section, the PHA shall issue a general 
information notice (described in 49 CFR 24.203(a)) to each occupant of 
the property.
    (2) At the time of the initiation of negotiations (defined in 
paragraph (i) of this section), the PHA shall issue an appropriate 
written notice to each person occupying the property. Those to be 
displaced shall be issued a notice of eligibility for relocation 
assistance. (This notice may be combined with the 90-day notice under 49 
CFR 24.203(c).) Tenants (eligible under 24 CFR 913.103 and the standards 
for tenancy established in accordance with 24 CFR 960.204) who will not 
be displaced shall be issued a notice offering the tenant the 
opportunity to enter into a lease to continue in occupancy of the 
property under reasonable terms and conditions. (Also, see paragraph 
(h)(1)(iii) of this section.)
    (f) Appeals. A person who disagrees with the PHA's determination 
concerning whether the person qualifies as a ``displaced person,'' or 
the amount of relocation assistance for which the person is eligible, 
may file a written appeal of that determination with the PHA. A person 
who is dissatisfied with the PHA's determination on his or her appeal 
may submit a written request for review of that determination to the HUD 
Field Office.
    (g) Responsibility of PHA. (1) The PHA shall certify (i.e., provide 
assurance of compliance, as required by 49 CFR part 24) that it will 
comply with the URA, the regulations at 49 CFR part 24, and

[[Page 380]]

the requirements of this section, and shall ensure such compliance 
notwithstanding any third party's contractual obligation to the PHA to 
comply. The certification in the PHA's ``Resolution in Support of Public 
Housing Project'' that the PHA will comply with all the requirements of 
24 CFR part 941 shall constitute the PHA's certification of compliance 
with the URA, the implementing regulations at 49 CFR part 24, and this 
section.
    (2) The cost of required assistance is an eligible project cost in 
the same manner and to the same extent as other project costs. Such 
costs may also be paid from funds available from other sources.
    (3) The PHA must maintain records in sufficient detail to 
demonstrate compliance with this section, including data indicating the 
race, ethnic, gender and disability status of displaced persons.
    (h) Definition of displaced person. (1) For purposes of this 
section, the term displaced person means a person (household, business, 
nonprofit organization, or farm) that moves from real property, or moves 
personal property from real property, permanently, as a direct result of 
acquisition, rehabilitation, or demolition for a project assisted under 
this part. The term ``displaced person'' includes, but may not be 
limited to:
    (i) A person who moves permanently from the real property after 
receiving a notice from the PHA or property owner that requires such 
move, if the move occurs on or after:
    (A) For conventional or acquisition projects, the date of approval 
by HUD of the PHA proposal incorporating the site, or for scattered 
sites, the date HUD approves the applicable site;
    (B) For turnkey projects, the date the PHA proposal is submitted to 
HUD; or
    (C) For major reconstruction of obsolete public housing projects, 
the date the PHA issues the invitation for bids for the project;
    (ii) Any person, including a person who moves before the date 
described in paragraph (h)(1)(i) of this section, that the PHA or HUD 
determines was displaced as a direct result of acquisition, 
rehabilitation, or demolition for the assisted project; or
    (iii) A tenant-occupant of a dwelling unit who moves from the 
building/complex, permanently, after the ``initiation of negotiations,'' 
(defined in paragraph (i) of this section), if the move occurs before 
the tenant is provided written notice offering him or her the 
opportunity to lease and occupy a suitable, decent, safe, and sanitary 
dwelling in the same building/complex, under reasonable terms and 
conditions, upon completion of the project. Such reasonable terms and 
conditions include a monthly rent and estimated average monthly utility 
costs that do not exceed the amount determined in accordance with 24 CFR 
913.107; or
    (iv) A tenant-occupant of a dwelling who is required to relocate 
temporarily, but does not return to the building/complex, if either:
    (A) The tenant is not offered payment for all reasonable out-of-
pocket expenses incurred in connection with the temporary relocation, 
including the cost of moving to and from the temporarily occupied unit, 
any increased housing costs and incidental expenses; or
    (B) Other conditions of the temporary relocation are not reasonable; 
or
    (v) A tenant-occupant of a dwelling who moves from the building/
complex permanently after he or she has been required to move to another 
dwelling unit in the same building/complex in order to carry out the 
project, if either:
    (A) The tenant is not offered reimbursement for all reasonable out-
of-pocket expenses incurred in connection with the move; or
    (B) Other conditions of the move are not reasonable; or
    (2) Notwithstanding the provisions of paragraph (h)(1) of this 
section, a person does not qualify as a ``displaced person'' (and is not 
eligible for relocation assistance under the URA or this section), if:
    (i) The person has been evicted for serious or repeated violation of 
the terms and conditions of the lease or occupancy agreement, violation 
of applicable Federal, State or local law, or other good cause, and the 
PHA determines that the eviction was not undertaken

[[Page 381]]

for the purpose of evading the obligation to provide relocation 
assistance;
    (ii) The person moved into the property after the date described in 
paragraph (h)(1)(i) of this section, but before commencing occupancy, 
received written notice of the project, its possible impact on the 
person (e.g., that the person may be displaced, temporarily relocated, 
or suffer a rent increase) and the fact that he or she would not qualify 
as a ``displaced person'' (or for assistance under this section) as a 
result of the project;
    (iii) The person is ineligible under 49 CFR 24.2(g)(2); or
    (iv) HUD determines that the person was not displaced as a direct 
result of acquisition, rehabilitation, or demolition for the project.
    (3) The PHA may, at any time, ask HUD to determine whether a 
displacement is or would be covered by this section.
    (i) Definition of initiation of negotiations. For purposes of this 
section, the term ``initiation of negotiations'' means:
    (1) For conventional or acquisition projects:
    (i) Where the PHA purchases the real property through an arm's-
length transaction (as described in 49 CFR 24.101(a)(1)), the seller's 
acceptance of the PHA's written offer to purchase the property (i.e., 
the seller's execution of form HUD-51971-II), provided the PHA later 
purchases the property; or such other date, as may be determined by the 
PHA with the approval of the HUD Field Office; or
    (ii) Where the PHA's purchase of the real property does not qualify 
as an arm's-length transaction under 49 CFR 24.101(a)(1), the delivery 
of the initial written purchase offer from the PHA to the Owner of the 
property (i.e., the PHA executed form HUD-51971-II). However, if the PHA 
issues a notice of intent to acquire the property, and a person moves 
after that notice, but before the initial written purchase offer, the 
``initiation of negotiations'' is the actual move of the person from the 
property;
    (2) For turnkey projects, HUD Field Office approval of the PHA's 
proposal incorporating the developer's proposal, provided the contract 
of sale is later executed; or
    (3) For major reconstruction of obsolete projects, the PHA's 
issuance of the invitation for bids for the project.

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

[59 FR 29344, June 6, 1994]



Sec. 941.208  Other Federal requirements.

    (a) General. The PHA shall be subject to all statutory, regulatory, 
and executive order requirements applicable to public housing 
development (see, e.g., 24 CFR parts 5, 8, 35, 50, and 965), as may be 
more fully described by HUD in notices, handbooks, or other guidance.
    (b) Lead-based paint. The relevant requirements of the Lead-Based 
Paint Poisoning Prevention Act (42 U.S.C. 4821-4846), the Residential 
Lead-Based Paint Hazard Reduction Act of 1992 (42 U.S.C. 4851-4856), and 
implementing regulations at part 35, subparts A, B, L, and R of this 
title apply to the program.

[61 FR 38018, July 22, 1996, as amended at 64 FR 50228, Sept. 15, 1999]



Sec. 941.209  Audit.

    All PHAs that receive funds under this part for the development of 
low-income housing shall comply with audit requirements in 24 CFR part 
44.

[50 FR 39092, Sept. 27, 1985; 51 FR 30480, Aug. 27, 1986]



                   Subpart C_Application and Proposal

    Source: 61 FR 38018, July 22, 1996, unless otherwise noted.



Sec. 941.301  Application.

    If funding is made available for public housing development, HUD 
will provide information about fund allocation, application deadline, 
and selection criteria and procedures through a Notice of Funding 
Availability (NOFA).

    Effective Date Note: At 61 FR 38018, July 22, 1996, Sec. 941.301 
was revised. This section contains information collection and 
recordkeeping requirements and will not become effective until approval 
has been given by the Office of Management and Budget. When

[[Page 382]]

approval is obtained, HUD will publish notice of the effective date in 
the Federal Register.



Sec. 941.302  Annual contributions contract; drawdowns and advances.

    (a) A PHA wishing to develop public housing shall execute an ACC or 
ACC amendment covering the entire amount of reserved development funds 
or the amount of modernization funds (under section 14 of the Act, 42 
U.S.C. 1437l) it proposes to use in accordance with this part. This ACC 
or ACC amendment must be executed by both the PHA and HUD before funds 
can be provided to the PHA.
    (b) Until HUD has approved a PHA's full proposal, a PHA may only 
draw down funds under the ACC for pre-development costs for materials 
and services related to proposal preparation and submission. 
Expenditures for pre-development costs shall not exceed three percent of 
the total development cost stated in the executed ACC.
    (c) HUD may approve the following in writing:
    (1) Amounts in excess of three percent of TDC for pre-development 
costs; and/or
    (2) Drawdown of funds to enable a PHA to acquire a site after 
approval by HUD of the PHA's site acquisition proposal, in accordance 
with Sec. 941.303.
    (d) After HUD approval of the full proposal, the PHA may draw down 
additional funds under the ACC to develop the public housing units in 
accordance with the approved full proposal.



Sec. 941.303  Site acquisition proposal.

    When a PHA determines that it is necessary to acquire land for 
development through new construction, it may spend funds authorized 
under this part to acquire development sites. HUD must approve a PHA's 
proposed use of funds before it may acquire sites in this manner. A PHA 
must submit the following documents for HUD review and approval, in 
accordance with the standards set forth in Sec. 941.305:
    (a) Justification. A justification for acquiring land prior to PHA 
proposal approval;
    (b) Site information. An identification and description of the 
proposed site, site plan, neighborhood, and evidence of PHA control of 
the site for at least sixty (60) days after proposal submission.
    (c) Zoning. Evidence that construction or rehabilitation is 
permitted by current zoning ordinances or regulations or evidence to 
indicate that needed rezoning is likely and will not delay the project.
    (d) Development schedule. A copy of the PHA development schedule, 
including the PHA architect estimates of the time required to complete 
each major development stage.
    (e) Environmental assessment. All available environmental 
information on the proposed development (to expedite the HUD 
environmental review).
    (f) Appraisal. An appraisal of the proposed site by an independent, 
state-certified appraiser.

    Effective Date Note: At 61 FR 38018, July 22, 1996, Sec. 941.303 
was revised. This section contains information collection and 
recordkeeping requirements and will not become effective until approval 
has been given by the Office of Management and Budget. When approval is 
obtained, HUD will publish notice of the effective date in the Federal 
Register.



Sec. 941.304  Full proposal content.

    Each full proposal shall include at a minimum the following:
    (a) Project description. A description of the housing, including the 
number of units, schematic drawings of the proposed building and unit 
plans, outline specifications or rehabilitation work write-ups, and the 
types and amounts of non-dwelling space to be provided;
    (b) Description of development method. A description of the PHA's 
proposed development method, and a demonstration by the PHA that it will 
be able to use this method successfully to develop the public housing 
units. If the PHA proposes to use the turnkey method, it must submit a 
Board-approved certification that the developer was selected as the 
result of a public solicitation for proposals and that the selection was 
based on an objective rating system, using such factors as site 
location, project design, price, and developer experience. If the PHA 
proposes to use the acquisition method, the PHA must submit a 
certification by the PHA and

[[Page 383]]

owner that the property was not constructed with the intent that it 
would be sold to the PHA. If the PHA proposes to use the mixed-finance 
method, it should have consulted with HUD on its plans. If the PHA 
proposes to use the force account method to develop the public housing 
units, it must have already received approval from HUD of its capability 
to carry out the development successfully in this manner;
    (c) Site information. An identification and description of the 
proposed site, site plan, neighborhood, and evidence of PHA or turnkey 
developer control of the site for at least sixty (60) days after 
proposal submission;
    (d) Project costs. (1) Categories of cost. The detailed budget of 
the costs of developing the project, in accordance with the form 
prescribed by HUD. With respect to costs of demolition and relocation, 
the description must distinguish between costs related to existing 
public housing property and costs related to acquisition of a new public 
housing site;
    (2) Budget and payment schedule. A budget that identifies the 
sources of funding for relocation benefits, and a payment schedule 
anticipated to be provided under a construction contract;
    (e) Appraisal. An appraisal of the proposed site or property by an 
independent, state-certified appraiser;
    (f) Financial feasibility. Identification of funds sufficient to 
complete the development, including a reasonable contingency;
    (g) Zoning. Evidence that construction or rehabilitation is 
permitted by current zoning ordinances or regulations or evidence to 
indicate that needed rezoning is likely and will not delay the project;
    (h) Facilities. A statement addressing the adequacy of existing 
facilities and services for the prospective occupants of the project, a 
description of public improvements needed to ensure the viability of the 
proposed project with a description of the sources of funds available to 
carry out such improvements, and, if applicable, a statement addressing 
the minority enrollment and capacity of the school system to absorb the 
number of school-aged children expected to reside in the project;
    (i) Relocation. A certification by the PHA that it will comply with 
all applicable Federal relocation requirements;
    (j) Life-cycle analysis. For new construction and substantial 
rehabilitation, the criteria to be used in equipping the proposed 
project(s) with heating and cooling systems, and which shall include a 
life-cycle cost analysis of the installation, maintenance and operating 
costs of such systems pursuant to section 13 of the Act (42 U.S.C. 
1437k);
    (k) Project development schedule. A copy of the PHA development 
schedule, including the PHA architect or turnkey developer estimates of 
the time required to complete each major development stage;
    (l) Environmental assessment. All available environmental 
information on the proposed development (to expedite the HUD 
environmental review);
    (m) Occupancy and operation policies. Statement of all PHA policies 
and practices that will be used in occupancy and operation that 
contribute to an overall objective of ending the social and economic 
isolation of low income people and promoting their economic 
independence;
    (n) New construction certification. If a PHA's proposal involves new 
construction, evidence of compliance with section 6(h) of the Act in one 
of the following two ways:
    (1) Submission of a PHA comparison of the cost of new construction 
in the neighborhood where the PHA proposes to construct the housing and 
the cost of acquisition of existing housing (with or without 
rehabilitation) in the same neighborhood; or
    (2) Certification by the PHA, accompanied by supporting 
documentation, that there is insufficient existing housing in the 
neighborhood to develop public housing through acquisition; and
    (o) Additional HUD-requested information. Any additional information 
that may be needed for HUD to determine whether it can approve the 
proposal pursuant to Sec. 941.305.

    Effective Date Note: At 61 FR 38018, July 22, 1996, Sec. 941.304 
was added. This section contains information collection and 
recordkeeping requirements and will not become effective until approval 
has been given by the Office of Management and Budget.

[[Page 384]]



Sec. 941.305  Technical processing and approval.

    (a) Standards. HUD shall review the full proposal, submitted in 
accordance with Sec. 941.304, and the site acquisition proposal, 
submitted in accordance with Sec. 941.303, to determine whether each 
proposal complies with all statutory, executive order, and regulatory 
requirements applicable to public housing development including, if 
applicable, the comments received as a result of Intergovernmental 
Review. In addition, HUD shall carry out any necessary statutory and 
executive order reviews with respect to the proposal under review. If 
HUD determines that the proposal under review is acceptable, it shall 
notify the PHA in writing and shall forward to it for execution an ACC 
(or ACC amendment). If the PHA already has executed an ACC (or ACC 
amendment) for the entire reserved amount, HUD shall notify the PHA that 
it is authorized to draw down funds in accordance with Sec. 941.302.
    (b) Approved proposal. Units developed under this part shall be 
developed only in accordance with an approved proposal.
    (c) Approved amendments. Material changes in the approved proposal, 
including any increase in the budget or any change in the payment 
schedule, require an amendment to the proposal, which must be approved 
by HUD. The determination of what constitutes a material change will be 
made by HUD.



Sec. 941.306  Maximum project cost.

    (a) Calculation of maximum project cost. The maximum project cost 
represents the total amount of public housing capital assistance used in 
connection with the development of a public housing project, and 
includes: (1) project costs that are subject to the TDC limit (i.e., 
Housing Construction Costs and Community Renewal Costs); and (2) project 
costs that are not subject to the TDC limit (i.e., Additional Project 
Costs). The total project cost to be funded with public housing capital 
assistance, as set forth in the proposal and as approved by HUD, becomes 
the maximum project cost stated in the ACC. Upon completion of the 
project, the actual project cost is determined based upon the amount of 
public housing capital assistance expended for the project, and this 
becomes the maximum project cost for purposes of the ACC.
    (b) TDC limit. (1) Public housing capital assistance may not be used 
to pay for Housing Construction Costs and Community Renewal Costs in 
excess of the TDC limit, as determined under paragraph (b)(2) of this 
section. However, HOPE VI grantees will be eligible to request a TDC 
exception for public housing and HOPE VI funds awarded in Fiscal Year 
1996 and prior years. No exceptions to HCC limits will be granted within 
the TDC limit.
    (2) Determination of TDC limit. HUD will determine the TDC for a 
public housing project as follows:
    (i) Step 1: Unit construction cost guideline. HUD will first 
determine the applicable ``construction cost guideline'' averaging the 
current construction costs as listed in two nationally recognized 
residential construction cost indices for publicly bid construction of a 
good and sound quality for specific bedroom sizes and structure types. 
The two indices HUD will use for this purpose are the R.S. Means cost 
index for construction of ``average'' quality and the Marshal & Swift 
cost index for construction of ``good'' quality. HUD has the discretion 
to change the cost indices to other such indices that reflect comparable 
housing construction quality through a notice published in the Federal 
Register.
    (ii) Step 2: Bedroom size and structure types. The construction cost 
guideline is then multiplied by the number of units for each bedroom 
size and structure type.
    (iii) Step 3: Elevator and non-elevator type structures. HUD will 
then multiply the resulting amounts from step 2 by 1.6 for elevator type 
structures and by 1.75 for non-elevator type structures.
    (iv) Step 4: TDC limit. The TDC limit for a project is calculated by 
adding the resulting amounts from step 3 for all the public housing 
units in the project.
    (3) Costs not subject to the TDC limit. Additional Project Costs are 
not subject to the TDC limit described in paragraph (b)(2) of this 
section.
    (4) Funds not subject to the TDC limit. A PHA may use funding 
sources not

[[Page 385]]

subject to the TDC limit (e.g., CDBG funds, HOME funds, low-income tax 
credits, private donations, private financing, etc.) to cover project 
costs that exceed the TDC limit or the Housing Construction Cost limit 
described in paragraph (c) of this section. Such funds, however, may not 
be used for items that would result in substantially increased 
operating, maintenance or replacement costs, and must meet the 
requirements of section 102 of the HUD Reform Act (42 U.S.C. 3545). 
These funds must be included in the project development cost budget and 
legally acceptable written commitments for such funds must be provided 
by the PHA for HUD approval.
    (c) Housing Construction Costs. (1) General. A PHA may not use 
public housing capital assistance to pay for Housing Construction Costs 
in excess of the amount determined under paragraph (c)(2) of this 
section.
    (2) Determination of Housing Construction Cost limit. HUD will 
determine the Housing Construction Cost limit as listed in at least two 
nationally recognized residential construction cost indices for publicly 
bid construction of a good and sound quality for specific bedroom sizes 
and structure types. The two indices HUD will use for this purpose are 
the R.S. Means cost index for construction of ``average'' quality and 
the Marshal & Swift cost index for construction of ``good'' quality. HUD 
has the discretion to change the cost indices to other such indices that 
reflect comparable housing construction quality through a notice 
published in the Federal Register. The resulting construction cost 
guideline is then multiplied by the number of public housing units in 
the project based upon bedroom size and structure type. The Housing 
Construction Cost limit for a project is calculated by adding the 
resulting amounts for all public housing units in the project.
    (3) The Housing Construction Cost limit is not applicable to the 
acquisition of existing housing, whether or not such housing will be 
rehabilitated. The Total Development Cost limit is applicable to such 
acquisition.
    (d) Community Renewal Costs. Public housing capital assistance may 
be used to pay for Community Renewal Costs in an amount equivalent to 
the difference between the Housing Construction Costs paid for with 
public housing capital assistance and the TDC limit.
    (e) Rehabilitation of existing public housing projects. The HCC 
limit is not applicable and the TDC limit for modernization of existing 
public housing is 90% of the TDC limit as determined under Sec. 
941.306(b)(2). This limitation does not apply to the rehabilitation of 
any property acquired pursuant to Sec. 941.102.

[67 FR 76102, Dec. 10, 2002]



                      Subpart D_Project Development

    Source: 61 FR 38020, July 22, 1996, unless otherwise noted.



Sec. 941.401  Site and property acquisition.

    (a) Applicability. The provisions of this section apply to projects 
being developed under the conventional, acquisition, and force account 
methods, and may apply to other development methods, as deemed 
appropriate by HUD.
    (b) Purchase agreement. The purchase agreement shall reflect any 
conditions established by HUD, such as the site engineering studies that 
must be completed to determine whether the site is suitable for 
development of the project.
    (c) Title.--(1) General. After HUD approves the site or property 
acquisition contract and notifies the PHA that it is authorized to take 
title, the PHA shall obtain title in accordance with the following 
certification. The PHA shall certify to HUD that it obtained a title 
insurance policy that guaranteed that the title was good and marketable 
before taking title and that it promptly recorded the deed and 
declaration of trust in the form prescribed by HUD.
    (2) Limitation. After HUD notifies a PHA that has been determined to 
be troubled or modernization troubled in accordance with part 901 of 
this chapter, or a PHA that has for other reasons been notified in 
writing that it may not use the procedure specified in paragraph (c)(1) 
of this section, that the site or property acquisition contract has been 
approved, the PHA shall submit to HUD evidence that title to

[[Page 386]]

the site or property is good and marketable. If HUD approves the title 
evidence, it will inform the PHA that it is authorized to acquire title 
to the site or property. The PHA shall record promptly the deed and 
declaration of trust in the form prescribed by HUD, and HUD may require 
the PHA to submit evidence of such recordation.



Sec. 941.402  Project design and construction.

    (a) Compliance with HUD construction standards and Federal 
procurement requirements.
    (1) General. A PHA may certify that its proposed design and 
construction plans for the development are in accordance with HUD's 
design and construction standards at Sec. 941.203, and that its bidding 
procedures are in accordance with Federal procurement requirements.
    (2) Limitation. In the case of a PHA determined to be troubled or 
modernization troubled in accordance with part 901 of this chapter or a 
PHA that has for other reasons been notified in writing that it may not 
use the procedure specified in paragraph (a)(1) of this section, the PHA 
must submit the proposed design and construction plans and its bidding 
procedures (unless HUD notifies the PHA that it may use the 
certification procedure specified in paragraph (a)(1) of this section).
    (b) Contract administration. The PHA shall be responsible for 
contract administration and shall contract for the services of an 
architect, or other person licensed under State law, to assist and 
advise the PHA in contract administration and inspections to assure that 
the work is done in accordance with HUD requirements. A HUD 
representative may periodically visit the project site to monitor PHA 
contract administration.
    (c) Prevailing wage rates. See Sec. 965.101 of this chapter.



Sec. 941.403  Acceptance of work and contract settlement.

    (a) Notification of completion. The contractor or developer shall 
notify the PHA in writing when the contract work, including any approved 
off-site work, will be completed and ready for inspection.
    (b) Acceptance. (1) General. A PHA may carry out the final 
inspection of the work and may accept the completed work. If, upon 
inspection, the PHA determines that the work is complete and 
satisfactory, except for work that is appropriate for delayed 
completion, the work shall be accepted by the PHA. The PHA shall certify 
to HUD before it pays the contractor or developer that it has inspected 
the work and determined that it is acceptable and in compliance with the 
construction contract or contract of sale and HUD requirements. The PHA 
shall determine any hold-back for items of delayed completion, and the 
amount due and payable for the work that has been accepted including any 
conditions precedent to payment that are stated in the construction 
contract or contract of sale. The contractor or developer shall be paid 
for items of delayed construction only after inspection and acceptance 
of this work by the PHA.
    (2) Limitation. In the case of a PHA determined to be troubled or 
modernization troubled in accordance with part 901 of this chapter or a 
PHA that has for other reasons been notified in writing that it may not 
use the procedure specified in paragraph (b)(1) of this section, the 
procedure described in paragraph (b)(1) of this section will be 
followed, except that HUD must concur in the necessary PHA 
determinations and approvals.
    (c) Guarantees and warranties. The construction contract or contract 
of sale shall specify the project guaranty period and amounts to be 
withheld and shall provide for assignment to the PHA of all manufacturer 
and supplier warranties required by the construction documents. The PHA 
shall inspect each dwelling unit and the overall project approximately 
three months after the beginning of the project guaranty period and 
three months before its expiration and also as may be necessary to 
exercise its rights before expiration of any warranties. The PHA shall 
require repair or replacement, prior to the expiration of the guaranty 
or warranty periods, of any defective items.
    (d) Title to turnkey projects. (1) General. When the work has been 
inspected and accepted on a turnkey project, in

[[Page 387]]

accordance with paragraph (b) of this section, the PHA is authorized to 
take title to the completed project in accordance with the following 
certification. The PHA shall certify to HUD that it obtained a title 
insurance policy that guaranteed that the title was good and marketable 
before taking title and that it promptly recorded the deed and 
declaration of trust in the form prescribed by HUD.
    (2) Limitation. After inspection and acceptance of the work in 
accordance with paragraph (b) of this section, a PHA that has been 
determined to be troubled or modernization troubled in accordance with 
part 901 of this chapter, or a PHA that has for other reasons been 
notified in writing that it may not use the procedure specified in 
paragraph (d)(1) of this section shall submit to HUD evidence that title 
to the completed project is good and marketable. If HUD approves the 
title evidence, it will inform the PHA that it is authorized to acquire 
title to the completed project. The PHA shall record promptly the deed 
and declaration of trust in the form prescribed by HUD, and HUD may 
require submission of evidence of such recordation.



Sec. 941.404  Completion of development.

    (a) When all development has been completed and paid for, but not 
later than 12 months after the end of the initial operating period 
unless a longer period is approved by HUD, the PHA shall submit a 
statement of the actual development cost. For this purpose, the initial 
operating period with respect to each project is the period commencing 
with the date of initiation of the project and ending with the earliest 
of the following three dates: the end of the calendar quarter in which 
ninety-five percent of the dwelling units in the project are occupied; 
the end of the calendar quarter that is six, seven, or eight months 
after the date of full availability of the project; or the end of the 
calendar quarter next preceding the date of physical completion of the 
project.
    (b) HUD shall review the statement and establish the actual 
development cost of the project, which becomes the maximum total 
development cost for purposes of the ACC.

    Effective Date Note: At 61 FR 38021, July 22, 1996, Sec. 941.404 
was revised. This section contains information collection and 
recordkeeping requirements and will not become effective until approval 
has been given by the Office of Management and Budget. When approval is 
obtained, HUD will publish notice of the effective date in the Federal 
Register.



                      Subpart E_Performance Review



Sec. 941.501  HUD review of PHA performance; sanctions.

    (a) HUD determination. HUD shall carry out such reviews of the 
performance of each PHA as may be necessary or appropriate to make the 
determinations required by this paragraph (a), taking into consideration 
all available evidence.
    (1) Conformity with PHA proposal. HUD shall determine whether the 
PHA has carried out its activities under this subpart in a timely manner 
and in accordance with its approved proposal.
    (i) In making this determination, HUD shall review the PHA's 
performance under previous inspections, audit findings and other sources 
to determine whether the development activities undertaken during the 
period under review conform substantially to the activities specified in 
the approved PHA proposal. HUD also shall review a PHA's development 
schedule to determine whether the PHA has carried out its development 
activities in a timely manner;
    (ii) HUD shall review a PHA's performance to determine whether the 
activities carried out comply with the requirements of the Act, and 
other applicable laws and regulations.
    (2) Continuing capacity. HUD shall determine whether the PHA has a 
continuing capacity to carry out its development plan in a timely 
manner. The primary factors to be considered in arriving at a 
determination that a PHA has a continuing capacity are those described 
in paragraph (a)(1) of this section (``conformity with PHA proposal''). 
HUD shall give particular attention to PHA efforts to accelerate the 
progress of the program and to prevent the recurrence of past 
deficiencies or noncompliance with applicable laws and regulations.

[[Page 388]]

    (b) Notice of deficiency. Based on HUD reviews of PHA performance 
and findings of any of the deficiencies in paragraph (d) of this 
section, HUD may issue to the PHA a notice of deficiency stating the 
specific program requirements that the PHA has violated and requesting 
the PHA to take any of the actions specified in paragraph (e) of this 
section.
    (c) Corrective action order. (1) Based on HUD reviews of PHA 
performance and findings of any of the deficiencies in paragraph (d) of 
this section, HUD may issue to the PHA a corrective action order, 
whether or not a notice of deficiency has been issued previously with 
respect to the specific deficiency on which the corrective action order 
is based. HUD may order corrective action at any time by notifying the 
PHA of the specific program requirements that the PHA has violated, and 
specifying that any of the corrective actions listed in paragraph (e) of 
this section must be taken. HUD shall design corrective action to 
prevent a continuation of the deficiency, mitigate any adverse effects 
of the deficiency to the extent possible, or prevent a recurrence of the 
same or similar deficiencies;
    (2) Before ordering corrective action, HUD shall notify the PHA and 
give it an opportunity to consult with HUD regarding the proposed 
action;
    (3) Any corrective action ordered by HUD shall become a condition of 
the grant agreement (ACC);
    (d) Basis for corrective action. HUD may order a PHA to take 
corrective action only if it determines:
    (1) The PHA has not carried out its activities under the development 
program in a timely manner and in accordance with its approved proposal, 
or HUD requirements, as determined in paragraph (a)(l) of this section;
    (2) The PHA does not have a continuing capacity to carry out its 
proposal in a timely manner or in accordance with its proposal or HUD 
requirements, as determined in paragraph (a)(2) of this section;
    (3) The PHA has failed to repay HUD for amounts awarded under the 
development programs that were improperly expended;
    (e) Types of corrective action. HUD may direct a PHA to take one or 
more of the following corrective actions:
    (1) Submit additional information:
    (i) Concerning the PHA's administrative, planning, budgeting, 
accounting, management, and evaluation functions to determine the cause 
for a PHA not meeting the standards in paragraphs (a)(1) or (a)(2) of 
this section;
    (ii) Explaining any steps the PHA is taking to correct the 
deficiencies;
    (iii) Documenting that PHA activities were not inconsistent with the 
PHA's proposal or other applicable laws, regulations or program 
requirements; and
    (iv) Demonstrating that the PHA has a continuing capacity to carry 
out the proposal in a timely manner;
    (2) Submit schedules for completing the work identified in its 
proposal and report periodically on its progress in meeting the 
schedules;
    (3) Notwithstanding 24 CFR 941.205(c), 24 CFR 941.402(a) and 24 CFR 
85.36(g), submit to HUD documents for prior approval, which may include, 
but are not limited to:
    (i) Complete design, construction and bid documents (prior to 
soliciting bids);
    (ii) Complete rehabilitation drawings/specifications or work write-
ups;
    (iii) Development budgets, including modifications;
    (iv) Proposed award of contracts, including construction contracts, 
turnkey contracts of sale, letters of commitment, and contracts with the 
architect/engineer (prior to execution);
    (4) Submit additional material in support of one or more of the 
statements, resolutions, and certifications submitted as part of the PHA 
proposal, or periodic performance report;
    (5) Not incur financial obligations, or to suspend payments for one 
or more activities;
    (6) Reimburse, from non-HUD sources, one or more program accounts 
for any amounts improperly expended;
    (f) Failure to take corrective action. In cases where HUD has 
ordered corrective action and the PHA has failed to take the required 
actions within a reasonable time, as specified by HUD, HUD may take one 
or more of the following steps:

[[Page 389]]

    (1) Terminate future draw downs and/or advances to the PHA. In such 
case, the amount of advances made to the PHA shall be repaid by the PHA 
from any funds or assets available for that purpose;
    (2) Require alternative management of development functions by an 
entity other than the PHA;
    (3) Cancel the fund reservation if the PHA fails to start (begin 
construction or rehabilitation), or complete (acquisition) within 30 
months from the date of the fund reservation pursuant to section 5(k) of 
the Act;
    (4) Recapture for good cause any grant amounts previously provided 
to a PHA, based upon a determination that the PHA has failed to comply 
with the requirements of the development program.
    (g) Right to appeal. Before taking any of the actions described in 
paragraph (f) of this section, HUD shall notify the PHA and give it an 
opportunity, within a prescribed period of time, to present any 
arguments or additional facts and data concerning the proposed action.

[61 FR 38021, July 22, 1996]



Subpart F_Public/Private Partnerships for the Mixed Finance Development 
                         of Public Housing Units

    Source: 61 FR 19714, May 2, 1996, unless otherwise noted.



Sec. 941.600  Purpose.

    (a)(1) This subpart authorizes a PHA to use a combination of private 
financing and public housing development funds to develop public housing 
units, and is designed to enable PHAs and their partners to structure 
transactions that make use of private and/or public sources of 
financing. Many potential scenarios for ownership and transaction 
structures exist, ranging from the PHA or its partner(s) holding no 
ownership interest, a partial ownership interest, or 100 percent of the 
ownership interest of the public housing units that are to be developed. 
PHAs and/or their partner(s) may choose to enter into a partnership or 
other contractual arrangement with a third-party entity for the mixed-
finance development and/or ownership of public housing units. If this 
entity has primary responsibility along with the PHA for the development 
of these units, it is referred to for purposes of this subpart as the 
PHA's ``partner.'' The entity that ultimately owns the public housing 
units, whether or not the PHA retains an ownership interest, is referred 
to as the ``owner entity.'' The resulting ``mixed-finance'' developments 
may consist of 100 percent public housing units, or may consist of 
public housing and non-public housing units.
    (2) This subpart sets forth the requirements that must be met by the 
PHA and its partner(s) before HUD can approve a proposal for mixed-
finance development, and also sets forth continuing requirements that 
apply throughout the development and operation of the development by the 
owner entity.
    (b) Under this subpart, public housing units that are built in a 
mixed-finance development must be comparable in size, location, external 
appearance, and distribution to the non-public housing units within the 
development.



Sec. 941.602  Applicability of other requirements.

    (a) Relationship of this subpart to other requirements in 24 CFR 
part 941. The requirements contained in this subpart apply only to the 
development of public housing units using mixed-finance development 
methods under this subpart and to the operation of public housing units 
that are owned, or that will be owned, by an owner entity under this 
subpart. Other requirements for the development of public housing, as 
set forth in subparts A through E of this part, shall not apply to the 
development of public housing units pursuant to this subpart, except as 
may be required by HUD. Applicable requirements include, but shall not 
be limited to, the following:
    (1) Section 941.103 (``Definitions'') (definitions of the following 
terms only shall apply to this subpart: ``Annual Contributions Contract 
(ACC),'' ``cooperation agreement,'' ``design documents,'' 
``reformulation,'' and ``Total Development Cost (TDC).''

[[Page 390]]

    (2) Section 941.201 (``PHA eligibility'') (except that specific 
requirements governing the cooperation agreement, as set forth in Sec. 
941.201(c), shall be determined in accordance with this subpart);
    (3) Section 941.202 (``Site and neighborhood standards'');
    (4) Section 941.203 (``Design and construction standards'');
    (5) Section 941.205 (``PHA contracts'') (except that the reference 
to ``development related contracts entered into by the PHA'' shall be 
construed to mean ``development related contracts entered into by the 
PHA or the owner entity'');
    (6) Section 941.207 (``Relocation and acquisition'');
    (7) Section 941.208 (``Other Federal requirements'');
    (8) Section 941.209 (``Audit'');
    (9) Section 941.306 (``Maximum development cost'');
    (10) Section 941.402 (``Project design and construction'');
    (11) Section 941.403 (``Acceptance of work and contract 
settlement'');
    (12) Section 941.404 (``Completion of development''); and
    (13) Section 941.501 (``HUD review of PHA performance; sanctions'').
    (b) Procedure in the event of a conflict between requirements. In 
the event of a conflict between a requirement contained in this subpart 
and an applicable requirement set forth in subparts A through E of this 
part, the requirements of this subpart shall apply, unless HUD otherwise 
so determines in writing.
    (c) HUD approval. For purposes of this subpart only, any action or 
approval that is required to be taken or provided by HUD or by the HUD 
field office, pursuant to a requirement set forth in subparts A through 
F of this part, shall be construed to mean that HUD Headquarters shall 
take such action or provide such approval, unless the field office is 
authorized in writing by Headquarters to carry out a specific function 
under this subpart.
    (d) Applicability of requirements pursuant to 24 CFR part 85. The 
requirements of 24 CFR part 85 are applicable to this subpart, subject 
to the following two provisos:
    (1) A PHA may select a partner using competitive proposal procedures 
for qualifications-based procurement (subject to negotiation of fair and 
reasonable compensation, including TDC and other applicable cost 
limitations);
    (2) An owner entity (which, as a private entity, would normally not 
be subject to part 24 CFR part 85) shall be required to comply with 24 
CFR part 85 if HUD determines that the PHA or PHA instrumentality 
exercises significant functions within the owner entity with respect to 
managing the development of the proposed units. HUD may, on a case-by-
case basis, exempt such an owner entity from the need to comply with 24 
CFR part 85 if it determines that the owner entity has developed an 
acceptable alternative procurement plan.

[61 FR 19714, May 2, 1996, as amended at 61 FR 38022, July 22, 1996]



Sec. 941.604  Definitions.

    In addition to the definitions set forth in Sec. 941.602(a)(1), the 
following definitions are applicable to this subpart:
    Development. A housing facility consisting of public housing units, 
and that may also consist of non-public housing units, that has been 
developed, or that will be developed, using mixed-finance strategies 
under this subpart.
    Mixed-finance. The combined use of publicly and privately financed 
sources of funds for the development of public housing units under this 
subpart.
    Owner Entity. The entity that will own the public housing units, if 
the PHA holds less than one hundred percent of the ownership interest; 
or the lessee under a ground lease from the PHA. The owner entity may be 
a partnership that includes the PHA.
    Participating party. Any person, firm, corporation, or public or 
private entity that:
    (1) Agrees to provide financial or other resources to carry out the 
approved proposal, or specified activities contained in the proposal; or
    (2) Otherwise participates in the development and/or operation of 
the public housing units and will receive funds derived from HUD with 
respect to such participation. The term ``participating

[[Page 391]]

party'' includes an owner entity or partner.
    Partner. A third party entity with whom the PHA has entered into a 
partnership or other contractual arrangement to provide for the mixed-
finance development of public housing units pursuant to this subpart, 
and that has primary responsibility with the PHA for the development of 
the housing units under the terms of the approved proposal.
    Proposal. For purposes of this subpart only, the term ``proposal'' 
means a detailed PHA submission of information under Sec. 941.606.
    Public Housing Agency (PHA). Any State, county, municipality, or 
other governmental entity or public body (or agency or instrumentality 
thereof) which is authorized to engage in or assist in the development 
or operation of low-income housing under this part. For purposes of this 
subpart, the term ``PHA'' also encompasses any agency or instrumentality 
of the PHA.
    Public housing unit. A unit that is eligible to receive operating 
subsidy pursuant to section 9 of the Act (42 U.S.C. 1437g).



Sec. 941.606  Proposal.

    Each proposal shall be prepared in the form prescribed by HUD and 
shall include some or all of the following documentation, as deemed 
necessary by HUD. In determining the amount of information to be 
submitted by the PHA under this section, HUD shall consider whether the 
documentation is required for HUD to carry out mandatory statutory or 
executive order reviews, the quality of the PHA's past performance in 
implementing development projects under this part, and the PHA's 
demonstrated administrative capability, as demonstrated by its overall 
score on the PHMAP. The proposal includes:
    (a) Activities; relationship of participating parties. An 
identification of the participating parties and a description of the 
activities to be undertaken by each of the participating parties and the 
PHA, and the legal and business relationships between the PHA and each 
of the participating parties.
    (b) Financing. A detailed description of all financing (including 
public housing development funds) necessary for the implementation of 
the proposal, specifying the sources (with respect to each of the 
proposed categorical uses of all such financing), together with a ten-
year operating pro forma for the development (including all underlying 
assumptions). In addition, the PHA may be required to submit to HUD, for 
such review and approval as HUD deems necessary, all documents 
(including applications for financing) relating to the financing of the 
proposal, including, but not limited to, any loan agreements, notes, 
mortgages or deeds of trust, use restrictions, operating pro formas 
relating to the viability of the development, and other agreements or 
documents pertaining to the financing of the proposal.
    (c) Methodology. If the PHA proposes to provide public housing 
operating subsidy for the public housing units, it must submit a 
methodology acceptable to HUD for the distribution of a portion of its 
operating subsidy to such units;
    (d) Development description. A description of the housing, including 
the number and type (with bedroom count) of public housing units and, if 
applicable, the number and type of non-public housing units (with 
bedroom count) to be developed; schematic drawings and designs of the 
proposed building and unit plans; outline specifications; and the types 
and amounts of non-dwelling space to be provided.
    (e) Site information. An identification and description of the 
proposed site, site plan, and neighborhood.
    (f) Market analysis. An analysis of the projected market for the 
proposed development.
    (g) Development construction cost estimate. A preliminary 
development construction cost estimate based on the schematic drawings 
and outline specifications and current construction costs prevailing in 
the area. In addition, a copy of the PHA development schedule, including 
the architect or contractor estimate of the time required to complete 
each major development stage.
    (h) Facilities. A statement addressing the adequacy of existing or 
proposed facilities and services for the prospective occupants of the 
development.

[[Page 392]]

    (i) Relocation. Information concerning any displacement of site 
occupants, including identification of each displacee, the distribution 
plan for notices, and the anticipated cost and source of funding for 
relocation benefits.
    (j) Operating feasibility. A demonstration of the operating 
feasibility of the development, which shall be accomplished by the PHA's 
showing that the estimated operating expenses of the development will 
not exceed its estimated operating income.
    (k) Life cycle analysis. For new construction and substantial 
rehabilitation, the criteria to be used in equipping the proposed 
development with heating and cooling systems, which shall include a 
life-cycle cost analysis of the installation, maintenance and operating 
costs of such systems pursuant to section 13 of the Act (42 U.S.C. 
1437k).
    (l) Section 213 clearance. To expedite processing of the proposal, a 
PHA may solicit, on behalf of HUD, comments under section 213 (24 CFR 
part 791, subpart C) from the chief executive officer (CEO) (or his or 
her designee) of the unit of general local government. In such case, the 
solicitation letter must state that comments should be sent directly to 
HUD within 30 calendar days of HUD's estimated date of receipt of the 
PHA's proposal. The local government's response must state that the 
comments are to be considered its only response under 24 CFR part 791, 
subpart C. A copy of the solicitation letter must be included in the 
PHA's proposal.
    (m) New construction. If a proposal involves new construction, the 
PHA must comply with section 6(h) of the Act (42 U.S.C. 1437d). This may 
be accomplished by the PHA's submission of a comparison of the cost of 
new construction in the neighborhood where the housing is proposed to be 
constructed and the cost of acquisition of existing housing (with or 
without rehabilitation) in the same neighborhood (including estimated 
costs of lead-based paint activities). Alternatively, the PHA may submit 
a certification, accompanied by supporting documentation, that there is 
insufficient existing housing in the neighborhood to develop public 
housing through acquisition.
    (n)(1) Certifications and assurances. The PHA shall submit, as part 
of its proposal, certifications and assurances warranting that it:
    (i) Has the legal authority under State and local law to develop 
public housing units through the establishment or selection of an owner 
entity, and to enter into all agreements and provide all assurances 
required under this subpart. In addition, the PHA shall warrant that it 
has the legal authority necessary to enter into any proposed partnership 
and to fulfill its obligations as a partner thereunder, and that it has 
obtained all necessary approvals for this purpose;
    (ii) Will use an open and competitive process to select the partner 
and/or the owner entity and shall ensure that there is no conflict of 
interest involved in the PHA's selection of the partner and/or owner 
entity to develop and operate the proposed public housing units. In 
addition, the PHA shall ensure that:
    (A) Any selected partner and/or owner entity complies with all 
applicable State and local procurement and conflict of interest 
requirements with respect to its selection of entities to assist in the 
development, and uses a competitive process consistent with the 
requirements set forth in this subpart; and
    (B) If the partner and/or owner entity (or any other entity with an 
identity of interests with such parties) wants to serve as the general 
contractor for the project or development, it may award itself the 
construction contract only if it can demonstrate to HUD's satisfaction 
that its bid is the lowest bid submitted in response to a public request 
for bids;
    (iii) Will be responsible to HUD for ensuring that the public 
housing units are developed and operated in accordance with all 
applicable public housing requirements, including the ACC, and all 
pertinent statutory, regulatory, and executive order requirements, as 
those requirements may be amended from time to time. The PHA must also 
warrant that it will provide for a mechanism to assure, to HUD's 
satisfaction,

[[Page 393]]

that the public housing units will remain available for use by low-
income families for the maximum period required by law. In addition, the 
PHA must warrant that any agreement providing for the management of the 
public housing units by an entity other than the PHA shall require that 
the units be operated in accordance with all applicable requirements 
under this subpart for the full term of any low-income use restrictions.
    (2) The PHA shall submit a certification of previous participation 
in accordance with procedures set forth in 24 CFR part 200, subpart H, 
and shall ensure that a similar certification is submitted to HUD by the 
participating parties.

[61 FR 19714, May 2, 1996, as amended at 64 FR 50228, Sept. 15, 1999]

    Effective Date Note: At 61 FR 19715, May 2, 1996, Sec. 941.606 was 
added. This section contains information collection and recordkeeping 
requirements and will not become effective until approval has been given 
by the Office of Management and Budget.



Sec. 941.608  Technical processing and approval.

    (a) Initial screening. HUD shall perform an initial screening to 
determine that all documentation required as part of the proposal under 
Sec. 941.606 has been submitted. HUD will advise the PHA of any 
deficiencies in the proposal and indicate that additional information 
will be accepted if it is received by a specified date.
    (b) Technical processing. Upon determining that a proposal is 
acceptable for technical processing, HUD will evaluate the proposal to 
determine:
    (1) Whether the PHA has the legal authority necessary to develop 
public housing units through the establishment of an owner entity and 
the use of mixed-finance strategies in accordance with this subpart;
    (2) Whether the proposed sources and uses of funds set forth in the 
proposal are eligible and reasonable, and whether HUD's preliminary 
assessment of the financing and other documentation establishes to HUD's 
satisfaction that the mixed-finance development is viable and is 
structured so as to adequately protect the Federal investment of funds 
in the development. For this purpose, HUD will consider (among other 
factors) the PHA's proposed methodology for allocating operating 
subsidies on behalf of the public housing units; the projected revenues 
to be generated by any non-public housing units in a mixed-finance 
development; and the l0-year operating pro forma and other information 
contained in the proposal;
    (3) If applicable, whether the public housing units in the proposed 
development will be comparable in size, location, external appearance 
and distribution within the development to the non-public housing units;
    (4) If public housing development funds are to be used to pay for 
more than the pro rata cost of common area improvements, whether the 
proposal ensures that:
    (i) On a per unit basis (taking into consideration the number of 
public housing units for which funds have been reserved) the PHA will 
not exceed TDC limits; and
    (ii) Any common area improvements will benefit all residents of the 
development;
    (5) Whether the proposal complies with all program requirements 
including, if applicable, any comments received from the unit of general 
local government pursuant to section 213 of the Housing and Community 
Development Act of 1974 (42 U.S.C. 1439) (see 24 CFR part 791, subpart 
C); and
    (6) Whether the proposal is approvable following completion by HUD 
of an environmental review in accordance with the requirements of 24 CFR 
part 50.
    (c) Proposal approval. HUD shall send a notification letter to the 
PHA stating that the proposal has been approved or disapproved. For 
approved proposals, the letter shall indicate the approved total 
development cost of the public housing units in the development. HUD 
will also send to the PHA for execution an ACC amendment and/or a grant 
agreement. If the PHA has already executed a front-end ACC amendment, 
HUD will send to the PHA for execution a special ACC amendment for the 
mixed-finance development (and/or a grant agreement). The PHA shall 
execute these documents and return them to HUD for execution.

[[Page 394]]



Sec. 941.610  Evidentiary materials and other documents.

    (a) Submission of documents. As a condition of the release of grant 
funds under Sec. 941.612, the PHA shall submit to HUD, within the 
timeframe prescribed by HUD, evidentiary materials and other 
documentation, as more fully set forth in the special mixed-finance 
amendment to the ACC (and/or grant agreement). Such materials and 
documentation shall include, but shall not be limited to:
    (1) A copy of executed development-related contracts entered into by 
the PHA or owner entity with respect to the development, and the PHA-
executed ACC amendment or special mixed-finance amendment to the ACC 
(and/or grant agreement);
    (2) Agreements that are necessary to implement the proposal and to 
ensure that all requirements of this subpart are satisfied. Such 
agreements must be submitted to HUD for review and approval and shall 
include, but shall not be limited to:
    (i) A deed restriction, covenant running with the land, ground 
lease, or other arrangement of public record, that will assure to HUD's 
satisfaction that the public housing units will be available for use by 
eligible low-income families in accordance with all applicable public 
housing requirements for the maximum period required by law;
    (ii) A regulatory or operating agreement between the PHA and the 
owner entity that provides binding assurances that the operation of the 
public housing units will be in accordance with all applicable public 
housing requirements;
    (iii) An agreement between the PHA and the owner entity with respect 
to the provision of operating subsidy by the PHA in accordance with this 
subpart;
    (iv) A partnership agreement, development agreement, or other 
agreement entered into between the PHA and its partner, or any other 
participating party, that establishes the relationships between the 
parties with respect to the implementation of the proposal, including 
all rights and liabilities (financial and otherwise) of the parties, a 
development schedule, and the respective commitments of the parties with 
respect to the development of the public housing units. For developments 
involving public and non-public housing units only, the PHA shall also 
provide for an allocation with the owner entity of expenses and risks 
(e.g., fire, exhaustion of, or failure to receive, syndication funds, 
etc.) associated with the development and operation of the development. 
The allocation of expenses and risks shall be based upon a ratio that 
reflects the proposed bedroom mix of the public housing units as 
compared to the bedroom mix and unit count of the non-public housing 
units in the development, or as otherwise approved by HUD;
    (v) Any agreement relating to the management of the public housing 
units by an entity other than the PHA;
    (vi) For developments consisting of public housing and non-public 
housing units, and in lieu of the standard cooperation agreement 
required under Sec. 941.201(c), the PHA shall submit a cooperation 
agreement with the applicable locality concerning PILOT payments, local 
tax exemption and local government services on behalf of the proposed 
public housing units. Such payments, exemption and services must be 
based upon a ratio reflecting the proposed bedroom mix of the public 
housing units as compared to the bedroom mix of the non-public housing 
units in the development, or as otherwise approved by HUD. For 
developments consisting only of public housing units, the PHA shall 
submit the standard cooperation agreement required under Sec. 
941.201(c);
    (3) All private or public financing documents evidencing the 
availability of the participating party(ies)'s financing, the amount and 
source of financing committed to the proposal by the participating 
party(ies), and the irrevocability of those funds. HUD may require in 
lieu of, or in addition to the submission of these documents, an opinion 
of the PHA's and the owner entity's counsel (or other party designated 
by HUD) attesting that counsel has examined the availability of the 
participating party(ies)'s financing, and the amount and source of 
financing

[[Page 395]]

committed to the proposal by the participating party(ies), and has 
determined that such financing has been irrevocably committed by the 
participating party(ies) for use in carrying out the proposal, and that 
such commitment is in the amount required under the terms of the 
proposal;
    (4) The organizational documents of the owner entity, which shall be 
reviewed by HUD (together with all financing documents) to ensure that 
they do not provide equity investors, creditors, and any other parties, 
with rights that would be inconsistent with, or that could interfere 
with, HUD's interest in the proposed development;
    (5) Evidence that all necessary actions have been taken by the PHA 
and other participating parties to confer such legally enforceable 
rights as will enable HUD to protect its investment in the property and 
to ensure the availability of the public housing units for low-income 
persons for the maximum permissible period;
    (6) Evidence of control of the site by the PHA, partner, or owner 
entity following proposal submission, for such period of time as may be 
required by HUD;
    (7) Evidence that construction or rehabilitation is permitted by 
current zoning ordinances or regulations, or evidence to indicate that 
needed rezoning is likely and will not delay construction of the 
development;
    (8) In addition, the PHA shall submit the following certifications 
warranting that:
    (i) For PHAs receiving operating assistance, that:
    (A) There shall be no disposition of the public housing units 
without the prior written approval of HUD during and for ten years after 
the end of the period in which the public housing units receiving 
operating subsidy from the PHA; and
    (B) During a 40-year period (which may be extended for 10 years 
after the end of the period in which the public housing units receive 
operating subsidy from the PHA, or as may be otherwise required by law), 
the public housing units shall be maintained and operated in accordance 
with all applicable public housing requirements (including the ACC), as 
those requirements may be amended from time to time;
    (ii) The PHA will develop at least the same number of public housing 
units as were approved by HUD as part of the PHA's proposal. Where the 
PHA proposes to pay for more than its pro rata share of the cost of 
common area improvements, the PHA must also certify that:
    (A) It will develop the same number of public housing units as were 
approved by HUD as part of the PHA's proposal, and will do so within the 
TDC limits; and
    (B) The common area improvements will benefit all residents of the 
development. If the PHA's proposal provides that public housing units 
within a development will not be specifically designated as public 
housing units, but shall instead constitute a fixed percentage of the 
housing units and number of bedrooms developed under the proposal, the 
PHA must provide additional binding assurances that the percentage of 
public housing units and number of bedrooms, as approved by HUD, will be 
maintained as public housing by the owner entity, and that all of the 
requirements of this subpart will be satisfied with respect to those 
units;
    (iii) It will ensure that the requirements of this subpart are 
binding upon the owner entity and any partner of the PHA and, to the 
extent determined necessary by HUD, upon any other participating party. 
In addition, in the event of any noncompliance with the requirements of 
this subpart by any participating party, the PHA agrees to take all 
necessary enforcement action to ensure such compliance or, 
alternatively, to pursue any legal or equitable remedies that HUD deems 
appropriate;
    (iv) It will include in all agreements or contracts with the 
partner, owner entity, or any other participating parties receiving 
development funds under this subpart, an acknowledgement that a transfer 
of the development funds by the PHA to the partner, the owner entity, or 
other participating party, shall not be deemed to be an assignment of 
development grant funds and that, accordingly, the partner, the owner 
entity or other participating party shall

[[Page 396]]

not succeed to any rights to benefits of the PHA under the ACC, or ACC 
amendment, nor shall it attain any privileges, authorities, interests, 
or rights in or under the ACC or ACC amendment;
    (v) It will include, or cause to be included, in all its agreements 
or contracts with the partner, the owner entity, or other participating 
parties, and in all contracts with any other party involving the use of 
development grant funds under this subpart, a provision stating that 
nothing in the ACC or ACC amendments providing such funds, nor any 
agreement or contract between the party(ies) shall be deemed to create a 
relationship of third-party beneficiary, principal and agent, limited or 
general partnership, joint venture, or any association or relationship 
involving HUD;
    (vi) It will ensure that the development of the public housing units 
will be in compliance with labor standards applicable to the development 
of public housing including, but not limited to, wage rates under the 
Davis-Bacon Act (40 U.S.C. 276a et seq.). If the proposed development 
will include public housing units that are not specifically designated 
units, the PHA shall ensure that such labor requirements are met with 
respect to the development of all units that may, at any time, be used 
as the public housing units;
    (vii) It will take all steps necessary to ensure that, in the event 
of a foreclosure or other adverse action brought against the owner 
entity with respect to the housing units (including, but not limited to, 
the public housing units), the operation of the public housing units 
developed under this subpart shall not be adversely affected.
    (9) Such additional documentation as may be required by HUD.
    (b) Subsidy layering analysis. After the PHA submits the 
documentation required under paragraph (a) of this section, HUD (or its 
designee) shall carry out a subsidy layering analysis pursuant to 
section 102(d) of the Department of Housing and Urban Development Reform 
Act of 1989 (42 U.S.C. 3545) (see 24 CFR part 4) to determine whether 
the amount of assistance being provided for the development is more than 
necessary to make the assisted activity feasible after taking into 
account the other governmental assistance.

    Effective Date Note: At 61 FR 19716, May 2, 1996, Sec. 941.610 was 
added. This section contains information collection and recordkeeping 
requirements and will not become effective until approval has been given 
by the Office of Management and Budget.



Sec. 941.612  Disbursement of grant funds.

    (a) Front-end drawdowns. A PHA may request front-end assistance for 
both scattered or non-scattered site development in accordance with the 
following requirements:
    (1) Front-end assistance may be used to pay for materials and 
services related to proposal development, and may also be used to pay 
for costs related to the demolition of existing units on a proposed site 
or for preliminary development work;
    (2) HUD shall determine on a case-by-case basis the maximum amount 
that may be drawn down by a PHA to pay for preliminary development 
costs, based upon a consideration of the nature and scope of activities 
proposed to be carried out by the PHA;
    (3) Before a request for front-end assistance may be approved, the 
PHA must provide HUD with such information and documentation as HUD 
deems appropriate from the list set forth at Sec. 941.606. In 
determining the extent of the PHA's submissions under this paragraph 
(a), HUD shall ensure that it has adequate information or documentation 
to enable it to carry out any statutory, executive order, or other 
mandatory upfront reviews under this subpart. These reviews shall 
include, but shall not be limited to, environmental reviews (including 
NEPA and historic preservation), intergovernmental review, section 213 
clearance (24 CFR part 791, subpart C), and subsidy layering. If, upon 
completing these reviews, HUD determines that the proposed development 
is approvable, it may execute with the PHA a front-end ACC amendment and 
the special mixed-finance amendment to the ACC (and/or grant agreement) 
to provide advances for the purposes, and in the amounts, approved by 
HUD.
    (b) Standard drawdown requirements. HUD will review the evidentiary 
materials and other documents submitted

[[Page 397]]

pursuant to Sec. 941.610, and, upon determining that such documents are 
satisfactory, may approve a drawdown of development funds, consistent 
with the following requirements:
    (1) A PHA may only draw down public housing development funds in an 
approved ratio to other public and private funds, in accordance with a 
draw schedule prepared by the PHA and approved by HUD. The PHA and its 
partner shall certify, in a form prescribed by HUD, prior to the initial 
drawdown of public housing development funds that the PHA will not draw 
down and the partner will not request more public housing grant funds 
than necessary to meet the PHA's pro rata share of the development 
costs. The PHA shall draw down public housing development funds only 
when payment is due and after inspection and acceptance of work covered 
by the draw. The PHA shall release funds to its partner promptly, 
normally within two working days of receipt of the funds from HUD, and 
only in accordance with the ratio approved by HUD. The PHA's partner 
shall take prompt action to distribute the funds, normally within two 
working days of receipt of the funds from the PHA;
    (2) Each drawdown of public housing development funds constitutes a 
certification by the PHA that:
    (i) All the representations and warranties of the PHA, as submitted 
in accordance with this subpart, continue to be valid, true, and in full 
force and effect;
    (ii) The PHA is in full compliance with all of the PHA's obligations 
pursuant to this part which, by their terms, are applicable at the time 
of the drawdown of the public housing development funds, and that to the 
best of the PHA's knowledge, it is not in default under the ACC, as 
amended;
    (iii) All conditions precedent to the PHA's authority to draw down 
the public housing grant funds have been satisfied;
    (iv) The public housing grant funds to be drawn down will be used 
for eligible costs actually incurred or to be incurred in accordance 
with the provisions of this subpart and the approved proposal; and
    (v) The ratio for the draw down of funds is satisfied.
    (c) The standard drawdown requirements set forth in paragraph (b) of 
this section (including the requirement that public housing development 
funds must be drawn down in an approved ratio to other public and 
private funds) do not apply to front-end assistance approved by HUD 
pursuant to paragraph (a) of this section.



Sec. 941.614  HUD monitoring and review.

    HUD shall monitor and review the implementation of the PHA's 
approved proposal in accordance with requirements prescribed by HUD in a 
special mixed-finance amendment to the ACC (and/or grant agreement).



Sec. 941.616  Sanctions.

    In the event the public housing units that are proposed to be 
developed under this subpart are not developed in accordance with the 
projected development schedule, the approved proposal, and all 
applicable Federal requirements, or if the units are not operated in 
accordance with applicable requirements, HUD may impose sanctions on the 
PHA, and/or seek legal and equitable relief, in accordance with 
requirements prescribed by HUD in the special mixed-finance amendment to 
the ACC (and/or grant agreement).



PART 943_PUBLIC HOUSING AGENCY CONSORTIA AND JOINT VENTURES--Table of Contents




                            Subpart A_General

Sec.
943.100 What is the purpose of this part?

                           Subpart B_Consortia

943.115 What programs are covered under this subpart?
943.118 What is a consortium?
943.120 What programs of a PHA are included in a consortium's functions?
943.122 How is a consortium organized?
943.124 What elements must a consortium agreement contain?
943.126 What is the relationship between HUD and a consortium?
943.128 How does a consortium carry out planning and reporting 
          functions?
943.130 What are the responsibilities of participating PHAs?

[[Page 398]]

  Subpart C_Subsidiaries, Affiliates, Joint Ventures in Public Housing

943.140 What programs and activities are covered by this subpart?
943.142 In what types of operating organizations may a PHA participate?
943.144 What financial impact do operations of a subsidiary, affiliate, 
          or joint venture have on a PHA?
943.146 What impact does the use of a subsidiary, affiliate, or joint 
          venture have on financial accountability to HUD and the 
          Federal government?
943.148 What procurement standards apply to PHAs selecting partners for 
          a joint venture?
943.150 What procurement standards apply to a PHA's joint venture 
          partner?
943.151 What procurement standards apply to a joint venture itself?

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

    Source: 65 FR 71207, Nov. 29, 2000, unless otherwise noted.



                            Subpart A_General



Sec. 943.100  What is the purpose of this part?

    This part authorizes public housing agencies (PHAs) to form 
consortia, joint ventures, affiliates, subsidiaries, partnerships, and 
other business arrangements under section 13 of the United States 
Housing Act of 1937 (42 U.S.C. 1437k). Under this authority, PHAs 
participating in a consortium enter into a consortium agreement, submit 
joint PHA Plans to HUD, and may combine all or part of their funding and 
program administration. This part does not preclude a PHA from entering 
cooperative arrangements to operate its programs under other authority, 
as long as they are consistent with other program regulations and 
requirements.



                           Subpart B_Consortia



Sec. 943.115  What programs are covered under this subpart?

    (a) Except as provided in paragraph (b) of this section, this 
subpart applies to the following:
    (1) PHA administration of public housing or Section 8 programs under 
an Annual Contributions Contract (ACC) with HUD; and
    (2) PHA administration of grants to the PHA in connection with its 
public housing or Section 8 programs.
    (b) This subpart does not apply to the following:
    (1) PHA administration of Section 8 projects assigned to a PHA for 
contract administration pursuant to an ACC entered under the Request for 
Proposals (RFP) published May 19, 1999 (64 FR 27358);
    (2) Section 8 contract administration of a restructured subsidized 
multifamily project by a Participating Administrative Entity in 
accordance with part 401 of this title; or
    (3) A PHA in its capacity as owner of a Section 8 project.



Sec. 943.118  What is a consortium?

    A consortium consists of two or more PHAs that join together to 
perform planning, reporting, and other administrative or management 
functions for participating PHAs, as specified in a consortium 
agreement. A consortium also submits a joint PHA Plan. The lead agency 
collects the assistance funds from HUD that would be paid to the 
participating PHAs for the elements of their operations that are 
administered by the consortium and allocates them according to the 
consortium agreement. The participating PHAs must adopt the same fiscal 
year so that the applicable periods for submission and review of the 
joint PHA Plan are the same. Notwithstanding any other regulation, PHAs 
proposing to form consortia may request and HUD may approve changes in 
PHA fiscal years to make this possible.



Sec. 943.120  What programs of a PHA are included in a consortium's 
functions?

    (a) A PHA may enter a consortium under this subpart for 
administration of any of the following program categories:
    (1) The PHA's public housing program (which may include either the 
operating fund or the capital fund, or both);
    (2) The PHA's Section 8 voucher and certificate program (including 
the project-based certificate and voucher programs and special housing 
types);

[[Page 399]]

    (3) The PHA's Section 8 Moderate Rehabilitation program, including 
Single Room Occupancy program;
    (4) All other project-based Section 8 programs administered by the 
PHA under an ACC with HUD; and
    (5) Any grant programs of the PHA in connection with its Section 8 
or public housing programs, such as the Drug Elimination program or the 
Resident Opportunities and Self-Sufficiency program, to the extent not 
inconsistent with the terms of the governing documents for the grant 
program's funding source.
    (b) If a PHA elects to enter a consortium with respect to a category 
specified in paragraph (a) of this section, the consortium must cover 
the PHA's whole program under the ACC with HUD for that category, 
including all dwelling units and all funding for that program under the 
ACC with HUD.



Sec. 943.122  How is a consortium organized?

    (a) PHAs that elect to form a consortium enter into a consortium 
agreement among the participating PHAs, specifying a lead agency (see 
Sec. 943.124), and submit a joint PHA Plan (Sec. 943.118). HUD enters 
into any necessary payment agreements with the lead agency and the other 
participating PHAs (see Sec. 943.126) to provide that HUD funding to 
the participating PHAs for program categories covered by the consortium 
will be paid to the lead agency.
    (b) The lead agency must not be a PHA that is designated as a 
``troubled PHA'' by HUD, that has been determined by HUD to fail the 
civil rights compliance threshold for new funding, or that has had a 
PHAS designation withheld for civil rights or other reasons. The lead 
agency is designated to receive HUD program payments on behalf of 
participating PHAs, to administer HUD requirements for administration of 
the funds, and to apply the funds in accordance with the consortium 
agreement and HUD regulations and requirements.



Sec. 943.124  What elements must a consortium agreement contain?

    (a) The consortium agreement among the participating PHAs governs 
the formation and operation of the consortium. The consortium agreement 
must be consistent with any payment agreements between the participating 
PHAs and HUD and must specify the following:
    (1) The names of the participating PHAs and the program categories 
each PHA is including under the consortium agreement;
    (2) The name of the lead agency;
    (3) The functions to be performed by the lead agency and the other 
participating PHAs during the term of the consortium;
    (4) The allocation of funds among participating PHAs and 
responsibility for administration of funds paid to the consortium; and
    (5) The period of existence of the consortium and the terms under 
which a PHA may join or withdraw from the consortium before the end of 
that period. To provide for orderly transition, addition or withdrawal 
of a PHA and termination of the consortium must take effect on the 
anniversary of the consortium's fiscal year.
    (b) The agreement must acknowledge that the participating PHAs are 
subject to the joint PHA Plan submitted by the lead agency.
    (c) The agreement must be signed by an authorized representative of 
each participating PHA.



Sec. 943.126  What is the relationship between HUD and a consortium?

    HUD has a direct relationship with the consortium through the PHA 
Plan process and through one or more payment agreements, executed in a 
form prescribed by HUD, under which HUD and the participating PHAs agree 
that program funds will be paid to the lead agency on behalf of the 
participating PHAs. Such funds must be used in accordance with the 
consortium agreement, the joint PHA Plan and HUD regulations and 
requirements.



Sec. 943.128  How does a consortium carry out planning and reporting 
functions?

    (a) During the term of the consortium agreement, the consortium must 
submit joint five-year Plans and joint Annual Plans for all 
participating PHAs, in accordance with part 903 of

[[Page 400]]

this chapter. HUD may prescribe methods of submission for consortia 
generally and where the consortium does not cover all program 
categories.
    (b) The consortium must maintain records and submit reports to HUD, 
in accordance with HUD regulations and requirements, for all of the 
participating PHAs. All PHAs will be bound by Plans and reports 
submitted to HUD by the consortium for programs covered by the 
consortium.
    (c) Each PHA must keep a copy of the consortium agreement on file 
for inspection. The consortium agreement must also be a supporting 
document to the joint PHA Plan.



Sec. 943.130  What are the responsibilities of participating PHAs?

    (a) Responsibilities, generally. Despite participation in a 
consortium, each participating PHA remains responsible for its own 
obligations under its ACC with HUD. This means that the PHA has an 
obligation to assure that all program funds, including funds paid to the 
lead agency for administration by the consortium, are used in accordance 
with HUD regulations and requirements, and that the PHA program is 
administered in accordance with HUD regulations and requirements. Any 
breach of program requirements with respect to a program covered by the 
consortium agreement is a breach of the ACC with each of the 
participating PHAs, so each PHA is responsible for the performance of 
the consortium.
    (b) Applicability of independent audit and performance assessment 
system requirements to consortia. Where the lead agency will manage 
substantially all program and activities of the consortium, HUD 
interprets financial accountability to rest with the consortium and thus 
HUD will apply independent audit and performance assessment requirements 
on a consortium-wide basis. Where the lead agency will not manage 
substantially all programs and activities of a consortium, the 
consortium shall indicate in its PHA Plan submission which PHAs have 
financial accountability for the programs. The determination of 
financial accountability shall be made in accordance with generally 
accepted accounting principles, as determined in consultation with an 
independent public accountant. In such situations, HUD will apply 
independent audit and performance assessment requirements consistent 
with that determination. With respect to any consortium, however, HUD 
may determine (based on a request from the consortium or other 
circumstances) to apply independent audit and performance requirements 
on a different basis where this would promote sound management.



  Subpart C_Subsidiaries, Affiliates, Joint Ventures in Public Housing



Sec. 943.140  What programs and activities are covered by this subpart?

    (a) This subpart applies to the provision of a PHA's public housing 
administrative and management functions, and to the provision (or 
arranging for the provision) of supportive and social services in 
connection with public housing. This subpart does not apply to 
activities of a PHA that are subject to the requirements of part 941, 
subpart F, of this title.
    (b) For purposes of this subpart, the term ``joint venture partner'' 
means a participant (other than a PHA) in a joint venture, partnership, 
or other business arrangement or contract for services with a PHA.
    (c) This part does not affect a PHA's authority to use joint 
ventures, as may be permitted under State law, when using non-1937 Act 
funds.



Sec. 943.142  In what types of operating organizations may a PHA 
participate?

    (a) A PHA may create and operate a wholly owned or controlled 
subsidiary or other affiliate; may enter into joint ventures, 
partnerships, or other business arrangements with individuals, 
organizations, entities, or governmental units. A subsidiary or 
affiliate may be a nonprofit corporation. A subsidiary or affiliate may 
be an organization controlled by the same persons who serve on the 
governing board of the PHA or who are employees of the PHA.
    (b) The purpose of any of these operating organizations would be to 
administer programs of the PHA.

[[Page 401]]



Sec. 943.144  What financial impact do operations of a subsidiary, 
affiliate, or joint venture have on a PHA?

    Income generated by subsidiaries, affiliates, or joint ventures 
formed under the authority of this subpart is to be used for low-income 
housing or to benefit the residents assisted by the PHA. This income 
will not cause a decrease in funding provided under the public housing 
program, except as otherwise provided under the Operating Fund and 
Capital Fund formulas.



Sec. 943.146  What impact does the use of a subsidiary, affiliate, or 

joint venture have on financial accountability to HUD and the Federal 
government?

    None; the subsidiary, affiliate, or joint venture is subject to the 
same authority of HUD, HUD's Inspector General, and the Comptroller 
General to audit its conduct.



Sec. 943.148  What procurement standards apply to PHAs selecting partners 
for a joint venture?

    (a) The requirements of part 85 of this title are applicable to this 
part, subject to paragraph (b) of this section, in connection with the 
PHA's public housing program.
    (b) A PHA may use competitive proposal procedures for 
qualifications-based procurement (request for qualifications or 
``RFQ''), or may solicit a proposal from only one source (``sole 
source'') to select a joint venture partner to perform an administrative 
or management function of its public housing program or to provide or 
arrange to provide supportive or social services covered under this 
part, under the following circumstances:
    (1) The proposed joint venture partner has under its control and 
will make available to the partnership substantial, unique and tangible 
resources or other benefits that would not otherwise be available to the 
PHA on the open market (e.g., planning expertise, program experience, or 
financial or other resources). In this case, the PHA must maintain 
documentation to substantiate both the cost reasonableness of its 
selection of the proposed partner and the unique qualifications of the 
partner: or
    (2) A resident group or a PHA subsidiary is willing and able to act 
as the PHA's partner in performing administrative and management 
functions or to provide supportive or social services. This entity must 
comply with the requirements of part 84 of this title (if the entity is 
a nonprofit) or part 85 of this title (if the entity is a State or local 
government) with respect to its selection of the members of the team and 
the members must be paid on a cost-reimbursement basis only. The PHA 
must maintain documentation that indicates both the cost reasonableness 
of its selection of a resident group or PHA subsidiary and the ability 
of that group or subsidiary to act as the PHA's partner under this 
provision.



Sec. 943.150  What procurement standards apply to a PHA's joint venture 
partner?

    (a) General. A joint venture partner is not a grantee or subgrantee 
and, accordingly, is not required to comply with part 84 or part 85 of 
this title in its procurement of goods and services under this part. The 
partner must comply with all applicable State and local procurement and 
conflict of interest requirements with respect to its selection of 
entities to assist in PHA program administration.
    (b) Exception. If the joint venture partner is a subsidiary, 
affiliate, or identity of interest party of the PHA, it is subject to 
the requirements of part 85 of this title. HUD may, on a case-by-case 
basis, exempt such a joint venture partner from the need to comply with 
requirements under part 85 of this title if HUD determines that the 
joint venture has developed an acceptable alternative procurement plan.
    (c) Contracting with identity-of-interest parties. A joint venture 
partner may contract with an identity-of-interest party for goods or 
services, or a party specified in the selected bidder's response to a 
RFP or RFQ (as applicable), without the need for further procurement if:
    (1) The PHA can demonstrate that its original competitive selection 
of the partner clearly anticipated the later provision of such goods or 
services;
    (2) Compensation of all identity-of-interest parties is structured 
to ensure

[[Page 402]]

there is no duplication of profit or expenses; and
    (3) The PHA can demonstrate that its selection is reasonable based 
upon prevailing market costs and standards, and that the quality and 
timeliness of the goods or services is comparable to that available in 
the open market. For purposes of this paragraph (c), an ``identity-of-
interest party'' means a party that is wholly owned or controlled by, or 
that is otherwise affiliated with, the partner or the PHA. The PHA may 
use an independent organization experienced in cost valuation to 
determine the cost reasonableness of the proposed contracts.



Sec. 943.151  What procurement standards apply to a joint venture itself?

    (a) When the joint venture as a whole is controlled by the PHA or an 
identity of interest party of the PHA, the joint venture is subject to 
the requirements of part 85 of this title.
    (b) If a joint venture is not controlled by the PHA or an identity 
of interest party of the PHA, then the rules that apply to the other 
partners apply. See Sec. 943.150.



PART 945_DESIGNATED HOUSING_PUBLIC HOUSING DESIGNATED FOR OCCUPANCY BY 
DISABLED, ELDERLY, OR DISABLED AND ELDERLY FAMILIES--Table of Contents




                            Subpart A_General

Sec.
945.101 Purpose.
945.103 General policies.
945.105 Definitions.

              Subpart B_Application and Approval Procedures

945.201 Approval to designate housing.
945.203 Allocation plan.
945.205 Designated housing for disabled families.

                 Subpart C_Operating Designated Housing

945.301 General requirements.
945.303 Requirements governing occupancy in designated housing.

    Authority: 42 U.S.C. 1473e and 3535(d).

    Source: 59 FR 17662, Apr. 13, 1994, unless otherwise noted.



                            Subpart A_General



Sec. 945.101  Purpose.

    The purpose of this part is to provide for designated housing as 
authorized by section 7 of the U.S. Housing Act of 1937 (42 U.S.C. 
1437e). Section 7 provides public housing agencies with the option, 
subject to the requirements and procedures of this part, to designate 
public housing projects, or portions of public housing projects, for 
occupancy by disabled families, elderly families, or mixed populations 
of disabled families and elderly families.



Sec. 945.103  General policies.

    (a) Agency participation. Participation in this program is limited 
to public housing agencies (PHAs) (as this term is defined in 24 CFR 
913.102) that elect to designate public housing projects for occupancy 
by disabled families, elderly families, or disabled families and elderly 
families, as provided by this part.
    (b) Eligible housing--(1) Designation of public housing. Projects 
eligible for designation under this part are public housing projects as 
described in the definition of ``project'' in Sec. 945.105.
    (2) Additional housing resources. To meet the housing and supportive 
service needs of elderly families, and disabled families, including non-
elderly disabled families, who will not be housed in a designated 
project, PHAs shall utilize housing resources that they own, control, or 
have received preliminary notification that they will obtain (e.g., 
section 8 certificates and vouchers). They also may utilize housing 
resources for which they plan to apply during the period covered by the 
allocation plan, and that they have a reasonable expectation of 
obtaining. PHAs also may utilize, to the extent practicable, any housing 
facilities that they own or control in which supportive services are 
already provided, facilitated or coordinated, such as mixed housing, 
shared housing, family housing, group homes, and congregate housing.
    (3) Exemption of mixed population projects. A PHA with a public 
housing project with a mixed population of elderly families and disabled 
families that plans to house them in such

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project in accordance with the requirements of 24 CFR part 960, subpart 
D, is not required to meet the designation requirements of this part.
    (c) Family Participation in designated housing--(1) Voluntary 
participation. The election to reside in designated housing is voluntary 
on the part of a family. No disabled family or elderly family may be 
required to reside in designated housing, nor shall a decision not to 
reside in designated housing adversely affect the family with respect to 
occupancy of another appropriate project.
    (2) Meeting stated eligibility requirements. Nothing in this part 
shall be construed to require or permit a PHA to accept for admission to 
a designated project a disabled family or elderly family who does not 
meet the stated eligibility requirements for occupancy in the project 
(for example, income), as set forth in HUD's regulations in 24 CFR parts 
912 and 913, and in the PHA's admission policies.



Sec. 945.105  Definitions.

    The terms Department, Elderly person, HUD, NAHA, Public Housing 
Agency (PHA), and Secretary are defined in 24 CFR part 5.
    Act means the United States Housing Act of 1937 (42 U.S.C. 1437-
1440).
    Accessible units means units that meet the requirement of 
accessibility with respect to dwellings as set forth in the second 
definition of ``accessible'' in 24 CFR 8.3.
    Allocation plan. See Sec. 945.201.
    CHAS means the comprehensive housing affordability strategy required 
by section 105 of the National Affordable Housing Act (42 U.S.C. 12705) 
or any successor plan prescribed by HUD.
    Designated family means the category of family for whom the project 
is designated (e. g., elderly family in a project designated for elderly 
families).
    Designated housing or designated project means a project (or 
projects), or a portion of a project (or projects) (as these terms are 
defined in this section), that has been designated in accordance with 
the requirements of this part.
    Disabled family means a family whose head or spouse or sole member 
is a person with disabilities. The term ``disabled family'' may include 
two or more persons with disabilities living together, and one or more 
persons with disabilities living with one or more persons who are 
determined to be essential to the care or well-being of the person or 
persons with disabilities. A disabled family may include persons with 
disabilities who are elderly.
    Elderly family means a family whose head, spouse, or sole member is 
an elderly person. The term ``elderly family'' includes an elderly 
person, two or more elderly persons living together, and one or more 
elderly persons living with one or more persons who are determined to be 
essential to the care or well-being of the elderly person or persons. An 
elderly family may include elderly persons with disabilities and other 
family members who are not elderly.
    Family includes but is not limited to a single person as defined in 
this part, a displaced person (as defined in 24 CFR part 912), a 
remaining member of a tenant family, a disabled family, an elderly 
family, a near-elderly family, and a family with children. It also 
includes an elderly family or a disabled family composed of one or more 
elderly persons living with one or more disabled persons.
    Housing has the same meaning as ``project,'' which is defined in 
this section.
    Mixed population project means a public housing project reserved for 
elderly families and disabled families. This is the project type 
referred to in NAHA as being designated for elderly and disabled 
families. A PHA that has a mixed population project or intends to 
develop one need not submit an allocation plan or request a designation. 
However, the project must meet the requirements of 24 CFR part 960 
subpart D.
    Near-elderly family means a family whose head, spouse, or sole 
member is a near-elderly person. The term ``near-elderly family'' 
includes two or more near-elderly persons living together, and one or 
more near-elderly persons living with one or more persons who are 
determined to be essential to the care or well-being of the near-elderly 
person or persons. A near-elderly family may include other family 
members who are not near-elderly.

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    Near-elderly person means a person who is at least 50 years of age 
but below the age of 62, who may be a person with a disability.
    Non-elderly disabled person means a person with a disability who is 
less than 62 years of age.
    Person with disabilities means a person who--
    (a) Has disability as defined in section 223 of the Social Security 
Act (42 U.S.C. 423), or
    (b) Is determined to have a physical, mental, or emotional 
impairment that--
    (1) Is expected to be of long-continued and indefinite duration,
    (2) Substantially impedes his or her ability to live independently, 
and
    (3) Is of such a nature that such ability could be improved by more 
suitable housing conditions, or
    (c) Has a developmental disability as defined in section 102 of the 
Developmental Disabilities Assistance and Bill of Rights Act (42 U.S.C. 
6001(5)).

The term ``person with disabilities'' does not exclude persons who have 
the disease of acquired immunodeficiency syndrome or any conditions 
arising from the etiologic agent for acquired immunodeficiency syndrome.
    Portion of project includes: One or more buildings in a multi-
building project; one or more floors of a project or projects; a certain 
number of dwelling units in a project or projects. (Designation of a 
portion of a project does not require that the buildings, floors or 
units be contiguous.)
    Project means low-income housing developed, acquired, or assisted by 
a PHA under the U.S. Housing Act of 1937 (other than section 8) for 
which there is an Annual Contributions Contract (ACC) between HUD and 
the PHA. For purposes of this part, the terms housing and public housing 
mean the same as project. Additionally, as used in this part, and unless 
the context indicates otherwise, the term project when used in the 
singular includes the plural, and when used in the plural, includes the 
singular, and also includes a ``portion of a project,'' as defined in 
this section.
    Public housing or public housing project. See definition of 
``project'' in this section.
    Service provider means a person or organization qualified and 
experienced in the provision of supportive services, and that is in 
compliance with any licensing requirements imposed by State or local law 
for the type of service or services to be provided. The service provider 
may provide the service on either a for-profit or not-for-profit basis.
    Single person means a person who lives alone or intends to live 
alone, who is not an elderly person, a person with disabilities, a 
displaced person, or the remaining member of a tenant family.
    Supportive service plan. See Sec. 945.205.
    Supportive services means services available to persons residing in 
a development, requested by disabled families and for which there is a 
need, and may include, but are not limited to, meal services, health-
related services, mental health services, services for nonmedical 
counseling, meals, transportation, personal care, bathing, toileting, 
housekeeping, chore assistance, safety, group and socialization 
activities, assistance with medications (in accordance with any 
applicable State laws), case management, personal emergency response, 
and other appropriate services.

[59 FR 17662, Apr. 13, 1994, as amended at 61 FR 5214, Feb. 9, 1996]



              Subpart B_Application and Approval Procedures



Sec. 945.201  Approval to designate housing.

    (a) Designated housing for elderly families. To designate a project 
for occupancy by elderly families, a PHA must have a HUD-approved 
allocation plan that meets the requirements of Sec. 945.203.
    (b) Designated housing for disabled families. To designate a project 
for occupancy by disabled families, a PHA must have a HUD-approved 
allocation plan that meets the requirements of Sec. 945.203, and a HUD-
approved supportive service plan that meets the requirements of Sec. 
945.205.
    (c) Designated housing for elderly families and disabled families. 
(1) A PHA that provides or intends to provide a mixed population project 
(a project for both elderly families and disabled families)

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is not required to meet the requirements of this part. The PHA is 
required to meet the requirements of 24 CFR part 960, subpart D.
    (2) A PHA that intends to provide designated housing for elderly 
families or for disabled families must identify any existing or planned 
mixed population projects, reserved under 24 CFR part 960, subpart B, as 
additional housing resources, in its allocation plan, in accordance with 
Sec. 945.203(c)(6).



Sec. 945.203  Allocation plan.

    (a) Applicable terminology. (1) As used in this section, the terms 
``initial allocation plan'' refers to the PHA's first submission of an 
allocation plan, and ``updated allocation plan'' refers to the biennial 
update (once every two years) of this plan, which is described in 
paragraph (f) of this section.
    (2) As provided in Sec. 945.105, the term ``project'' includes the 
plural (``projects'') and includes a portion of a project.
    (b) Consultation in plan development. These consultation 
requirements apply to the development of an initial allocation plan as 
provided in paragraph (c) of this section, or any update of the 
allocation plan as provided in paragraph (f) of this section.
    (1) In preparing the draft plan, the PHA shall consult with:
    (i) The State or unit of general local government where the project 
is located;
    (ii) Public and private service providers;
    (iii) Representative advocacy groups for each of these family types: 
disabled families, elderly families, and families with children, where 
such advocacy groups exist;
    (iv) Representatives of the residents of the PHA's projects proposed 
for designation, including representatives from resident councils or 
resident management corporations where they exist; and
    (v) Other parties that the PHA determines would be interested in the 
plan, or other parties that have contacted the PHA and expressed an 
interest in the plan.
    (2) Following the completion of the draft plan, the PHA shall:
    (i) Issue public notices regarding its intention to designate 
housing and the availability of the draft plan for review;
    (ii) Contact directly those individuals, agencies and other 
interested parties specified in paragraph (b)(1) of this section, and 
advise of the availability of the draft plan for review;
    (iii) Allow not less than 30 days for public comment on the draft 
allocation plan;
    (iv) Make free copies of the draft plan available upon request, and 
in accessible format, when appropriate;
    (v) Conduct at least one public meeting on the draft allocation 
plan;
    (vi) Give fair consideration to all comments received; and
    (vii) Retain any records of public meetings held on the allocation 
plan (or updated plan) and any written comments received on the plan for 
a period of five years commencing from the date of submission of the 
allocation plan to HUD. These records must be available for review by 
HUD.
    (c) Contents of initial plan. The initial allocation plan shall 
contain, at a minimum, the information set forth in this paragraph (c).
    (1) Identification of the project to be designated and type of 
designation to be made. The PHA must:
    (i) Identify the type of designation to be made (i.e., housing for 
disabled families or housing for elderly families);
    (ii) Identify the building(s), floor(s), or unit(s) to be designated 
and their location, or if specific units are not designated, the number 
to be designated; and
    (iii) State the reasons the building(s), floor(s), or unit(s) were 
selected for designation.
    (2) Identification of groups and persons consulted and comments 
submitted. The PHA must:
    (i) Identify the groups and persons with whom the PHA has consulted 
in the development of the allocation plan;
    (ii) Include a summary of comments received on the plan from the 
groups and persons consulted; and
    (iii) Describe how the plan addresses these comments.
    (3) Profile of proposed designated project in pre-designation state. 
This component of the plan must include,

[[Page 406]]

for the projects, buildings, or portions of buildings to be designated:
    (i) The total number of families currently occupying the project, 
and
    (A) The number of families who are members of the group for whom the 
project is to be designated, and
    (B) The number of families who are not members of the group for whom 
the project is to be designated;
    (ii) An estimate of the total number of elderly families and 
disabled families who are potential tenants of the project (i.e., as the 
project now exists), based on information provided by:
    (A) The waiting list from which vacancies in the project are filled; 
and
    (B) A local housing needs survey, if available, such as the CHAS, 
for the jurisdiction within which the area served by the PHA is located;
    (iii) An estimate of the number of potential tenants who will need 
accessible units based on information provided by:
    (A) The needs assessment prepared in accordance with 24 CFR 8.25, 
and
    (B) A housing needs survey, if available, such as the CHAS or HUD-
prescribed successor survey;
    (iv) The number of units in the project that became vacant and 
available for occupancy during the year preceding the date of submission 
of the allocation plan to HUD;
    (v) The average length of vacancy for dwelling units in the project 
for the year preceding the date of submission of the allocation plan to 
HUD;
    (vi) An estimate of the number of units in the project that the PHA 
expects to become vacant and available for occupancy during the two-year 
period following the date of submission of the allocation plan to HUD 
(i.e., if the project were not to be designated);
    (vii) An estimate of the average length of time elderly families and 
non-elderly persons with disabilities currently have to wait for a 
dwelling unit.
    (4) Projected profile of project in designated state. This component 
of the plan must:
    (i) Identify the source of the families for the designated project 
(e.g., current residents of the project, families currently on the 
waiting list, residents of other projects, and potential tenants based 
on information from the local housing needs survey);
    (ii) For projects proposed to be designated for occupancy by elderly 
families an estimate of the number of:
    (A) Units in the project that are anticipated to become vacant and 
available for occupancy during the two-year period following the date of 
submission of the allocation plan to HUD;
    (B) Near-elderly families who may be needed to fill units in the 
designated project for elderly families, as provided in Sec. 
945.303(c);
    (iii) Describe any impact the designation may have on the average 
length of time applicants in the group for which the project is 
designated and other applicants will have to wait for a dwelling unit.
    (5) PHA occupancy policies and procedures. This component of the 
plan must describe any changes the PHA intends to make in its admission 
policies to accommodate the designation, including:
    (i) How the waiting list will be maintained;
    (ii) How dwelling units will be assigned; and
    (iii) How records will be maintained to document the effect on all 
families who would have resided in the designated project if it had not 
been designated.
    (6) Strategy for addressing the current and future housing needs of 
the families in the PHA's jurisdiction. The PHA must:
    (i) Identify the housing resources currently owned or controlled by 
the PHA, including any mixed population projects, in existence, as 
provided in 24 CFR part 960, subpart D, that will be available to these 
families;
    (ii) Describe the steps to be taken by the PHA to respond to any 
need for accessible units that will no longer be available for 
applicants who need them. The PHA has a continuing obligation under 
section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 794) to provide 
accessible dwellings even if the project designation removes accessible 
dwellings from the inventory of possible dwellings for non-elderly 
persons with disabilities;
    (iii) If a project is being designated for elderly families, 
describe the steps the PHA will take to facilitate access

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to supportive services by non-elderly disabled families. The services 
should be equivalent to those available in the designated project and 
requested by non-elderly disabled families. If the PHA funds supportive 
services for the designated project for elderly families, the PHA must 
provide the same level of services, upon the request of non-elderly 
disabled families.
    (iv) If a project is being designated for elderly families, identify 
the additional housing resources that the PHA determines will be 
sufficient to provide assistance to not less than the number of non-
elderly disabled families that would have been housed by the PHA if 
occupancy in units in the designated project were not restricted to 
elderly families (one-for-one replacement is not required). Among these 
resources may be:
    (A) Normal turnover in existing projects;
    (B) Existing housing stock that previously was not available to or 
considered for non-elderly disabled families. Examples are dwellings in 
general occupancy (family) projects that are reconfigured to meet the 
dwelling size needs of the non-elderly disabled families, or were 
previously occupied by elderly families who will relocate to the 
designated project for elderly families, or were previously vacant 
because there had not been a demand for dwellings of that size in that 
location;
    (C) Housing for which the PHA has received preliminary notification 
that it will obtain; and
    (D) Housing for which the PHA plans to apply during the period 
covered by the allocation plan, and which it has a reasonable 
expectation of obtaining.
    (v) Where a project is being designated for elderly families, 
explain how the PHA plans to secure the required additional housing 
resources. In the case of housing for which the PHA plans to apply, the 
PHA must provide sufficient information about the housing resource and 
its application to establish that the PHA can reasonably expect to 
obtain the housing.
    (vi) Describe incentives, if any, that the PHA intends to offer to:
    (A) Families who are members of the group for whom a project was 
designated to achieve voluntary transfers to the designated project; and
    (B) Families who are not members of the group for whom a project was 
designated to achieve voluntary transfers from the project proposed to 
be designated;
    (d) Criteria for allocation plan approval. HUD shall approve an 
initial allocation plan, or updated allocation plan, if HUD determines 
that:
    (1) The information contained in the plan is complete and accurate 
(a plan that is incomplete, i.e., missing required statements or items, 
will be disapproved), and the projections are reasonable;
    (2) Implementation of the plan will not result in a substantial 
increase in the vacancy rates in the designated project;
    (3) Implementation of the plan will not result in a substantial 
increase in delaying or denying housing assistance to families on the 
PHA's waiting list because of designating projects;
    (4) The plan for securing sufficient additional housing resources 
for non-elderly disabled persons can reasonably be achieved; and
    (5) The plan conforms to the requirements of this part.
    (e) Allocation plan approval or disapproval.--(1) Written 
notification. HUD shall notify each PHA, in writing, of approval or 
disapproval of the initial or updated allocation plan.
    (2) Timing of notification. An allocation plan shall be considered 
to be approved by HUD if HUD fails to provide the PHA with notification 
of approval or disapproval of the plan, as required by paragraph (e)(1) 
of this section, within:
    (i) 90 days after the date of submission of an allocation plan that 
contains comments, as provided in paragraph (c)(2) of this section; or
    (ii) 45 days after the date of submission of all other plans, 
including
    (A) Initial plans for which no comments were received;
    (B) Updated plans, as provided in paragraph (f) of this section; and
    (C) Revised initial plans or revised updated plans, as provided in 
paragraph (e)(4) of this section.
    (3) Approval limited solely to approval of designated housing. HUD's 
approval

[[Page 408]]

of an initial plan or updated allocation plan under this section may not 
be construed to constitute approval of any request for assistance for 
major reconstruction of obsolete projects, assistance for development or 
acquisition of public housing, or assistance under 24 CFR part 890 
(supportive housing for persons with disabilities).
    (4) Resubmission following disapproval. If HUD disapproves an 
initial allocation plan, a PHA shall have a period of not less than 45 
days or more than 90 days following notification of disapproval as 
provided in paragraph (e)(2) of this section, to submit amendments to 
the plan, or to submit a revised plan.
    (f) Biennial update of plan--(1) General. Each PHA that owns or 
operates a public housing project that is designated for occupancy under 
this part shall update its allocation plan not less than once every two 
years, from the date of HUD approval of the initial allocation plan. A 
PHA that wishes to amend or revise its plan later than 90 days after HUD 
disapproval must begin the hearing and consultation process again.
    (2) Failure to submit updated plan. If the PHA fails to submit the 
updated plan as required by this paragraph (f), the Secretary may revoke 
the designation in accordance with the provisions of paragraph 
(f)(4)(ii) of this section.
    (3) Contents of updated plan. The updated allocation plan shall 
contain, at a minimum, the following information:
    (i) The most recent update of the allocation plan data, and 
projections for the next two years;
    (ii) An assessment of the accuracy of the projections contained in 
previous plans and in the updated allocation plan;
    (iii) The number of times a vacancy was filled in accordance with 
Sec. 945.303(c);
    (iv) A discussion of the impact of the designation on the designated 
project and the other public housing projects operated by the PHA, using 
the data obtained from the system developed in Sec. 945.203(c), 
including
    (A) The number of times there was a substantial increase in delaying 
housing assistance to families on the PHA's waiting list because 
projects were designated; and
    (B) The number of times there was a substantial increase in denying 
housing assistance to families on the PHA's waiting list because 
projects were designated;
    (v) A plan for adjusting the allocation of designated units, if 
necessary.
    (4) Criteria for approval of updated plan. (i) HUD shall approve an 
updated allocation plan based on HUD's review and assessment of the 
updated plan, using the criteria in (d) of this section. If HUD 
considers it appropriate, the review and assessment shall include any 
on-site review and monitoring of PHA performance in the administration 
of its designated housing and in the allocation of the PHA's housing 
resources. Notification of approval or disapproval of the updated 
allocation plan shall be provided in accordance with paragraph (e) of 
this section;
    (ii) If a PHA's updated plan is not approved, HUD may require PHAs 
to change the designation of existing or planned projects to other 
categories, such as general occupancy or mixed population projects.
    (5) Notification of approval or disapproval of updated plan. HUD 
shall notify each PHA submitting an updated plan of approval or 
disapproval of the updated plan, in accordance with the form of 
notification and within the time periods required by paragraph (e) of 
this section.

(Approved by the Office of Management and Budget under control number 
2577-0192)



Sec. 945.205  Designated housing for disabled families.

    (a) General. (1) In general, HUD will approve designated projects 
for disabled families only if there is a clear demonstration that there 
is both a need and a demand by disabled families for such designation. 
In the absence of such demonstrated need and demand, PHAs should provide 
for the housing needs of disabled families in the most integrated 
setting possible.
    (2) To designate a project for disabled families, a PHA must submit 
the allocation plan required by Sec. 945.203 and the supportive service 
plan described in paragraph (b) of this section.
    (3) In its allocation plan,

[[Page 409]]

    (i) The PHA may not designate a project for persons with a specific 
disability;
    (ii) The designated project does not have to be made up of 
contiguous units. PHAs are encouraged to place the units in the project, 
whether contiguous or not, in the most integrated setting possible.
    (4) The consultation process for the allocation plan provided in 
Sec. 945.203(b) and consultation process for the supportive service 
plan provided in this section may occur concurrently.
    (5) If the PHA conducts surveys to determine the need or demand for 
a designated project for disabled families or for supportive services in 
such project, the PHA must protect the confidentiality of the survey 
responses.
    (b) Supportive Service Plan. The plan shall describe how the PHA 
will provide or arrange for the provision of the appropriate supportive 
services requested by the disabled families who will occupy the 
designated housing and who have expressed a need for these services.
    (1) Contents of plan. The supportive service plan, at a minimum, 
must:
    (i) Identify the number of disabled families who need the supportive 
services and who have expressed an interest in receiving them;
    (ii) Describe the types of supportive services that will be 
provided, and, if known, the length of time the supportive services will 
be available;
    (iii) Identify each service provider to be utilized, and describe 
the experience of the service provider in delivering supportive 
services;
    (iv) Describe how the supportive services will be provided to the 
disabled families that the designated housing is expected to serve (how 
the services will be provided depends upon the type of service offered; 
e.g., if the package includes transportation assistance, how 
transportation assistance will be provided to disabled families);
    (v) Identify all sources of funding upon which the PHA is relying to 
deliver supportive services to residents of the designated housing for 
disabled families, or the supportive service resources to be provided in 
lieu of funding;
    (vi) Submit evidence of a specific contractual commitment or 
commitments provided to the PHA by the sources identified in paragraph 
(b)(1)(v) of this section to make funds available for supportive 
services, or the delivery of supportive services available to the PHA 
for at least two calendar years;
    (vii) Identify any public and private service providers, advocates 
for the interests of designated housing families, and other interested 
parties with whom the PHA consulted in the development of this 
supportive service plan, and summarize the comments and recommendations 
made by these parties. (These comments must be maintained for a period 
of five years, and be available for review by HUD as provided in 
paragraph (b)(2)(vii) of this section.);
    (viii) If applicable, address the need for residential supervision 
of disabled families (on-site supervision within the designated housing) 
and how this supervision is to be provided;
    (ix) Include any other information that the PHA determines would 
assist HUD in assessing the suitability of the PHA's supportive service 
plan; and
    (x) Include any additional information that HUD may request, and 
which is appropriate to a determination of the suitability of the 
supportive service plan.
    (2) Public review and comment on the supportive service plan. In 
preparing the initial supportive service plan, or any update of the 
supportive service plan, the PHA shall:
    (i) Issue public notices regarding its intention to provide 
supportive services to designated housing for disabled families and the 
availability of the draft supportive service plan;
    (ii) Send notices directly to interested individuals and agencies 
that have contacted the PHA and have expressed an interest in the 
supportive service plan, and to parties specified in paragraph 
(b)(1)(vii) of this section;
    (iii) Allow not less than 30 days for public comment on the 
supportive service plan;
    (iv) Make free copies of the draft plan available upon request, and 
in accessible format, when appropriate;
    (v) Conduct at least one public meeting regarding the supportive 
service plan;

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    (vi) Give fair consideration to all comments received; and
    (vii) Retain any records of the public meetings held on the 
supportive service plan, and any written comments received on the 
supportive service plan for a period of five years, from the date of 
submission of the supportive service plan. These records must be 
available for review by HUD.
    (c) Approval. HUD shall approve designated housing for disabled 
families if the allocation plan meets the requirements of Sec. 945.203, 
including demonstrating both a need and a demand for designated housing 
for disabled families, and if HUD determines on the basis of the 
information provided in the supportive service plan that:
    (1) There is a sufficient number of persons with disabilities who 
have expressed an interest in occupying a designated project for 
disabled families, and who have expressed a need and demand for the 
supportive services that will be provided;
    (2) The supportive services are adequately designed to meet the 
needs of the disabled families who have indicated a desire for them;
    (3) The service provider has current or past experience 
administering an effective supportive service delivery program for 
persons with disabilities;
    (4) If residential supervision is required, a written commitment to 
provide this supervision in the designated housing.

(Approved by the Office of Management and Budget under control number 
2577-0192)



                 Subpart C_Operating Designated Housing



Sec. 945.301  General requirements.

    The application procedures and operation of designated projects 
shall be in conformity with the regulations of this part, and the 
regulations applicable to PHAs in 24 CFR Chapter IX, including 24 CFR 
parts 913, 960 and 966, and, in particular, the nondiscrimination 
requirements of 24 CFR 960.211(b)(3), that include but are not limited 
to section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 794), Fair 
Housing Act (42 U.S.C. 3601-3619), title VI of the Civil Rights Act of 
1964 (42 U.S.C. 2000d), section 3 of the Housing and Urban Development 
Act of 1968 (12 U.S.C. 1701u), the Age Discrimination Act (42 U.S.C. 
6101-6107), Executive Order 11246 (3 CFR 1964-1965 Comp., p. 339), 
Executive Order 11063, as amended by Executive Order 12259 (3 CFR 1958-
1963 Comp., p. 652 and 3 CFR 1980 Comp., p. 307), the Americans with 
Disabilities Act (42 U.S.C. 12101-12213) (to the extent the Americans 
with Disabilities Act is applicable) and the implementing regulations of 
these statutes and authorities; and other applicable Federal, State, and 
local laws prohibiting discrimination and promoting equal opportunity.



Sec. 945.303  Requirements governing occupancy in designated housing.

    (a) Priority for occupancy. Except as provided in paragraph (c) of 
this section, in determining priority for admission to designated 
housing, the PHA shall make units in the designated housing available 
only to designated families.
    (b) Compliance with preference regulations. Among the designated 
families, the PHA shall give preference in accordance with the 
preferences in 24 CFR part 960, subpart B.
    (c) Eligibility of other families for housing designated for elderly 
families--(1) Insufficient elderly families. If there are an 
insufficient number of elderly families for the units in a project 
designated for elderly families, the PHA may make dwelling units 
available to near-elderly families, who qualify for preferences under 24 
CFR part 960, subpart B. The election to make dwelling units available 
to near-elderly families if there are an insufficient number of elderly 
families should be explained in the PHA's allocation plan.
    (2) Insufficient elderly families and near-elderly families. If 
there are an insufficient number of elderly families and near-elderly 
families for the units in a project designated for elderly families, the 
PHA shall make available to all other families any dwelling unit that 
is:
    (i) Ready for re-rental and for a new lease to take effect; and
    (ii) Vacant for more than 60 consecutive days.
    (d) Tenant choice of housing. (1) Subject to paragraph (d)(2) of 
this section,

[[Page 411]]

the decision of any disabled family or elderly family not to occupy or 
accept occupancy in designated housing shall not have an adverse affect 
on:
    (i) The family's admission to or continued occupancy in public 
housing; or
    (ii) The family's position on or placement on a public housing 
waiting list.
    (2) The protection provided by paragraph (d)(1) of this section 
shall not apply to any family who refuses to occupy or accept occupancy 
in designated housing because of the race, color, religion, sex, 
disability, familial status, or national origin of the occupants of the 
designated housing or the surrounding area.
    (3) The protection provided by paragraph (d)(1) of this section 
shall apply to an elderly family or disabled family that declines to 
accept occupancy, respectively, in a designated project for elderly 
families or for disabled families, and requests occupancy in a general 
occupancy project or in a mixed population project.
    (e) Appropriateness of dwelling unit to family size. This part may 
not be construed to require a PHA to offer a dwelling in a designated 
project to any family who is not of appropriate family size for the 
dwelling unit. The temporary absence of a child from the home due to 
placement in foster care is not considered in determining family 
composition and family size.
    (f) Prohibition of evictions. Any tenant who is lawfully residing in 
a dwelling unit in a public housing project may not be evicted or 
otherwise required to vacate the unit because of the designation of the 
project, or because of any action taken by HUD or the PHA in accordance 
with this part.
    (g) Prohibition of coercion to accept supportive services. As with 
other HUD-assisted housing, no disabled family or elderly family 
residing in designated housing may be required to accept supportive 
services made available by the PHA under this part.
    (h) Availability of grievance procedures in 24 CFR part 966. The 
grievance procedures in 24 CFR part 966, subpart B, which applies to 
public housing tenants, is applicable to this part.



PART 954_INDIAN HOME PROGRAM--Table of Contents




                      Subpart A_General Provisions

Sec.
954.1 Overview.
954.2 Definitions.
954.3 Waivers.
954.4 Other Federal requirements.

                    Subpart B_Applying for Assistance

954.100 General.
954.101 Allocation of funds.
954.102 Eligible applicants.
954.103 Housing strategy.
954.104 Performance thresholds.
954.105 Criteria for selection.
954.106 Announcement of competition.
954.107 Grant conditions.
954.108 Project amendment.

             Subpart C_Eligible Activities and Affordability

954.300 Eligible activities.
954.301 Religious organizations.
954.302 Income determinations.
954.303 Eligible project costs.
954.304 Eligible administrative costs.
954.305 Tenant-based rental assistance.
954.306 Rental housing: qualification as affordable housing and income 
          targeting.
954.307 Homeownership: qualification as affordable housing.
954.308 Prohibited activities.

                     Subpart D_Project Requirements

954.400 Maximum per-unit subsidy amount.
954.401 Property standards.
954.402 Tenant and participant protections.

                    Subpart E_Program Administration

954.500 Repayment of investment.
954.501 Grantee responsibilities; written agreements; monitoring.
954.502 Applicability of uniform administrative requirements.
954.503 Audit.
954.504 Closeout.
954.505 Recordkeeping.
954.506 Performance reports.
954.507 Submission of project completion reports.

               Subpart F_Performance Reviews and Sanctions

954.600 Performance reviews.
954.601 Corrective and remedial actions.
954.602 Notice and opportunity for hearing; sanctions.

    Authority: 42 U.S.C. 3535(d) and 12701-12839.

[[Page 412]]


    Source: 61 FR 32223, June 21, 1996, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 954.1  Overview.

    This part implements the Indian HOME Investment Partnerships 
Program. In general, under the Indian HOME Investment Partnerships 
Program, HUD awards funds competitively to eligible applicants to 
provide more affordable housing. Grantees may use HOME funds to carry 
out projects through acquisition, rehabilitation, and new construction 
of housing, and tenant-based rental assistance. Grantees are able to 
provide assistance in a number of eligible forms, including loans, 
advances, equity investments, interest subsidies and other forms of 
investment that HUD approves.



Sec. 954.2  Definitions.

    Adjusted income. See 24 CFR part 950.
    Annual income. See 24 CFR part 950.
    Area Office of Native American Programs (ONAP). See 24 CFR part 950.
    Certification means a written assertion, based on supporting 
evidence, which must be kept available for inspection by HUD, the 
Inspector General and the public, which assertion is deemed to be 
accurate for purposes of this part, unless HUD determines otherwise 
after inspecting the evidence and providing due notice and opportunity 
for comment.
    Community-wide exception rents are maximum gross rents approved by 
HUD for the Rental Certificate program under Sec. 882.106(a)(3) of this 
title for a designated municipality, county, or similar locality, which 
apply to the whole IHA jurisdiction.
    Family. See 24 CFR part 950.
    HOME funds means funds made available under this part through 
grants, plus all repayments and interest or other return on the 
investment of these funds.
    Homeownership means ownership in fee simple title or a leasehold 
interest of not less than 50 years (including 25 years, automatically 
renewable for an additional term of 25 years) in a one-to-four unit 
dwelling or in a condominium unit, ownership or membership in a 
cooperative, or equivalent form of ownership approved by HUD. The 
ownership interest may be subject only to the restrictions on resale 
required under Sec. 954.307(a); mortgages, deeds of trust, or other 
liens or instruments securing debt on the property as approved by the 
tribe; or any other restrictions or encumbrances that do not impair the 
good and marketable nature of title to the ownership interest.
    Household means one or more persons occupying a housing unit.
    Housing includes site constructed, modular, manufactured housing and 
housing lots.
    HUD. See 24 CFR part 950.
    Indian housing authority (IHA). See 24 CFR part 950.
    Low-income family See 24 CFR part 950.
    Monthly adjusted income. See 24 CFR part 950.
    Monthly income. See 24 CFR part 950.
    NOFA means notice of funding availability.
    Project means housing developed, acquired, or assisted with HOME 
funds, and the improvement of this housing. It includes the site on 
which the housing is located and all of the HOME-assisted activities 
associated with the building and the site.
    Project completion means that all necessary title transfer 
requirements and construction work have been performed and the project 
complies with the requirements of this part (including the property 
standards adopted under Sec. 954.401); the final drawdown has been 
disbursed for the project; a Project Completion Report has been 
submitted and a final accounting of project expenses is provided by the 
grantee as prescribed by HUD. For tenant-based rental assistance, it 
also means the final drawdown has been disbursed for the project and the 
final payment certification has been submitted and processed as 
prescribed by HUD.
    Secretary means the Secretary of Housing and Urban Development.
    Single room occupancy (SRO) housing means housing consisting of 
single room dwelling units that is the primary residence of its occupant 
or occupants. The unit may contain either food preparation facilities or 
sanitary facilities, or both. Alternatively, sanitary facilities may be 
located outside

[[Page 413]]

the unit and be shared by tenants in the project. SRO does not include 
facilities for students.
    Subgrantee means a public agency or nonprofit organization retained 
by the grantee under a written agreement to administer all or a portion 
of the grantee's program for its HOME grant. A public agency or 
nonprofit organization that receives HOME funds solely as a developer or 
owner of housing is not a subgrantee. The grantee's selection of a 
subgrantee is not subject to the procurement procedures and 
requirements.
    Tenant-based rental assistance is a form of rental assistance in 
which the assisted tenant may move from a dwelling unit with a right to 
continued assistance.
    Transitional housing means housing that--
    (1) Is designed to provide housing and supportive services to 
persons, including (but not limited to) deinstitutionalized individuals 
with disabilities, homeless individuals with disabilities, and homeless 
families with children; and
    (2) Has as its purpose facilitating the movement of individuals and 
families to independent living within a time period that is set by the 
grantee before occupancy.
    Very low-income family. See 24 CFR part 950.



Sec. 954.3  Waivers.

    Upon determination of good cause, HUD may waive any provision of 
this part not required by statute. Each waiver must be in writing and 
must be supported by documentation of the pertinent facts and grounds.



Sec. 954.4  Other Federal requirements.

    (a) Equal opportunity. (1) Section 282. Pursuant to the requirements 
of Section 282 of the Cranston-Gonzales National Affordable Housing Act 
(42 U.S.C. 12832), no person in the United States shall on the grounds 
of race, color, national origin, religion, or sex be excluded from 
participation in, be denied the benefits of, or be subjected to 
discrimination under any program or activity funded in whole or in part 
with HOME funds. In addition, HOME funds must be made available in 
accordance with the prohibitions against discrimination on the basis of 
age under the Age Discrimination Act of 1975 (42 U.S.C. 6101-6107) and 
implementing regulations at 24 CFR part 146, and the prohibitions 
against discrimination against handicapped individuals under section 504 
of the Rehabilitation Act of 1973 (29 U.S.C. 794) and implementing 
regulations at 24 CFR part 8.
    (2) Civil Rights Act. Title VI of the Civil Rights Act of 1964 (42 
U.S.C. 2000d-2000d-4), which prohibits discrimination on the basis of 
race, color or national origin in federally assisted programs, the Fair 
Housing Act (42 U.S.C. 3601-3620), which prohibits discrimination based 
on race, color, religion, sex, or national origin in the sale or rental 
of housing, and Executive Order 11063 (27 FR 11527, 3 CFR 1959-1963 
Comp., p. 652), which provides for equal opportunity in housing, do not 
apply to grantees exercising recognized powers of self-government. 
Indian tribes and tribal organizations applying on behalf of Indian 
tribes that do not exercise recognized powers of self-government must 
make HOME funds available in accordance with Title VI of the Civil 
Rights Act of 1964, the Fair Housing Act, and Executive Order 11063.
    (b) Indian Civil Rights Act. The Indian Civil Rights Act (title II 
of the Civil Rights Act of 1968, 25 U.S.C. 1301-1303) provides, among 
other things, that ``no Indian tribe in exercising powers of self-
government shall. . . deny to any person within its jurisdiction the 
equal protection of its laws or deprive any person of liberty or 
property without due process of law.'' The Indian Civil Rights Act 
(ICRA) applies to any tribe, band, or other group of Indians subject to 
the jurisdiction of the United States in the exercise of recognized 
powers of self-government.
    (c) Indian preference requirements. (1) Applicability. HUD has 
determined that grants under this part are subject to Section 7(b) of 
the Indian Self-Determination and Education Assistance Act (25 U.S.C. 
450e(b)). Section 7(b) provides that any contract, subcontract, grant or 
subgrant pursuant to an act authorizing grants to Indian organizations 
or for the benefit of Indians shall require that, to the greatest extent 
feasible:

[[Page 414]]

    (i) Preference and opportunities for training and employment shall 
be given to Indians; and
    (ii) Preference in the award of contracts and subcontracts shall be 
given to Indian organizations and Indian-owned economic enterprises as 
defined in section 3 of the Indian Financing Act of 1974 (25 U.S.C. 
1452).
    (2) Definitions. (i) The Indian Self-Determination and Education 
Assistance Act (25 U.S.C. 450e(b)) defines ``Indian'' to mean a person 
who is a member of an Indian tribe and defines ``Indian tribe'' to mean 
any Indian tribe, band, nation, or other organized group or community 
including any Alaska native village or regional or village corporation 
as defined or established pursuant to the Alaska Native Claims 
Settlement Act, which is recognized as eligible for the special programs 
and services provided by the United States to Indians because of their 
status as Indians.
    (ii) In section 3 of the Indian Financing Act of 1974 (25 U.S.C. 
1452) ``economic enterprise'' is defined as any Indian-owned commercial, 
industrial, or business activity established or organized for the 
purpose of profit, except that Indian ownership must constitute not less 
than 51 percent of the enterprise. This act defines ``Indian 
organization'' to mean the governing body of any Indian tribe or entity 
established or recognized by such governing body.
    (3) Preference in administration of grant. To the greatest extent 
feasible, preference and opportunities for training and employment in 
connection with the administration of grants awarded under this part 
shall be given to Indians.
    (4) Preference in contracting. To the greatest extent feasible, 
grantees shall give preference in the award of contracts for projects 
funded under this part to Indian organizations and Indian-owned economic 
enterprises.
    (i) Each grantee shall:
    (A) Advertise for bids or proposals limited to qualified Indian 
organizations and Indian-owned enterprises; or
    (B) Use a two-stage preference procedure, as follows:
    (1) Stage 1. Invite or otherwise solicit Indian-owned economic 
enterprises to submit a statement of intent to respond to a bid or 
proposal announcement limited to Indian-owned firms.
    (2) Stage 2. If responses are received from more than one Indian 
enterprise found to be qualified, advertise for bids or proposals 
limited to Indian organizations and Indian-owned economic enterprises; 
or
    (C) Develop, subject to area ONAP one-time approval, the grantee's 
own method of providing preference.
    (ii) If the grantee selects a method of providing preference that 
results in fewer than two responsible qualified organizations or 
enterprises submitting a statement of intent, a bid or a proposal to 
perform the contract at a reasonable cost, then the grantee shall:
    (A) Re-bid the contract, using any of the methods described in 
paragraph (d)(1) of this section; or
    (B) Re-bid the contract without limiting the advertisement for bids 
or proposals to Indian organizations and Indian-owned economic 
enterprises; or
    (C) If one approvable bid is received, request area ONAP review and 
approval of the proposed contract and related procurement documents, in 
accordance with 24 CFR 85.36, in order to award the contract to the 
single bidder.
    (iii) Procurements that are within the dollar limitations 
established for small purchases under 24 CFR 85.36 need not follow the 
formal bid procedures of paragraph (d) of this section, since these 
procurements are governed by the small purchase procedures of 24 CFR 
85.36. However, a grantee's small purchase procurement shall, to the 
greatest extent feasible, provide Indian preference in the award of 
contracts.
    (iv) All preferences shall be publicly announced in the 
advertisement and bidding or proposal solicitation and the bidding or 
proposal documents.
    (v) A grantee, at its discretion, may require information of 
prospective contractors seeking to qualify as Indian organizations or 
Indian-owned economic enterprises. Grantees may require prospective 
contractors to include the following information prior to submitting a 
bid or proposal, or at the time of submission:
    (A) Evidence showing fully the extent of Indian ownership and 
interest;

[[Page 415]]

    (B) Evidence of structure, management and financing affecting the 
Indian character of the enterprise, including major subcontracts and 
purchase agreements; materials or equipment supply arrangements; and 
management salary or profit-sharing arrangements; and evidence showing 
the effect of these on the extent of Indian ownership and interest; and
    (C) Evidence sufficient to demonstrate to the satisfaction of the 
grantee that the prospective contractor has the technical, 
administrative, and financial capability to perform contract work of the 
size and type involved.
    (vi) The grantee shall incorporate the following clause (referred to 
as the Section 7(b) clause) in each contract awarded in connection with 
a project funded under this part:
    (A) The work to be performed under this contract is on a project 
subject to Section 7(b) of the Indian Self-Determination and Education 
Assistance Act (25 U.S.C. 450e(b)) (Indian Act). Section 7(b) requires 
that to the greatest extent feasible preferences and opportunities for 
training and employment shall be given to Indians, and preferences in 
the award of contracts and subcontracts shall be given to Indian 
organizations and Indian-owned economic enterprises.
    (B) The parties to this contract shall comply with the provisions of 
Section 7(b) of the Indian Act.
    (C) In connection with this contract, the contractor shall, to the 
greatest extent feasible, give preference in the award of any 
subcontracts to Indian organizations and Indian-owned economic 
enterprises, and preferences and opportunities for training and 
employment to Indians.
    (D) The contractor shall include this Section 7(b) clause in every 
subcontract in connection with the project, and shall, at the direction 
of the grantee, take appropriate action pursuant to the subcontract upon 
a finding by the grantee or HUD that the subcontractor has violated the 
Section 7(b) clause of the Indian Act.
    (5) Complaint procedures. The following complaint procedures are 
applicable to complaints arising out of any of the methods of providing 
for Indian preference contained in this part, including alternate 
methods enacted and approved in a manner described in this section.
    (i) Each complaint shall be in writing, signed, and filed with the 
grantee.
    (ii) A complaint must be filed with the grantee no later than 20 
calendar days from the date of the action (or omission) upon which the 
complaint is based.
    (iii) Upon receipt of a complaint, the grantee shall promptly stamp 
the date and time of receipt upon the complaint, and immediately 
acknowledge its receipt.
    (iv) Within 20 calendar days of receipt of a complaint, the grantee 
shall either meet, or communicate by mail or telephone, with the 
complainant in an effort to resolve the matter. The grantee shall make a 
determination on a complaint and notify the complainant, in writing, 
within 30 calendar days of the submittal of the complaint to the 
grantee. The decision of the grantee shall constitute final 
administrative action on the complaint.
    (d) Environmental review. The Indian tribe must assume 
responsibility for environmental review, decisionmaking, and action for 
each activity that it carries out with HOME funds, in accordance with 
the requirements imposed on a recipient under 24 CFR part 58. The 
grantee shall also be responsible for compliance with flood insurance, 
coastal barrier resource and airport clear zone requirements under 24 
CFR 58.6.
    (e) Displacement, relocation, and acquisition. (1) Minimizing 
displacement. Consistent with the other goals and objectives of this 
part, the grantee must ensure that it has taken all reasonable steps to 
minimize the displacement of persons (families, individuals, businesses, 
nonprofit organizations, and farms) as a result of a project assisted 
with HOME funds. To the extent feasible, residential tenants must be 
provided a reasonable opportunity to lease and occupy a suitable, 
decent, safe, sanitary, and affordable dwelling unit in the building/
complex upon completion of the project.
    (2) Temporary relocation. The following policies cover residential 
tenants who will not be required to move

[[Page 416]]

permanently but who must relocate temporarily for the project. Such 
tenants must be provided:
    (i) Reimbursement for all reasonable out-of-pocket expenses incurred 
in connection with the temporary relocation, including the cost of 
moving to and from the temporarily occupied housing and any increase in 
monthly rent/utility costs.
    (ii) Appropriate advisory services, including reasonable advance 
written notice of--
    (A) The date and approximate duration of the temporary relocation;
    (B) The location of the suitable, decent, safe, and sanitary 
dwelling to be made available for the temporary period;
    (C) The terms and conditions under which the tenant may lease and 
occupy a suitable, decent, safe, and sanitary dwelling in the building/
complex upon completion of the project; and
    (D) The provisions of paragraph (e)(2)(i) of this section.
    (3) Relocation assistance for displaced persons. (i) General. A 
displaced person (defined in paragraph (e)(3)(ii) of this section) must 
be provided relocation assistance at the levels described in, and in 
accordance with the requirements of, the Uniform Relocation Assistance 
and Real Property Acquisition Policies Act of 1970 (URA) (42 U.S.C. 
4201-4655) and 49 CFR part 24.
    (ii) Displaced Person. (A) For purposes of paragraph (c) of this 
section, the term displaced person means a person (family individual, 
business, private nonprofit organization, or farm, including any 
corporation, partnership or association) that moves from real property 
or moves personal property from real property, permanently, as a direct 
result of acquisition, rehabilitation, or demolition for a project 
assisted with HOME funds. This includes any permanent, involuntary move 
for an assisted project, including any permanent move from the real 
property that is made:
    (1) After notice by the owner to move permanently from the property, 
if the move occurs on or after:
    (i) The date of the submission of an application to the grantee or 
HUD, if the applicant has site control and the application is later 
approved; or
    (ii) The date the grantee approves the applicable site, if the 
applicant does not have site control at the time of the application; or
    (2) Before the date described in paragraph (e)(3)(ii)(A)(1) of this 
section, if the grantee or HUD determines that the displacement resulted 
directly from acquisition, rehabilitation, or demolition for the 
project; or
    (3) By a tenant-occupant of a dwelling unit, if any one of the 
following three situations occurs:
    (i) The tenant moves after execution of the agreement covering the 
acquisition, rehabilitation, or demolition and the move occurs before 
the tenant is provided written notice offering the tenant the 
opportunity to lease and occupy a suitable, decent, safe, and sanitary 
dwelling in the same building/complex upon completion of the project 
under reasonable terms and conditions. Such reasonable terms and 
conditions must include a term of at least one year at a monthly rent 
and estimated average monthly utility costs that do not exceed the 
greater of: the tenant's monthly rent before such agreement and 
estimated average monthly utility costs; or the total tenant payment, as 
determined under 24 CFR part 5, if the tenant is low-income, or 30 
percent of gross household income, if the tenant is not low-income; or
    (ii) The tenant is required to relocate temporarily, does not return 
to the building/complex, and 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; or
    (iii) The tenant is required to move to another dwelling unit in the 
same building/complex but is not offered reimbursement for all 
reasonable out-of-pocket expenses incurred in connection with the move, 
or other conditions of the move are not reasonable.
    (B) Notwithstanding paragraph (e)(3)(ii)(A) of this section, a 
person does not qualify as a displaced person if:
    (1) The person has been evicted for cause based upon a serious or 
repeated violation of the terms and conditions of the lease or occupancy 
agreement,

[[Page 417]]

violation of applicable Federal or tribal law (or state law, which may 
apply if the grantee is not exercising recognized powers of self-
government), or other good cause, and the grantee determines that the 
eviction was not undertaken for the purpose of evading the obligation to 
provide relocation assistance. The effective date of any termination or 
refusal to renew must be preceded by at least 30 days advance written 
notice to the tenant specifying the grounds for the action.
    (2) The person moved into the property after the submission of the 
application but, before signing a lease and commencing occupancy, was 
provided written notice of the project, its possible impact on the 
person (e.g., the person may be displaced, temporarily relocated, incur 
a rent increase), and the fact that the person would not qualify as a 
``displaced person'' (or for any assistance under this section) as a 
result of the project;
    (3) The person is ineligible under 49 CFR 24.2(g)(2); or
    (4) HUD determines that the person was not displaced as a direct 
result of acquisition, rehabilitation, or demolition for the project.
    (C) The grantee may, at any time, ask HUD to determine whether a 
displacement is or would be covered by this part.
    (iii) Initiation of negotiations. For purposes of determining the 
formula for computing replacement housing assistance to be provided 
under paragraph (e)(3) of this section to a tenant displaced from a 
dwelling as a direct result of private-owner rehabilitation, demolition 
or acquisition of the real property, the term initiation of negotiations 
means the execution of the agreement covering the acquisition, 
rehabilitation, or demolition.
    (4) Optional relocation assistance. The grantee may provide 
relocation payments and other relocation assistance to families, 
individuals, businesses, nonprofit organizations, and farms displaced by 
a project assisted with HOME funds where the displacement is not subject 
to paragraph (e)(3) of this section. The grantee may also provide 
relocation assistance to persons covered under paragraph (e)(3) of this 
section beyond that required. For any such assistance that is not 
required by tribal law (or state law, which may apply if the grantee is 
not exercising recognized powers of self-government), the grantee must 
adopt a written policy available to the public that describes the 
optional relocation assistance that it has elected to furnish and 
provides for equal relocation assistance within each class of displaced 
persons.
    (5) Real property acquisition requirements. The acquisition of real 
property for a project is subject to the URA and the requirements of 49 
CFR part 24, subpart B.
    (6) Appeals. A person who disagrees with the grantee's determination 
concerning whether the person qualifies as a displaced person, or the 
amount of relocation assistance for which the person may be eligible, 
may file a written appeal of that determination with the grantee.
    (7) Responsibility of grantee. (i) The grantee must certify that it 
will comply with the URA, the regulations at 49 CFR part 24, and the 
requirements of this section, and must ensure such compliance 
notwithstanding any third party's contractual obligation to the grantee 
to comply.
    (ii) The cost of required relocation assistance is an eligible 
project cost. This cost also may be paid from tribal funds, or funds 
available from other sources.
    (f) Labor. (1) General. (i) Every contract for the construction 
(rehabilitation or new construction) of housing that includes 12 or more 
units assisted with HOME funds must contain a provision requiring the 
payment of not less than the wages prevailing in the locality, as 
predetermined by the Secretary of Labor pursuant to the Davis-Bacon Act 
(40 U.S.C. 276a-276a-5), to all laborers and mechanics employed in the 
development of any part of the housing. Such contracts must also be 
subject to the overtime provisions, as applicable, of the Contract Work 
Hours and Safety Standards Act (42 CFR 327-332).
    (ii) The contract for construction must contain these wage 
provisions if HOME funds are used for any project costs (as defined in 
subpart C of this part), including construction or non-construction 
costs, of housing with 12

[[Page 418]]

or more HOME-assisted units. When HOME funds are only used to assist 
homebuyers to acquire single-family housing, and not for any other 
project costs, the wage provisions apply to the construction of the 
housing if there is a written agreement with the owner or developer of 
the housing that HOME funds will be used to assist homebuyers to buy the 
housing and the construction contract covers 12 or more housing units to 
be purchased with HOME assistance. The wage provisions apply to any 
construction contract that includes a total of 12 or more HOME-assisted 
units, whether one or more than one project phase is covered by the 
construction contract. Once they are determined to be applicable, the 
wage provisions must be contained in the construction contract so as to 
cover all laborers and mechanics employed in the development of the 
entire project, including portions other than the assisted units. 
Arranging multiple construction contracts within a single project for 
the purpose of avoiding the wage provisions is not permitted.
    (iii) Grantees, contractors, subcontractors, and other participants 
must comply with regulations issued under these Acts and with other 
Federal laws and regulations pertaining to labor standards and HUD 
Handbook 1344.1 (Federal Labor Standards Compliance in Housing and 
Community Development programs), as applicable. Grantees must require 
certification as to compliance with the provisions of this section 
before making any payment under such contract.
    (2) Volunteers. The prevailing wage provisions of paragraph (f)(1) 
of this section do not apply to an individual who receives no 
compensation or is paid expenses, reasonable benefits, or a nominal fee 
to perform the services for which the individual volunteered and who is 
not otherwise employed at any time in the construction work. See 24 CFR 
part 70.
    (3) Sweat equity. The prevailing wage provisions of paragraph (f)(1) 
of this section do not apply to members of an eligible family who 
provide labor in exchange for acquisition of a property for 
homeownership or provide labor in lieu of, or as a supplement to, rent 
payments.
    (4) Force account. (i) The grantee is responsible for compliance 
with regulatory requirements in the use of grantee work forces for 
construction or renovation activities performed as part of the 
activities funded under this part. The grantee must provide for its 
files the following:
    (A) Documentation to indicate that it has carried out or can carry 
out successfully a project of the size and scope of the proposal;
    (B) Documentation to indicate that it has obtained or can obtain 
adequate supervision for the workers to be used;
    (C) Information showing that the workers to be used are, or will be, 
listed on the grantee payroll and are employed directly by the grantee.
    (ii) Any and all excess funds derived from the force account 
construction or renovation activities shall accrue to the grantee and 
shall be reprogrammed for other activities eligible under this part or 
returned to HUD promptly.
    (iii) Insurance coverage for force account workers and activities 
shall, where applicable, include worker's compensation, public 
liability, property damage, builder's risk, and vehicular liability.
    (iv) The grantee shall specify and apply reasonable labor 
performance, construction, or renovation standards to work performed 
under the force account.
    (v) The contracting and procurement standards set forth in 24 CFR 
85.36 apply to material, equipment, and supply procurement from outside 
vendors under this section.
    (vi) In force account there is no contract. If the grantee which has 
received the HOME grant to construct the housing units performs the 
construction work using force account, i.e., with its own employees, the 
work is not covered by Davis-Bacon and related Acts. If the grantee 
contracts out the work or part of the work, that work is covered.
    (g) Lead-based paint. Housing assisted with HOME funds constitutes 
HUD-associated housing for the purpose of the Lead-Based Paint Poisoning 
Prevention Act (42 U.S.C. 4821, et seq.) and is, therefore, subject to 
24 CFR part 35. Grantees are responsible for testing and abatement 
activities.

[[Page 419]]

    (h) Conflict of interest. (1) Applicability. (i) The conflict of 
interest provisions in 24 CFR part 84 and 24 CFR 85.36 apply to the 
procurement of supplies, equipment, construction, and services by 
grantees and their subgrantees.
    (ii) The provisions of this section apply to all cases not governed 
by 24 CFR part 84 and 24 CFR 85.36. These cases include the acquisition 
and disposition of real property and the provision of assistance by the 
grantee, by subgrantees, or to individuals, housing developers, and 
other private entities under eligible activities which authorize such 
assistance (e.g., rehabilitation of housing).
    (2) Conflicts prohibited. The general rule is that no persons 
described in paragraph (h)(3) of this section who have or had any 
functions or responsibilities with respect to activities assisted under 
this part, or who are in a position to participate in a decision, or 
gain inside information about such activities, may obtain a financial 
interest or benefit from these activities. Further, these persons may 
not have an interest in any contract, subcontract, or agreement 
concerning such activities; and these persons may not, during their 
employment or tenure in office and for one year thereafter, have an 
interest in the proceeds from these activities, either for themselves or 
for those with whom they have family or business ties. This paragraph 
does not apply to approved eligible administrative or personnel costs.
    (3) Persons covered. The conflict of interest provisions of 
paragraph (h)(2) of this section apply to any person who is an employee, 
agent, consultant, officer, or elected or appointed official of the 
grantee or subgrantee receiving HOME funds.
    (4) Exceptions requiring HUD approval. (i) Threshold requirements. 
Upon the written request of a grantee, HUD may grant an exception to the 
provisions of paragraph (h)(2) of this section on a case-by-case basis, 
when it determines that such an exception will serve to further the 
purposes of the HOME program and the effective and efficient 
administration of the grantee's project. An exception may be considered 
only after the grantee has provided the following:
    (A) A disclosure of the nature of the possible conflict, accompanied 
by an assurance that there has been public disclosure of the conflict 
and a description of how the public disclosure was made; and
    (B) An opinion of the grantee's attorney that the interest for which 
the exception is sought would not violate tribal laws on conflict of 
interest (or State law on conflict of interest, which may apply if the 
grantee is not exercising recognized powers of self-government).
    (ii) Factors to be considered for exceptions. In determining whether 
to grant a requested exception after the grantee has satisfactorily met 
the requirements of paragraph (h)(4)(i) of this section, HUD shall 
consider the cumulative effect of the following factors, where 
applicable:
    (A) Whether the exception would provide a significant cost benefit 
or essential expert knowledge to the project which would otherwise not 
be available;
    (B) Whether the affected person has withdrawn from his or her 
functions or responsibilities, or from the decision-making process, with 
reference to the specific assisted activity in question;
    (C) Whether the interest or benefit was present before the affected 
person was in a position as described in paragraph (h)(2) of this 
section;
    (D) Whether undue hardship will result, either to the grantee or to 
the person affected, when weighed against the public interest served by 
avoiding the prohibited conflict; and
    (E) Any other relevant considerations.
    (5) Circumstances under which the conflict prohibition does not 
apply. (i) In instances where a person who might otherwise be deemed to 
be included under the conflict prohibition is a member of a group or 
class of beneficiaries of the assisted activity and receives generally 
the same interest or benefits as are being made available or provided to 
the group or class, the prohibition does not apply, except that if, by 
not applying the prohibition against conflict of interest, a violation 
of tribal (or State) laws on conflict of interest would result, the 
prohibition does apply.

[[Page 420]]

    (ii) A public disclosure of the nature of the grant assistance to be 
provided and the specific basis for the selection of the proposed 
beneficiaries must be made prior to the submission of an application to 
HUD. Evidence of this disclosure must be provided as a component of the 
application.
    (i) Debarment and suspension. As required by 24 CFR part 24, each 
grantee must require participants in lower tier covered transactions 
(e.g., sub-contractors) to include a certification that neither it nor 
its principals are currently debarred, suspended, proposed for 
debarment, declared ineligible, or voluntarily excluded from 
participation in the covered transaction, in any proposal submitted in 
connection with the lower tier covered transactions. A participant may 
rely on the certification unless it knows the certification is 
erroneous.

[61 FR 32223, June 21, 1996, as amended at 67 FR 15112, Mar. 29, 2002]



                    Subpart B_Applying for Assistance



Sec. 954.100  General.

    For each fiscal year, HUD will provide funds for the Indian HOME 
program, totaling one percent (or such other percentage or amount as 
authorized by Congress) of the amount appropriated for the HOME program 
to expand the supply of affordable housing. The funds will be awarded 
competitively and will be made available pursuant to a NOFA published in 
the Federal Register, in accordance with the requirements of this part.



Sec. 954.101  Allocation of funds.

    Unless HUD determines for administrative convenience based on the 
amount of HOME funds available to hold a nationwide competition, HOME 
funds will be allocated to the HUD Area ONAPs responsible for the Indian 
HOME program competition based upon relative need for housing as 
measured by the most recent and reliable data available.



Sec. 954.102  Eligible applicants.

    (a) Eligible applicants for HOME funds for Indian tribes are any 
Indian Tribe, band, group, or nation, including Alaskan Indians, Aleuts, 
and Eskimos, and any Alaska native village of the United States which is 
considered an eligible recipient under Title I of the Indian Self-
Determination and Education Assistance Act (25 U.S.C. 450). Eligible 
recipients under the Indian Self-Determination and Education Assistance 
Act are determined by the Bureau of Indian Affairs.
    (b) Tribal organizations which are eligible under Title I of the 
Indian Self-Determination and Education Assistance Act may apply for 
funds on behalf of any Indian Tribe, band, group, nation, or Alaska 
native village eligible under that Act when one or more of these 
entities have authorized the tribal organization to do so through 
concurring resolutions. Such resolutions must accompany the application 
for funding. Eligible tribal organizations under Title I of the Indian 
Self-Determination and Education Assistance Act will be determined by 
the Bureau of Indian Affairs or Indian Health Service, as appropriate.
    (c) Only eligible applicants shall receive grants. However, eligible 
applicants may contract or otherwise agree with non-eligible entities 
such as States, cities, counties, or other organizations to assist in 
the preparation of applications and to help implement assisted 
activities.
    (d) To apply for funding in a given fiscal year, an applicant must 
be eligible as an Indian Tribe or Alaska native village, as provided in 
paragraph (a) of this section, or as a tribal organization, as provided 
in paragraph (b) of this section, by the application submission date.



Sec. 954.103  Housing strategy.

    Grantees are not required to submit a housing strategy to receive 
HOME funds. However, the application must demonstrate how the proposed 
project(s) will contribute to a comprehensive approach for expanding the 
supply of affordable housing for members of the Indian tribe.



Sec. 954.104  Performance thresholds.

    Applicants must have the administrative capacity to undertake the 
project proposed, including systems of

[[Page 421]]

internal control necessary to administer these projects effectively. In 
addition, an applicant that has participated in the HOME program must 
have performed adequately. In cases of previously documented deficient 
performance, the applicant must have taken appropriate corrective action 
to improve its performance prior to submitting a HOME application to 
HUD. The Area ONAP will determine whether or not a grantee is eligible 
to participate in a particular funding round. Examples of deficient 
performance may include unresolved serious audit findings and failure to 
initiate a previous grant.



Sec. 954.105  Criteria for selection.

    There are four categories of projects that may be funded under the 
HOME Indian program: housing rehabilitation; acquisition of housing; new 
housing construction; and tenant-based rental assistance. Each project 
must be evaluated using the following three criteria:
    (a) Project need and design. The degree to which the proposed 
project addresses the housing need(s) of the grantee as identified in 
the application, and the degree to which the proposed project is 
feasible while maximizing benefits to low-income families.
    (b) Planning and implementation. The degree to which the financial, 
administrative, and legal actions necessary to undertake the proposed 
project have been considered and addressed in the application, and the 
degree to which the grantee has the administrative staff to carry out 
the project successfully.
    (c) Leveraging. The degree to which other sources of assistance, 
including mortgage insurance, State funds, other Federal grants, and 
private contributions, are used in conjunction with HOME funds to carry 
out the proposed project.



Sec. 954.106  Announcement of competition.

    A NOFA will describe the maximum points for each of the selection 
criteria and any special factors to be evaluated in awarding points 
under theselection factors. The NOFA will also state the deadline for 
the submission of applications, the total funding available for the 
competition and any maximum amount of individual awards.

[Approved by the Office of Management and Budget under OMB control 
number 2577-0191]



Sec. 954.107  Grant conditions.

    HUD may impose reasonable conditions on grant awards.



Sec. 954.108  Project amendment.

    (a) Grantees shall request prior HUD approval for all project 
amendments.
    (b) HUD can approve an amendment to a project if:
    (1) The amendment is due to factors beyond the control of the 
grantee; and
    (2) The request for approval for a project amendment which involves 
$100,000 or more includes all application components required by the 
NOFA published for the last application cycle (not necessarily the year 
in which the project was rated and ranked) and the modified project 
scores high enough to have been funded in the competition for the last 
application cycle. A rating equal to or greater than the lowest rating 
received by a funded project during the last rating cycle must be 
attained by the modified project. The request for approval of an 
amendment for a project which involves less than $100,000 does not have 
to include the components which address the selection criteria. It does 
require a description of and the reason for the modification.
    (c) Approval of an amendment request is subject to the following:
    (1) Demonstration by the grantee of the capacity to promptly 
complete the modified or new project.
    (2) The preparation of an amended or new environmental review in 
accordance with Part 58 of this title, if there is a significant change 
in the scope or location of approved project.
    (d) If a project amendment fails to be approved and the original 
project is no longer feasible, the grant funds proposed for amendment 
shall be deobligated by HUD and recaptured.

[[Page 422]]



             Subpart C_Eligible Activities and Affordability



Sec. 954.300  Eligible activities.

    (a) Eligible activities. (1) General. HOME funds may be used by a 
grantee to provide incentives to develop and support affordable rental 
housing and homeownership affordability and to provide payment of 
reasonable administrative and planning costs. The housing must be 
permanent or transitional housing, and includes permanent housing for 
disabled homeless persons, and single-room occupancy housing. The 
specific eligible costs for these activities are set forth in Sec. 
954.303 and Sec. 954.304.
    (2) Acquisition of vacant land or demolition must be undertaken only 
as an integral part of a particular HOME new construction project.
    (3) Manufactured housing. Purchase and/or rehabilitation of a 
manufactured housing unit qualifies as affordable housing only if, at 
the time of project completion, the unit:
    (i) Is situated on a permanent foundation (except--for 
rehabilitation not involving purchase--when assisting existing unit 
owners who rent the lot on which their unit sits);
    (ii) Is connected to permanent utility hook-ups;
    (iii) Is located on land that is held in fee-simple title, land-
trust, or long-term ground lease with a term at least equal to that of 
the appropriate affordability period;
    (iv) Meets the construction standards established under 24 CFR part 
3280 if produced after June 15, 1976. If the unit was produced prior to 
June 16, 1976, it must comply with applicable tribal, State or local 
codes; and
    (v) In cases where the owner of a manufactured housing unit does not 
hold fee-simple title to the land on which the unit is located, the 
owner may be assisted in purchasing the land under provisions governing 
rehabilitation not involving purchase.
    (b) Forms of assistance. A grantee may invest HOME funds as equity 
investments, interest-bearing loans or advances, noninterest-bearing 
loans or advances, interest subsidies consistent with the purposes of 
this part, deferred payment loans, grants, or other forms of assistance 
that HUD determines to be consistent with the purposes of this part. 
Each grantee has the right to establish the terms of assistance, subject 
to the requirements of this part.



Sec. 954.301  Religious organizations.

    HOME funds may not be provided to primarily religious organizations, 
such as churches, for any activity including secular activities. In 
addition, HOME funds may not be used to rehabilitate or construct 
housing owned by primarily religious organizations or to assist 
primarily religious organizations in acquiring housing. However, HOME 
funds may be used by a secular entity to acquire housing from a 
primarily religious organization, and a primarily religious entity may 
transfer title to property to a wholly secular entity and the entity may 
participate in the HOME program in accordance with the requirements of 
this part. The entity may be an existing or newly established entity 
(which may be an entity established, but not controlled, by the 
religious organization). The completed housing project must be used 
exclusively by the owner entity for secular purposes, available to all 
persons regardless of religion. In particular, there must be no 
religious or membership criteria for tenants of the property.



Sec. 954.302  Income determinations.

    Whenever a grantee makes a determination under this part based on 
family income or adjusted family income, it must use the definitions of 
annual income, adjusted income, monthly income, and monthly adjusted 
income, as those terms are defined in 24 CFR part 950, except when 
determining the income of a homeowner for an owner-occupied 
rehabilitation project, the equity in the homeowner's principal 
residence is excluded from ``Net Family Assets.''



Sec. 954.303  Eligible project costs.

    HOME funds may be used to pay the following eligible costs:
    (a) Development hard costs. The actual cost of constructing or 
rehabilitating housing. These costs include the following:

[[Page 423]]

    (1) For new construction, costs to meet the applicable new 
construction standards of the grantee and the Model Energy Code referred 
to in Sec. 954.401;
    (2) For rehabilitation, costs:
    (i) To meet the applicable rehabilitation standards of the grantee 
or correcting substandard conditions (minimally, the housing quality 
standards at Sec. 882.109 of this title), to make essential 
improvements including energy-related repairs or improvements, 
improvements necessary to permit the use by handicapped persons, and the 
abatement of lead-based paint hazards, as required by Sec. 954.4, and 
to repair or replace major housing systems in danger of failure; and
    (ii) To refinance existing debt secured by a single-family owner-
occupied unit when loaning HOME funds to rehabilitate the unit, if the 
overall housing costs of the borrower will be reduced and made more 
affordable.
    (3) For both new construction and rehabilitation, costs to demolish 
existing structures and for improvements to the project site that are in 
keeping with improvements of surrounding, standard projects, and costs 
to make utility connections. The ``site'' of the improvements may 
include property adjacent to or near the immediate site of the housing 
if this property and the housing are owned by the same entity (e.g., the 
housing is owned--at least until sold to homebuyers--by the grantee and 
the housing and the improvements are located on a reservation). If the 
site improvements will benefit other housing (existing or future) in 
addition to housing assisted with the particular Indian HOME grant, only 
a pro-rated share of the site improvements may be charged against the 
HOME grant. Site improvements include roads, streets, sidewalks, curbs, 
gutters, and connections to utilities, such as storm and sanitary 
sewers, water supply, gas, and electricity, and the pro rata development 
cost of facilities for water supply and sewerage collection utilities.
    (4) For new construction or substantial rehabilitation (an 
expenditure of $25,000 or more per home) the cost of funding an initial 
operating deficit reserve, which is a reserve to meet any shortfall in 
project income during the period of project rent-up (not to exceed 18 
months) and which may only be used to pay operating expenses, reserve 
for replacement payments, and debt service. Any HOME funds placed in an 
operating deficit reserve that remain unexpended when the reserve 
terminates must be returned to the grantee's account and shall be 
reprogrammed for other activities eligible under this part or returned 
to HUD promptly.
    (b) Acquisition costs. Costs of acquiring improved or unimproved 
real property, including acquisition by homebuyers.
    (c) Related soft costs. Other reasonable and necessary costs 
incurred by the owner and associated with the financing, or development 
(or both) of new construction, rehabilitation or acquisition of housing 
assisted with HOME funds. These costs include, but are not limited to:
    (1) Architectural, engineering or related professional services 
required to prepare plans, drawings, specifications, or work write-ups;
    (2) Costs to process and settle the financing for a project, such as 
private lender origination fees, credit reports, fees for title 
evidence, fees for recordation and filing of legal documents, building 
permits, attorneys' fees, private appraisal fees and fees for an 
independent cost estimate, builder and developer fees;
    (3) Costs of a project audit that the grantee may require with 
respect to the development of a specific project; and
    (4) Costs to pay impact fees that are charged to all housing.
    (d) Relocation costs. Costs of relocation payments and other 
relocation assistance for permanently and temporarily relocated 
individuals, families, businesses, private nonprofit organizations, and 
farm operations where assistance is required under Sec. 954.4 or 
determined by the grantee to be appropriate under Sec. 954.4.
    (e) Costs related to tenant-based rental assistance. Eligible costs 
are the rental assistance and security deposit payments made to provide 
tenant-based rental assistance for a family.

[[Page 424]]



Sec. 954.304  Eligible administrative costs.

    Eligible administrative costs means reasonable and necessary costs, 
as described in OMB Circular A-87, (available from the Executive Office 
of the President, Publication Service, 725 17th Street, N.W., Suite G-
2200, Washington, DC 20503; Telephone, (202) 395-7332)) incurred by the 
grantee and related to the planning and execution of HOME activities 
assisted in whole or in part with funds provided under this part. The 
grantee may use up to 15 percent of the HOME funds for the payment of 
eligible administrative costs.



Sec. 954.305  Tenant-based rental assistance.

    (a) General. A grantee may use HOME funds for tenant-based rental 
assistance only if the grantee selects families in accordance with 
written tenant selection policies and criteria that are consistent with 
the purpose of providing housing to very low- and low-income families 
and are reasonably related to preference rules established under section 
6(c)(4)(A) of the U.S. Housing Act of 1937 (42 U.S.C. 1437d). The 
grantee may select eligible families currently residing in units that 
are designated for rehabilitation or acquisition under the grantee's 
HOME program without requiring that the family meet the written tenant 
selection policies and written criteria. Families so selected may use 
the tenant-based assistance in the rehabilitated or acquired unit or in 
other qualified housing.
    (b) Program operation. The grantee may operate the program, or may 
contract with another entity with the capacity to operate a rental 
assistance program. The tenant-based rental assistance may be provided 
through an assistance contract to an owner that leases a unit to an 
assisted family or directly to the family.
    (c) Term of rental assistance contract. The term of the rental 
assistance contract providing assistance with HOME funds may not exceed 
24 months, but may be renewed, subject to the availability of HOME 
funds. The term of the rental assistance contract must begin on the 
first day of the term of the lease. For a rental assistance contract 
between a grantee and an owner, the term of the contract must terminate 
on termination of the lease. For a rental assistance contract between a 
grantee and a family, the term of the contract need not end on 
termination of the lease, but no payments may be made after termination 
of the lease until a family enters into a new lease.
    (d) Rent reasonableness. The grantee must disapprove a lease if the 
rent is not reasonable, based on rents that are charged for comparable 
unassisted rental units.
    (e) Lease requirements. The lease must comply with the requirements 
in Sec. 954.402 of this part.
    (f) Maximum subsidy. (1) The amount of the monthly assistance that a 
grantee may pay to, or on behalf of, a family may not exceed the 
difference between a rent standard for the unit size established by the 
grantee and 30 percent of the family's monthly adjusted income.
    (2) The grantee must establish a minimum dollar amount tenant 
contribution to rent.
    (3) The grantee's rent standard for a unit size may not be less than 
80 percent of the published section 8 existing housing fair market rent 
(in effect when the payment standard amount is adopted) for the unit 
size, nor more than the section 8 fair market rent or HUD-approved 
community-wide exception rent (in effect when the grantee adopts its 
rent standard amount) for the unit size. Alternatively, the grantee's 
rent standard for a unit size may be based on local market conditions. 
Further, a grantee may approve on a unit-by-unit basis a subsidy based 
on a rent standard that exceeds the applicable section 8 fair market 
rent by up to 10 percent for 20 percent of units assisted.
    (g) Housing quality standards. Housing occupied by a family 
receiving tenant-based assistance under this section must meet the 
performance requirements and acceptability criteria set forth in Sec. 
882.109 of this title.
    (h) Use of section 8 assistance. In any case where assistance under 
section 8 of the United States Housing Act of 1937 becomes available to 
a grantee, recipients of tenant-based rental assistance under this part 
will qualify for tenant selection preferences to the same extent as when 
they received the

[[Page 425]]

tenant-based rental assistance under this part.
    (i) Security deposits. (1) A grantee may use HOME funds provided for 
tenant-based rental assistance to provide loans or grants to very low- 
and low-income families for security deposits for rental of dwelling 
units whether or not the grantee provides any other tenant-based rental 
assistance under this section.
    (2) The relevant tribe, State or local definition of ``security 
deposit'' in the jurisdiction where the unit is located is applicable 
for the purposes of this part, except that the amount of HOME funds that 
may be provided for a security deposit may not exceed the equivalent of 
two month's rent for the unit.
    (3) Only the prospective tenant may apply for HOME security deposit 
assistance, although the grantee may pay the funds directly to the 
tenant or to the landlord.
    (4) The lease between a tenant and an owner of rental housing for 
which HOME security deposit assistance is provided must comply with the 
requirements of Sec. 954.402.
    (5) HOME funds for security deposits may be provided as a grant or a 
loan. If they are provided as a loan, the provisions at Sec. 954.501 
for repayment of HOME investments apply.



Sec. 954.306  Rental housing: qualification as affordable housing and 
income targeting.

    (a) Rent limitation. A rental housing project (including the non-
owner-occupied units in housing purchased with HOME funds in accordance 
with Sec. 954.306) qualifies as affordable housing under this part only 
if the project:
    (1) Bears rents not greater than the lesser of--
    (i) The section 8 fair market rent for existing housing for 
comparable units in the area as established by HUD under Sec. 888.111 
of this title, less the monthly allowance for the utilities and services 
(excluding telephone and cable TV) to be paid by the tenant; or
    (ii) A rent that does not exceed 30 percent of the adjusted income 
of a family whose gross income equals 65 percent of the median income 
for the area, as determined by HUD, with adjustment for number of 
bedrooms in the unit, except that HUD may establish income ceilings 
higher or lower than 65 percent of the median for the area on the basis 
of HUD's findings that such variations are necessary because of 
prevailing levels of construction costs or section 8 fair market rents, 
or unusually high or low family incomes. In determining the maximum 
monthly rent that may be charged for a unit that is subject to this 
limitation, the owner or grantee must subtract a monthly allowance for 
any utilities and services (excluding telephone and cable TV) to be paid 
by the tenant. HUD will provide average occupancy costs per unit and 
adjusted income assumptions to be used in calculating the maximum rent 
allowed under this paragraph (a)(1)(ii) of this section;
    (2) Has, in the case of projects with three or more rental units, 
not less than 20 percent of the units--
    (i) Occupied by very low-income families who pay as a contribution 
toward rent (excluding any Federal, State, or tribal rental subsidy 
provided on behalf of the family) not more than 30 percent of the 
family's monthly adjusted income as determined by HUD. To obtain the 
maximum monthly rent that may be charged for a unit that is subject to 
this limitation, the owner or grantee multiplies the annual adjusted 
income of the tenant family by 30 percent and divides by 12 and, if 
applicable, subtracts a monthly allowance for the utilities and services 
(excluding telephone and cable TV) to be paid by the tenant; or
    (ii) Occupied by very low-income families and bearing rents not 
greater than 30 percent of the gross income of a family whose income 
equals 50 percent of the median income for the area, as determined by 
HUD, with adjustment for smaller and larger families, except that HUD 
may establish income ceilings higher or lower than 50 percent of the 
median for the area on the basis of HUD's findings that such variations 
are necessary because of prevailing levels of construction costs or 
section 8 fair market rents, or unusually high or low family incomes. In 
determining the maximum monthly rent that may be charged for a unit that 
is subject to this limitation, the owner or grantee must subtract a 
monthly allowance for

[[Page 426]]

any utilities and services (excluding telephone and cable TV) to be paid 
by the tenant. HUD will provide average occupancy per unit assumptions 
to be used in calculating the maximum rent allowed under paragraph 
(a)(2)(ii) of this section;
    (3) Is occupied only by households that qualify as low-income 
families;
    (4) Is not refused for leasing to a holder of a certificate of 
family participation under 24 CFR part 882 (rental certificate program) 
or a rental voucher under 24 CFR part 887 (rental voucher program) or to 
the holder of a comparable document evidencing participation in a HOME 
tenant-based assistance program because of the status of the prospective 
tenant as a holder of such certificate of family participation, rental 
voucher, or comparable HOME tenant-based assistance document; and
    (5) Will remain affordable without regard to the term of any 
mortgage or the transfer of ownership, pursuant to deed restrictions, 
covenants running with the land, or other mechanisms approved by HUD, 
for not less than the appropriate period, beginning after project 
completion, as specified in the following table, except that the 
affordability restrictions may terminate upon foreclosure or transfer in 
lieu of foreclosure. The tribe may use purchase options, rights of first 
refusal or other preemptive rights to purchase the housing before 
foreclosure or deed in lieu of foreclosure to preserve affordability. 
The affordability restrictions shall be revived according to the 
original terms if, during the affordability period, the owner of record 
before the foreclosure, or deed in lieu of foreclosure, or any entity 
that includes the former owner or those with whom the former owner has 
or had family of business ties, obtains an ownership interest in the 
project or property.

------------------------------------------------------------------------
                                                              Minimum
                                                             period of
                         Activity                          affordability
                                                              in years
------------------------------------------------------------------------
Rehabilitation or acquisition of existing housing per                 5
 unit amount of HOME funds: Under $15,000................
$15,000 to $40,000.......................................            10
Over $40,000.............................................            15
New construction or acquisition of newly constructed                 20
 housing.................................................
------------------------------------------------------------------------

    (b) Rent schedule and utility allowances. The grantee must review 
and approve rents proposed by the owner for units with ``flat rents,'' 
i.e., units subject to the maximum rent limitations in paragraphs 
(a)(1)(i), (a)(1)(ii), or (a)(2)(ii) of this section, and, if 
applicable, must review and approve, for all units subject to the 
maximum rent limitations paragraph (a) of this section, the monthly 
allowances, proposed by the owner, for utilities and services to be paid 
by the tenant. The owner must reexamine the income of each tenant 
household living in lower income units at least annually. The maximum 
monthly rent must be recalculated by the owner and reviewed and approved 
by the grantee annually, and may change as changes in the applicable 
gross rent amounts, the income adjustments, or the monthly allowance for 
utilities and services warrant. Any increase in rents for low-income 
units is subject to the provisions of outstanding leases; in any event, 
the owner must provide tenants of those units not less than 30 days 
prior written notice before implementing any increase in rents.
    (c) Increases in tenant income. Rental housing qualifies as 
affordable housing despite a temporary noncompliance with paragraphs 
(a)(2) or (a)(3) of this section, if the noncompliance is caused by 
increases in the incomes of existing tenants and if actions satisfactory 
to HUD are being taken to ensure that all vacancies are filled in 
accordance with this section until the noncompliance is corrected. 
Tenants who no longer qualify as low-income families must pay as rent 
the lesser of the amount payable by the tenant under tribal, State or 
local law or 30 percent of the family's adjusted monthly income, as 
recertified annually. The preceding sentence shall not apply with 
respect to funds made available under this part for units that have been 
allocated a low-income housing tax credit by a housing credit agency 
pursuant to section 42 of the Internal Revenue Code 1986 (26 U.S.C. 
7805).
    (d) Adjustment of qualifying rent. HUD may adjust the qualifying 
rent established for a project under paragraph (a)(1) of this section, 
only if HUD finds

[[Page 427]]

that an adjustment is necessary to support the continued financial 
viability of the project and only by an amount that HUD determines is 
necessary to maintain continued financial viability of the project. HUD 
expects that this authority will be used sparingly. Adjustments in 
section 8 fair market rents and in median income over time should help 
maintain the financial viability of a project within the qualifying rent 
standard in paragraph (a)(1) of this section. Regardless of changes in 
fair market rents and in median income over time, the qualifying rents 
are not required to be lower than the HOME rent for the project in 
effect at the time of project commitment.



Sec. 954.307  Homeownership: qualification as affordable housing.

    (a) Purchase with or without rehabilitation. Housing that is for 
purchase by a family qualifies as affordable housing only if the 
housing: (1)(i) Has an initial purchase price that does not exceed 95% 
of the median purchase price for the type of single family housing (1- 
to 4-family residence, condominium unit, cooperative unit, combination 
manufactured home and lot, or manufactured home lot) for the area as 
determined by HUD, and which may be appealed in accordance with 24 CFR 
203.18b; and
    (ii) Has an estimated appraised value at acquisition, if standard, 
or after any repair needed to meet property standards in Sec. 954.401, 
that does not exceed the limit described in paragraph (a)(1)(i) of this 
section.
    (2) Is the principal residence of an owner whose family qualifies as 
a low-income family at the time of purchase; and
    (3) Is subject--for minimum periods of: 5 years where the per unit 
amount of HOME funds provided is less than $15,000; 10 years where the 
per unit amount of HOME funds provided is $15,000 to $40,000; and 15 
years where the per unit amount of HOME funds provided is greater than 
$40,000--to resale restrictions, as described in paragraph (a)(3)(i) of 
this section, or recapture provisions, as described in paragraph 
(a)(3)(ii) of this section, that are established by the grantee and 
determined by HUD to be appropriate.
    (i) Resale restrictions must make the housing available for 
subsequent purchase only to a low income family that will use the 
property as its principal residence; and
    (A) Provide the owner with a fair return on investment, including 
any improvements; and
    (B) Ensure that the housing will remain affordable, pursuant to deed 
restrictions, covenants running with the land, or other similar 
mechanisms to ensure affordability, to a reasonable range of low-income 
homebuyers. The affordability restrictions must terminate upon 
occurrence of any of the following termination events: foreclosure, 
transfer in lieu of foreclosure or assignment of an FHA insured mortgage 
to HUD. The grantee may use purchase options, rights of first refusal or 
other preemptive rights to purchase the housing before foreclosure to 
preserve affordability. The affordability restrictions shall be revived 
according to the original terms if, during the original affordability 
period, the owner of record before the termination event reacquires 
title to the property.
    (ii) A grantee's recapture provisions must provide for the recapture 
of the full HOME investment out of net proceeds, except as provided in 
paragraph (a)(3)(ii)(B) of this section.
    (A) Net proceeds means the sales price minus loan repayment and 
closing costs.
    (B) If the net proceeds are not sufficient to recapture the full 
HOME investment plus enable the homeowner to recover the amount of the 
homeowner's downpayment, principal payments, and any capital improvement 
investment, the grantee's recapture provisions may allow the HOME 
investment amount that must be recaptured to be reduced. The HOME 
investment amount may be reduced pro rata based on the time the 
homeowner has owned and occupied the unit measured against the required 
affordability period; except that the grantee's recapture provisions may 
not allow the homeowner to recover more than the amount of the 
homeowner's downpayment, principal payments, and any capital improvement 
investment.

[[Page 428]]

    (C) The HOME investment that is subject to recapture is the HOME 
assistance that enabled the first homebuyer to buy the dwelling unit. 
This includes any HOME assistance, whether a direct subsidy to the 
homebuyer or a construction or development subsidy, that reduced the 
purchase price from fair market value to an affordable price. The 
recaptured funds must be used to carry out HOME-eligible activities. If 
no HOME funds will be subject to recapture, the provisions at Sec. 
954.306(a)(3)(i) apply.
    (D) Upon recapture of the HOME funds used in a single-family, 
homebuyer project with two to four units, the affordability period on 
rental units may be terminated at the discretion of the tribe.
    (b) Rehabilitation not involving purchase. Housing that is currently 
owned by a family qualifies as affordable housing only if--
    (1) The value of the property, after rehabilitation, does not exceed 
95% of the median purchase price for the type of single family housing 
(1- to 4-family residence, condominium unit, combination manufactured 
home and lot, or manufactured home lot) for the area as determined by 
HUD, and which may be appealed in accordance with 24 CFR 203.18b; and
    (2) The housing is the principal residence of an owner whose family 
qualifies as a low-income family at the time HOME funds are committed to 
the housing.



Sec. 954.308  Prohibited activities.

    (a) HOME funds may not be used to--
    (1) Provide a project reserve account for replacements, a project 
reserve account for unanticipated increases in operating costs, or 
operating subsidies; except as authorized under Sec. 954.302; (2) 
Provide nonfederal matching contributions required under any other 
Federal program;
    (3) Provide assistance in connection with programs authorized under 
part 950 (Indian Housing Programs) of this title;
    (4) Provide assistance to eligible low-income housing under part 248 
(Prepayment of Low Income Housing Mortgages) of this title; or
    (5) Provide assistance (other than tenant-based rental assistance or 
assistance to a homebuyer to acquire housing previously assisted with 
HOME funds) to a project previously assisted with HOME funds during the 
period of affordability established by the grantee under Sec. 954.306 
or Sec. 954.307. However, additional HOME funds may be committed to a 
project up to one year after project completion (see Sec. 954.500), but 
the amount of HOME funds in the project may not exceed the maximum per-
unit subsidy amount established under Sec. 954.400.
    (b) Grantees may not charge monitoring, servicing and origination 
fees in HOME-assisted projects. However, grantees may charge nominal 
application fees (although these fees are not an eligible HOME cost) to 
project owners to discourage frivolous applications.



                     Subpart D_Project Requirements



Sec. 954.400  Maximum per-unit subsidy amount.

    The amount of HOME funds that a grantee may invest on a per-unit 
basis in affordable housing may not exceed the total development cost 
standard for the area, as issued by HUD under 24 CFR 950.220. These 
total development cost standards are available from HUD Area ONAPs.



Sec. 954.401  Property standards.

    (a) Housing that is assisted with HOME funds, at a minimum, must 
meet the housing quality standards in Sec. 882.109 of this title. In 
addition, housing that is newly constructed or substantially 
rehabilitated with HOME funds must meet all applicable local codes, 
rehabilitation standards, ordinances, and zoning ordinances. The grantee 
must have written standards for rehabilitation. Newly constructed 
housing must meet the current edition of the Model Energy Code published 
by the Council of American Building Officials.
    (b) The following requirements apply to housing for homeownership 
that is to be rehabilitated after transfer of the ownership interest:
    (1) Before the transfer of the ownership interest, the grantee must:

[[Page 429]]

    (i) Inspect the housing for any defects that pose a danger to 
health; and
    (ii) Notify the prospective purchaser of the work needed to cure the 
defects and the time by which defects must be cured and applicable 
property standards met.
    (2) The housing must be free from all noted health and safety 
defects before occupancy and not later than 6 months after the transfer 
for completion of the transitional housing tenancy period.
    (3) The housing must meet the applicable property standards (at a 
minimum, the housing quality standards in Sec. 882.109 of this title) 
not later than 2 years after transfer of the ownership interest.



Sec. 954.402  Tenant and participant protections.

    (a) Lease. The lease between a tenant and an owner of rental housing 
assisted with HOME funds must be for not less than one year, unless by 
mutual agreement between the tenant and the owner.
    (b) Prohibited lease terms. The lease may not contain any of the 
following provisions:
    (1) Agreement to be sued. Agreement by the tenant to be sued, to 
admit guilt, or to a judgment in favor of the owner in a lawsuit brought 
in connection with the lease;
    (2) Treatment of property. Agreement by the tenant that the owner 
may take, hold, or sell personal property of household members without 
notice to the tenant and a court decision on the rights of the parties. 
This prohibition, however, does not apply to an agreement by the tenant 
concerning disposition of personal property remaining in the housing 
unit after the tenant has moved out of the unit. The owner may dispose 
of this personal property in accordance with tribal law (or State law, 
which may apply if the Indian tribe is not exercising recognized powers 
of self-government);
    (3) Excusing owner from responsibility. Agreement by the tenant not 
to hold the owner or the owner's agents legally responsible for any 
action or failure to act, whether intentional or negligent;
    (4) Waiver of notice. Agreement of the tenant that the owner may 
institute a lawsuit without notice to the tenant;
    (5) Waiver of legal proceedings. Agreement by the tenant that the 
owner may evict the tenant or household members without instituting a 
civil court proceeding in which the tenant has the opportunity to 
present a defense, or before a court decision on the rights of the 
parties;
    (6) Waiver of a jury trial. Agreement by the tenant to waive any 
right to a trial by jury;
    (7) Waiver of right to appeal court decision. Agreement by the 
tenant to waive the tenant's right to appeal, or to otherwise challenge 
in court, a court decision in connection with the lease; and
    (8) Tenant chargeable with cost of legal actions regardless of 
outcome. Agreement by the tenant to pay attorney's fees or other legal 
costs even if the tenant wins in a court proceeding by the owner against 
the tenant. The tenant, however, may be obligated to pay costs if the 
tenant loses.
    (c) Termination of tenancy. An owner may not terminate the tenancy 
or refuse to renew the lease of a tenant of rental housing assisted with 
HOME funds except for serious or repeated violation of the terms and 
conditions of the lease; for violation of applicable Federal, or tribal 
law (or State law, which may apply if the grantee is not exercising 
recognized powers of self-government); or for other good cause. Any 
termination or refusal to renew must be preceded by not less than 30 
days by the owner's service upon the tenant of a written notice 
specifying the grounds for the action.
    (d) Maintenance and replacement. An owner of rental housing assisted 
with HOME funds must maintain the premises in compliance with all 
applicable housing quality standards and local code requirements.
    (e) Tenant selection. An owner of rental housing assisted with HOME 
funds must adopt written tenant selection policies and criteria that--
    (1) Are consistent with the purpose of providing housing for very 
low-income and low-income families;
    (2) Are reasonably related to program eligibility and the 
applicant's ability to perform the obligations of the lease;
    (3) Give reasonable consideration to the housing needs of families 
that would have a preference under section

[[Page 430]]

6(c)(4)(A) of the U.S. Housing Act of 1937 (Federal selection 
preferences for admission to public housing); and
    (4) Provide for--
    (i) The selection of tenants from a written waiting list in the 
chronological order of their application, insofar as is practicable; and
    (ii) The prompt written notification to any rejected applicant of 
the grounds for any rejection.



                    Subpart E_Program Administration



Sec. 954.500  Repayment of investment.

    (a) HOME funds will be made available pursuant to a HOME Investment 
Partnership Agreement. The agreement ensures that HOME funds invested in 
affordable housing are repayable if the housing ceases to qualify as 
affordable housing before the period of affordability expires. The 
amount of HOME funds expended on housing assisted with HOME funds that 
does not meet the affordability requirements for the period specified in 
Sec. 954.306 or Sec. 954.307, as applicable, must be repaid in 
accordance with paragraph (b) of this section.
    (b) Any repayment of HOME funds (including repayment required if the 
housing no longer qualifies as affordable housing), and any payment of 
interest or other return on the investment of HOME funds, that is made 
before grant close out must be deposited in the grantee's account and 
used in accordance with the requirements of this part. A grantee may 
retain repayments, interest, and other return on investment of HOME 
funds that are made after grant closeout if the grantee agrees to use 
the funds for eligible activities.
    (c) HUD will recapture HOME funds that are not expended within five 
years after the last day of the month in which it obligated the funds.
    (d) Termination before completion. If a project is terminated before 
its completion, whether voluntarily by the grantee or otherwise, an 
amount equal to the HOME funds disbursed for the project must be paid by 
the grantee to its HOME account. If the HOME funds were disbursed by 
HUD, the amount must be paid to HUD; if the HOME funds were disbursed 
from the grantee's account, the amount must be paid to the grantee's 
account. If the amount is not repaid, the grantee will be subject to 
actions under Sec. 954.600 Performance reviews, Sec. 954.601 
Corrective and remedial actions, and Sec. 954.602 Notice and 
opportunity for hearing; sanctions.



Sec. 954.501  Grantee responsibilities; written agreements; monitoring.

    (a) Responsibilities. The grantee is responsible for ensuring that 
HOME funds are used in accordance with all program requirements. The use 
of subgrantees and contractors does not relieve the grantee of this 
responsibility.
    (b) Executing a written agreement. Before disbursing any HOME funds 
to any entity (e.g., for-profit housing developer, nonprofit 
organization, homeowner, or IHA) the grantee must enter into a written 
agreement with the entity ensuring compliance with the requirements of 
this part. A subgrantee and a contractor must also enter into a written 
agreement before it disburses funds to any entity. The agreement remains 
in effect during the period for affordability under Sec. 954.306 or 
Sec. 954.307, as applicable, or if the entity is a subgrantee, during 
any period that the entity has control over HOME funds.
    (c) Provisions in written agreement. At a minimum, the written 
agreement must include applicable provisions concerning the following 
items:
    (1) Use of the HOME funds. The agreement must describe the use of 
the HOME funds, including the tasks to be performed, a schedule for 
completing the tasks, and a budget. These items must be in sufficient 
detail to provide a sound basis for the grantee effectively to monitor 
performance under the agreement.
    (2) Affordability. The agreement must require housing assisted with 
HOME funds to meet the affordability requirements of Sec. 954.306 or 
Sec. 954.307, as applicable, and must require repayment of the funds if 
the housing does not meet the affordability requirements for the 
specified time period.
    (3) Repayments. If the entity is a subgrantee, the agreement must 
state if repayment, interest, and other return on the investment of HOME 
funds are to be remitted to the grantee or are to

[[Page 431]]

be retained for additional eligible activities by the entity.
    (4) Uniform administrative requirements. If the entity is a 
subgrantee, the agreement must require the entity to comply with 
applicable uniform administrative requirements, as described in Sec. 
954.502.
    (5) Project requirements. The agreement must require compliance with 
project requirements in Sec. 954.400 through Sec. 954.402 of this 
part, as applicable in accordance with the type of project assisted.
    (6) Housing quality standard. The agreement must require owners of 
rental housing assisted with HOME funds to maintain the housing in 
compliance with applicable Housing Quality Standards and local housing 
code requirements for the duration of the agreement.
    (7) Other program requirements. The agreement must require the 
entity to carry out each activity in compliance with all Federal laws 
and regulations described in Sec. 954.4.
    (8) Conditions for religious organizations. Where applicable, the 
agreement must include the conditions prescribed in Sec. 954.301 for 
the use of HOME funds by religious organizations.
    (9) Requests for disbursements of funds. The agreement must specify 
that the entity may not request disbursement of funds under the 
agreement until the funds are needed for payment of eligible costs. The 
amount of each request must be limited to the amount needed.
    (10) Reversion of assets. If the entity is a subgrantee, the 
agreement must specify that upon expiration of the agreement, the entity 
must transfer to the grantee any HOME funds on hand at the time of 
expiration and any accounts receivable attributable to the use of HOME 
funds.
    (11) Records and reports. The agreement must specify the particular 
records that must be maintained and any information or reports that must 
be submitted in order to assist the grantee in meeting its recordkeeping 
and reporting requirements.
    (12) Enforcement of the agreement. The agreement must provide for a 
means of enforcement by the grantee or the intended beneficiaries. In 
addition, the agreement must specify remedies for breach of the 
provisions of the agreement. If the entity is a subgrantee, the 
agreement must specify that, in accordance with 24 CFR 85.43, suspension 
or termination may occur if the entity materially fails to comply with 
any term of the agreement, and that the agreement may be terminated for 
convenience in accordance with 24 CFR 85.44.
    (13) Duration of the agreement. The agreement must specify that the 
agreement is in effect for the period of affordability required by the 
grantee under Sec. 954.306 or Sec. 954.307.
    (d) Monitoring. The grantee is responsible for managing the day-to-
day operations of its HOME program, for monitoring the performance of 
all entities receiving HOME funds from the grantee to assure compliance 
with the requirements of this part, and for taking appropriate action 
when performance problems arise.
    (1) Not less than annually, the grantee must review the activities 
of owners of rental housing assisted with HOME funds to assess 
compliance with the requirement of this part, as set forth in the 
written agreement under paragraphs (b) and (c) of this section. For 
multifamily housing, each review must include on-site inspection to 
determine compliance with housing codes and the requirements of this 
part. For rental housing containing one- to four-dwelling units, an on-
site review must be made once within each two-year period. The results 
of each review must be included in the grantee's performance report.
    (2) Not less than annually, the grantee must review the performance 
of each contractor and subgrantee.



Sec. 954.502  Applicability of uniform administrative requirements.

    (a) Governmental entities. The requirements of OMB Circular No. A-87 
and the following requirements of 24 CFR part 85 apply to the grantee 
and any governmental subgrantee receiving HOME funds: Sec. Sec. 85.6, 
85.12, 85.20, 85.21, 85.22, 85.26, 85.32, 85.33, 85.35, 85.36, 85.43, 
85.44, 85.51, and 85.52.
    (b) Non-profit organizations. The requirements of OMB Circular No. 
A-122 (available from the Executive Office of the President, Publication 
Service, 725

[[Page 432]]

17th Street, N.W., Suite G-2200, Washington, DC 20503; Telephone, (202) 
395-7332)) and the following requirements of 24 CFR part 84 apply to 
subgrantees receiving HOME funds that are private nonprofit 
organizations: Sec. Sec. 84.12, 84.22, 84.23, 84.25, 84.51, 84.52, and 
84.71.
    (c) Alternatives to bonding. For construction contracts that exceed 
the amount for small purchase under 24 CFR 85.36, each contractor shall 
be required to provide bid guarantees and adequate assurance of 
performance and payment acceptable to HUD in accordance with 24 CFR 
85.36(h). Performance and payment bonds for 100 percent of the total 
contract price are acceptable to HUD. There may be circumstances under 
which the bonding requirements of Sec. 85.36(h) are inconsistent with 
other responsibilities and obligations of the grantee. Alternative 
methods to provide performance and payment assurance may include:
    (1) Deposit with the grantee of a cash escrow of not less than 20 
percent of the total contract price, subject to reduction during the 
warranty period, commensurate with potential risk;
    (2) Letter of credit for 25 percent of the total contract price, 
unconditionally payable upon demand of the grantee, subject to reduction 
during the warranty period commensurate with potential risk.



Sec. 954.503  Audit.

    Audits of the grantee and subgrantees must be conducted in 
accordance with 24 CFR parts 44 and 45, as applicable.



Sec. 954.504  Closeout.

    (a) A grant will be closed out when all the following criteria have 
been met:
    (1) All funds to be closed out have been drawn down and expended for 
completed project costs, or funds not drawn down and expended have been 
deobligated by HUD;
    (2) Project Completion Reports for all projects using funds to be 
closed out have been submitted. HUD will use data contained in the 
project completion reports in the preparation of the Closeout Reports;
    (3) The grantee has been reviewed and audited and HUD has determined 
that all requirements, including affordability (for which also see 
paragraph (b)(2) of this section), are met or all monitoring and audit 
findings have been resolved.
    (i) A signed copy of the grantee's most recent audit report--
covering all funds to be closed out--must be received by HUD. If the 
audit review by the Department of Interior (DOI) results in significant 
delays, the Area ONAP may request a signed copy of the audit prior to 
DOI review and use it as the document needed prior to closeout. If the 
audit does not cover all funds to be closed out, the closeout may 
proceed, provided the grantee agrees in the Closeout Report that any 
costs paid with the funds that were not audited must be subject to the 
grantee's next single audit and that the grantee may be required to 
repay to HUD any disallowed costs based on the results of the audit.
    (ii) The on-site monitoring of the grantee by the Area ONAP must 
include verification of data reflected in the Closeout Report and 
reconciliation of any discrepancies which may exist between HUD data and 
grantee records.
    (b) The Closeout Report contains the final data on the funds and 
must be signed by the grantee and HUD. In addition, the report must 
contain:
    (1) A provision regarding unaudited funds (``closeout subject to 
audit''), required by paragraph (a)(3)(i) of this section; and
    (2) A provision requiring the grantee to continue to meet the 
requirements applicable to housing projects for the period of 
affordability specified in Sec. 954.306 or Sec. 954.307, to keep 
records demonstrating that the requirements have been met and to repay 
the HOME funds, as required by Sec. 954.500, if the housing fails to 
remain affordable for the required period.



Sec. 954.505  Recordkeeping.

    (a) General. Each grantee must establish and maintain sufficient 
records to enable HUD to determine whether the grantee has met the 
requirements of this part. Records must be kept in a manner that 
identifies the source and use of funds for each project.
    (b) Period of record retention. (1) Except as provided in paragraphs 
(b)(2),

[[Page 433]]

(b)(3), or (b)(4) of this section, records must be retained for three 
years after closeout of the funds.
    (2) If any litigation, claim, negotiation, audit, or other action 
has been started before the expiration of the regular period specified 
in paragraph (b)(1) of this section, the records must be retained until 
completion of the action and resolution of all issues which arise from 
it, or until the end of the regular period, whichever is later.
    (3) Records regarding project requirements (Sec. 954.400 to Sec. 
954.402) and other federal requirements (Sec. 954.4) that apply for the 
duration of the period of affordability, as well as the written 
agreement and inspection and monitoring reports must be retained for 
three years after the required period of affordability specified in 
Sec. 954.306 or Sec. 954.307, as applicable.
    (4) Records covering displacements and acquisition must be retained 
for at least three years after the date by which all persons displaced 
from the property and all persons whose property is acquired for the 
project have received the final payment to which they are entitled in 
accordance with Sec. 954.4(e).
    (c) Access to records. (1) The grantee must provide citizens, public 
agencies, and other interested parties with reasonable access to 
records, consistent with applicable tribal laws (or State law, which may 
apply if the Indian tribe is not exercising recognized powers of self-
government) regarding privacy and obligations of confidentiality.
    (2) HUD and the Comptroller General of the United States, or any of 
their representatives, have the right of access to any pertinent books, 
documents, papers or other records of the grantees and subgrantees, in 
order to make audits, examinations, excerpts, and transcripts.

[Approved by the Office of Management and Budget under OMB control 
number 2577-0191]



Sec. 954.506  Performance reports.

    (a) Management reports. Each grantee must submit management reports 
on its HOME program in such format and at such time as HUD may 
prescribe. Each grantee must submit a ``Financial Status Report,'' SF-
269A, short form, at the same time it submits the Semi-Annual 
Performance Report, described below. A separate ``Financial Status 
Report'' is to be submitted for each Indian HOME program grant that the 
grantee has received.
    (b) Semi-Annual performance report. (1) Submission. A grantee must 
submit a semi-annual performance report on its HOME activities to the 
responsible Area ONAP at such time as HUD may prescribe. Single copies 
of the report must be provided to the public upon request at no charge.
    (2) Elements of the semi-annual performance report. The report must 
contain such information and be in such form as HUD may prescribe, and 
must include at least the following:
    (i) A report on the proposed use of HOME funds from the grant 
application, consisting of the number of additional housing 
opportunities to be created for low-income and very low-income families, 
by project category (housing rehabilitation, acquisition of housing, new 
housing construction, and tenant-based rental assistance);
    (ii) A report on the actual use of HOME funds, consisting of the 
number of additional housing opportunities created for low-income and 
very low-income families, by project category (housing rehabilitation, 
acquisition of housing, new housing construction, and tenant-based 
rental assistance). This includes a report on project income and 
includes data on the amount of repayments, interest, and other return on 
investment of HOME funds and the use of the funds for projects, 
including number of projects assisted, and characteristics of tenants 
and owners;
    (iii) An assessment of the effectiveness of the efforts in providing 
the preferences and opportunities under section 7(b) of the Indian Self-
Determination and Education Assistance Act (25 U.S.C. 450e(b)); and
    (iv) Data on the total number of households (families and 
individuals) and business and nonprofit organizations displaced as a 
result of investments of HOME funds, including the cost of relocation 
payments (moving expenses and replacement housing), and the number and 
cost of real property acquisitions.

[Approved by the Office of Management and Budget under OMB control 
number 2577-0191]

[[Page 434]]



Sec. 954.507  Submission of project completion reports.

    A Project Completion Report must be submitted to HUD within 120 days 
of the final drawdown request for the project. If a satisfactory Project 
Completion Report is not submitted by the due date, HUD will suspend 
further HOME disbursements and grant approvals for the grantee. 
Disbursements and grant approvals will remain suspended until a 
satisfactory Project Completion Report is received.

[Approved by the Office of Management and Budget under OMB control 
number 2577-0191]



               Subpart F_Performance Reviews and Sanctions



Sec. 954.600  Performance reviews.

    (a) General. HUD will review the performance of each grantee in 
carrying out its responsibilities under this part whenever determined 
necessary by HUD, but at least annually. In conducting performance 
reviews, HUD will rely primarily on information obtained from the 
grantee's records and reports, findings from on-site monitoring, audit 
reports, and information generated from fund requisition systems. Where 
applicable, HUD may also consider relevant information pertaining to a 
grantee's performance gained from other sources, including citizen 
comments, complaint determinations, and litigation. Reviews to determine 
compliance with specific requirements of this part will be conducted as 
necessary, with or without prior notice to the grantee. Comprehensive 
performance reviews under the standards in paragraph (b) of this section 
will be conducted after prior notice to the grantee.
    (b) Standards for comprehensive performance review. A grantee's 
performance will be comprehensively reviewed periodically, as prescribed 
by HUD, to determine whether the grantee:
    (1) Has committed the HOME funds in the HUD account as required and 
expended the funds as required; and
    (2) Has met the requirements of the grant agreement and this part, 
particularly eligible activities and affordability.



Sec. 954.601  Corrective and remedial actions.

    (a) General. HUD will use the procedures in this section in 
conducting the performance review as provided in Sec. 954.600 and in 
taking corrective and remedial actions. However, HUD may temporarily 
suspend payments based upon HUD's preliminary determination that the 
grantee has failed to comply with the requirements of the Act, 
regulations, or grant agreement if suspension is necessary to preclude 
the further expenditure of funds for activities affected by the failure 
to comply.
    (b) Performance review. (1) If HUD determines preliminarily that the 
grantee has not met a requirement of this part, the grantee will be 
given notice of this determination and an opportunity to demonstrate, 
within the time prescribed by HUD (not to exceed 30 days) and on the 
basis of substantial facts and data, that it has done so.
    (2) If the grantee fails to demonstrate to HUD's satisfaction that 
it has met the requirement, HUD will take corrective or remedial action 
in accordance with this section or Sec. 954.602.
    (c) Corrective and remedial actions. Corrective or remedial actions 
for a performance deficiency (failure to meet a provision of this part) 
will be designed to prevent a continuation of the deficiency; mitigate, 
to the extent possible, its adverse effects or consequences; and prevent 
its recurrence.
    (1) HUD may request the grantee to submit and comply with proposals 
for action to correct, mitigate and prevent a performance deficiency, 
including:
    (i) Preparing and following a schedule of actions for carrying out 
the affected activities, consisting of schedules, timetables, and 
milestones necessary to implement the affected activities;
    (ii) Establishing and following a management plan that assigns 
responsibilities for carrying out the remedial actions;
    (iii) Cancelling or revising activities likely to be affected by the 
performance deficiency, before expending HOME funds for the activities;
    (iv) Reprogramming HOME funds in the HUD account that have not yet 
been expended from affected activities to other eligible activities;

[[Page 435]]

    (v) Reimbursing the HUD account in any amount not used in accordance 
with the requirements of this part; and
    (vi) Suspending disbursement of funds in the HUD account for 
affected activities.
    (2) HUD may also--
    (i) Change the method of payment from an advance to reimbursement 
basis; and
    (ii) Take other remedies that may be legally available.



Sec. 954.602  Notice and opportunity for hearing; sanctions.

    (a) If HUD finds after reasonable notice and opportunity for hearing 
that a grantee has failed to comply with any provision of this part and 
until HUD is satisfied that there is no longer any such failure to 
comply:
    (1) HUD shall reduce the funds in the HUD account by the amount of 
any expenditures that were not in accordance with the requirements of 
this part; and
    (2) HUD may--
    (i) Prevent withdrawals from the HUD account for activities affected 
by the failure to comply; or
    (ii) Prohibit the grantee from competing for HOME funds under Sec. 
954.104; Provided, however, that HUD may on due notice suspend payments 
from the HUD account at any time after the issuance of a notice of 
opportunity for hearing pursuant to paragraph (b)(1) of this section, 
pending such hearing and a final decision, to the extent HUD determines 
such action necessary to preclude the further expenditure of funds for 
activities affected by the failure to comply.
    (b) Proceedings. When HUD proposes to take action pursuant to this 
section, the respondent in the proceedings will be the grantee.
    (1) Notice of opportunity for hearing. HUD shall notify the 
respondent in writing of the proposed action and of the opportunity for 
a hearing. The notice shall be sent by first class mail. The notice 
shall specify:
    (i) In a manner which is adequate to allow the respondent to prepare 
its response, the basis upon which HUD determined that the respondent 
failed to comply with a provision of this part;
    (ii) That the hearing procedures are governed by these rules;
    (iii) That the respondent has 14 days from receipt of the notice 
within which to provide a written request for a hearing to the Chief 
Docket Clerk, Office of Administrative Law Judges, and the address and 
telephone number of the Chief Docket Clerk;
    (iv) The action HUD proposes to take and that the authority for this 
action is Sec. 954.602; and
    (v) That if the respondent fails to request a hearing within the 
time specified, HUD's determination that the respondent failed to comply 
with a provision of this part shall be final and HUD may proceed to take 
the proposed action.
    (2) Initiation of hearing. The respondent shall be allowed 14 days 
from receipt of the notice within which to notify the Chief Docket 
Clerk, Office of Administrative Law Judges, of its request for a 
hearing. If no request is received within the time specified, HUD's 
determination that the respondent failed to comply with a provision of 
this part shall be final and HUD may proceed to take the proposed 
action.
    (3) Administrative Law Judge. Proceedings conducted under these 
rules shall be presided over by an Administrative Law Judge (ALJ), 
appointed as provided by section 11 of the Administrative Procedures Act 
(5 U.S.C. 3105). The case shall be referred to the ALJ at the time a 
hearing is requested. The ALJ shall promptly notify the parties of the 
time and place at which the hearing will be held. The ALJ shall conduct 
a fair and impartial hearing and take all action necessary to avoid 
delay in the disposition of proceedings and to maintain order. The ALJ 
shall have all powers necessary to those ends, including but not limited 
to the power to:
    (i) Administer oaths and affirmations;
    (ii) Issue subpoenas as authorized by law;
    (iii) Rule upon offers of proof and receive relevant evidence;
    (iv) Order or limit discovery before the hearing as the interests of 
justice may require;
    (v) Regulate the course of the hearing and the conduct of the 
parties and their counsel;

[[Page 436]]

    (vi) Hold conferences for the settlement or simplification of the 
issues by consent of the parties;
    (vii) Consider and rule upon all procedural and other motions 
appropriate in adjudicative proceedings; and
    (viii) Make and file initial determinations.
    (4) Ex parte communications. An ex parte communication is any 
communication with an ALJ, direct or indirect, oral or written, 
concerning the merits or procedures of any pending proceeding which is 
made by a party in the absence of any other party. Ex parte 
communications are prohibited except where the purpose and content of 
the communication have been disclosed in advance or simultaneously to 
all parties, or the communication is a request for information 
concerning the status of the case. Any ALJ who receives an ex parte 
communication which the ALJ knows or has reason to believe is 
unauthorized shall promptly place the communication, or its substance, 
in all files and shall furnish copies to all parties. Unauthorized ex 
parte communications shall not be taken into consideration in deciding 
any matter in issue.
    (5) The hearing. All parties shall have the right to be represented 
at the hearing by counsel. The ALJ shall conduct the proceedings in an 
expeditious manner while allowing the parties to present all oral and 
written evidence which tends to support their respective positions, but 
the ALJ shall exclude irrelevant, immaterial or unduly repetitious 
evidence. HUD has the burden of proof in showing by a preponderance of 
the evidence that the respondent failed to comply with a provision of 
this part. Each party shall be allowed to cross-examine adverse 
witnesses and to rebut and comment upon evidence presented by the other 
party. Hearings shall be open to the public. So far as the orderly 
conduct of the hearing permits, interested persons other than the 
parties may appear and participate in the hearing.
    (6) Transcripts. Hearings shall be recorded and transcribed only by 
a reporter under the supervision of the ALJ. The original transcript 
shall be a part of the record and shall constitute the sole official 
transcript. Respondents and the public, at their own expense, may obtain 
copies of the transcript.
    (7) The ALJ's decision. At the conclusion of the hearing, the ALJ 
shall give the parties a reasonable opportunity to submit proposed 
findings and conclusions and supporting reasons therefor. Generally 
within 60 days after the conclusion of the hearing, the ALJ shall 
prepare a written decision which includes a statement of findings and 
conclusions, and the reasons or basis therefor, on all the material 
issues of fact, law or discretion presented on the record and the 
appropriate sanction or denial thereof. The decision shall be based on 
consideration of the whole record or those parts thereof cited by a 
party and supported by and in accordance with the reliable, probative, 
and substantial evidence. A copy of the decision shall be furnished to 
the parties immediately by first class mail and shall include a notice 
that any requests for review by the Secretary must be made in writing to 
the Secretary within 30 days of the receipt of the decision.
    (8) The record. The transcript of testimony and exhibits, together 
with the decision of the ALJ and all papers and requests filed in the 
proceeding, constitutes the exclusive record for decision and, on 
payment of its reasonable cost, shall be made available to the parties. 
After reaching the initial decision, the ALJ shall certify to the 
complete record and forward the record to the Secretary.
    (9) Review by the Secretary. The decision by the ALJ shall 
constitute the final decision of the Secretary unless, within 30 days 
after the receipt of the decision, either the respondent or the 
Assistant Secretary files an exception and request for review by the 
Secretary. The excepting party must transmit simultaneously to the 
Secretary and the other party the request for review and the basis of 
the party's exceptions to the findings of the ALJ. The other party shall 
be allowed 30 days from receipt of the exception to provide the 
Secretary and the excepting party with a written reply. The Secretary 
shall then review the record of the case, including the exceptions

[[Page 437]]

and the reply. On the basis of such review, the Secretary shall issue a 
written determination, including a statement of the rationale therefor, 
affirming, modifying or revoking the decision of the ALJ. The 
Secretary's decision shall be made and transmitted to the parties within 
60 days after the decision of the ALJ was furnished to the parties.



PART 960_ADMISSION TO, AND OCCUPANCY OF, PUBLIC HOUSING--Table of Contents




  Subpart A_Applicability, Definitions, Equal Opportunity Requirements

Sec.
960.101 Applicability.
960.102 Definitions.
960.103 Equal opportunity requirements.

                           Subpart B_Admission

960.200 Purpose.
960.201 Eligibility.
960.202 Tenant selection policies.
960.203 Standards for PHA tenant selection criteria.
960.204 Denial of admission for criminal activity or drug abuse by 
          household members.
960.205 Drug use by applicants: Obtaining information from drug 
          treatment facility.
960.206 Waiting list: Local preferences in admission to public housing 
          program.
960.208 Notification to applicants.

                    Subpart C_Rent and Reexamination

960.253 Choice of rent.
960.255 Self-sufficiency incentives--Disallowance of increase in annual 
          income.
960.257 Family income and composition: Regular and interim 
          reexaminations.
960.259 Family information and verification.
960.261 Restriction on eviction of families based on income.

Subpart D_Preference for Elderly Families and Disabled Families in Mixed 
                           Population Projects

960.401 Purpose.
960.403 Applicability.
960.407 Selection preference for mixed population developments.

     Subpart E_Occupancy by Over-Income Families or Police Officers

960.503 Occupancy by over-income families.
960.505 Occupancy by police officers to provide security for public 
          housing residents.

  Subpart F_When Resident Must Perform Community Service Activities or 
                    Self-Sufficiency Work Activities

960.600 Implementation.
960.601 Definitions.
960.603 General requirements.
960.605 How PHA administers service requirements.
960.607 Assuring resident compliance.
960.609 Prohibition against replacement of PHA employees.

                Subpart G_Pet Ownership in Public Housing

960.701 Purpose.
960.703 Applicability.
960.705 Animals that assist, support, or provide service to persons with 
          disabilities.
960.707 Pet ownership.

    Authority: 42 U.S.C. 1437a, 1437c, 1437d, 1437n, 1437z-3, and 
3535(d).

    Source: 40 FR 33446, Aug. 8, 1975, unless otherwise noted. 
Redesignated at 49 FR 6714, Feb. 23, 1984.



  Subpart A_Applicability, Definitions, Equal Opportunity Requirements

    Source: 65 FR 16724, Mar. 29, 2000, unless otherwise noted.



Sec. 960.101  Applicability.

    This part is applicable to public housing.



Sec. 960.102  Definitions.

    (a) Definitions found elsewhere: (1) General definitions. The 
following terms are defined in part 5, subpart A of this title: 1937 
Act, drug, drug-related criminal activity, federally assisted housing, 
guest, household, HUD, MSA, premises, public housing, public housing 
agency (PHA), Section 8, violent criminal activity.
    (2) Definitions under the 1937 Act. The following terms are defined 
in part 5, subpart D of this title: annual contributions contract (ACC), 
applicant, elderly family, elderly person, extremely low income family, 
family, low income family, person with disabilities.
    (3) Definitions and explanations concerning income and rent. The 
following

[[Page 438]]

terms are defined or explained in part 5, subpart F of this title: 
Annual income (see Sec. 5.609); economic self-sufficiency program, 
tenant rent, total tenant payment (see Sec. 5.628), utility allowance.
    (b) Additional definitions. In addition to the definitions in 
paragraph (a), the following definitions and cross-references apply:
    Ceiling rent. See Sec. 960.253(d).
    Designated housing. See part 945 of this chapter.
    Disabled families. See Sec. 5.403 of this title.
    Eligible families. Low income families who are eligible for 
admission to the public housing program.
    Flat rent. See Sec. 960.253(b).
    Income-based rent. See Sec. 960.253(c).
    Mixed population development. A public housing development, or 
portion of a development, that was reserved for elderly and disabled 
families at its inception (and has retained that character). If the 
development was not so reserved at its inception, the PHA has obtained 
HUD approval to give preference in tenant selection for all units in the 
development (or portion of development) to elderly families and disabled 
families. These developments were formerly known as elderly projects.
    Over-income family. A family that is not a low income family. See 
subpart E of this part.
    PHA plan. See part 903 of this chapter.
    Residency preference. A preference for admission of persons who 
reside in a specified geographic area.
    Tenant-based. See Sec. 982.1(b) of this chapter.

[65 FR 16724, Mar. 29, 2000, as amended at 66 FR 28799, May 24, 2001]



Sec. 960.103  Equal opportunity requirements.

    (a) Applicable requirements. The PHA must administer its public 
housing program in accordance with all applicable equal opportunity 
requirements imposed by contract or federal law, including the 
authorities cited in Sec. 5.105(a) of this title.
    (b) PHA duty to affirmatively further fair housing. The PHA must 
affirmatively further fair housing in the administration of its public 
housing program.
    (c) Equal opportunity certification. The PHA must submit signed 
equal opportunity certifications to HUD in accordance with Sec. 
903.7(o) of this title, including certification that the PHA will 
affirmatively further fair housing.



                           Subpart B_Admission

    Source: 66 FR 28799, May 24, 2001, unless otherwise noted.



Sec. 960.200  Purpose.

    (a) This subpart states HUD eligibility and selection requirements 
for admission to public housing.
    (b) See also related HUD regulations in this title concerning these 
subjects:
    (1) 1937 Act definitions: part 5, subpart D;
    (2) Restrictions on assistance to noncitizens: part 5, subpart E;
    (3) Family income and family payment: part 5, subpart F;
    (4) Public housing agency plans: part 903;
    (5) Rent and reexamination: part 960, subpart C;
    (6) Mixed population developments: part 960, subpart D;
    (7) Occupancy by over-income families or police officers: part 960, 
subpart E.



Sec. 960.201  Eligibility.

    (a) Who is eligible? (1) Basic eligibility. An applicant must meet 
all eligibility requirements in order to receive housing assistance. At 
a minimum, the applicant must be a family, as defined in Sec. 5.403 of 
this title, and must be income-eligible, as described in this section. 
Such eligible applicants include single persons.
    (2) Low income limit. No family other than a low income family is 
eligible for admission to a PHA's public housing program.
    (b) Income used for eligibility and targeting. Family annual income 
(see Sec. 5.609) is used both for determination of income eligibility 
under paragraph (a) and for PHA income targeting under Sec. 960.202

[[Page 439]]

    (c) Reporting. The PHA must comply with HUD-prescribed reporting 
requirements that will permit HUD to maintain the data, as determined by 
HUD, necessary to monitor compliance with income eligibility and 
targeting requirement.



Sec. 960.202  Tenant selection policies.

    (a) Selection policies, generally. (1) The PHA shall establish and 
adopt written policies for admission of tenants.
    (2) These policies shall provide for and include the following:
    (i) Targeting admissions to extremely low income families as 
provided in paragraph (b) of this section.
    (ii) Deconcentration of poverty and income-mixing in accordance with 
the PHA Plan regulations (see 24 CFR part 903).
    (iii) Precluding admission of applicants whose habits and practices 
reasonably may be expected to have a detrimental effect on the residents 
or the project environment;
    (iv) Objective and reasonable policies for selection by the PHA 
among otherwise eligible applicants, including requirements for 
applications and waiting lists (see 24 CFR 1.4), and for verification 
and documentation of information relevant to acceptance or rejection of 
an applicant, including documentation and verification of citizenship 
and eligible immigration status under 24 CFR part 5; and
    (v) Policies of participant transfer between units, developments, 
and programs. For example, a PHA could adopt a criterion for voluntary 
transfer that the tenant had met all obligations under the current 
program, including payment of charges to the PHA.
    (b) Targeting admissions to extremely low income families.
    (1) Targeting requirement. (i) Not less than 40 percent of the 
families admitted to a PHA's public housing program during the PHA 
fiscal year from the PHA waiting list shall be extremely low income 
families. This is called the ``basic targeting requirement.''
    (ii) To the extent provided in paragraph (b)(2) of this section, 
admission of extremely low income families to the PHA's Section 8 
voucher program during the same PHA fiscal year is credited against the 
basic targeting requirement.
    (iii) A PHA must comply with both the targeting requirement found in 
this part and the deconcentration requirements found in part 903 of this 
chapter.
    (2) Credit for admissions to PHA voucher program. (i) If admissions 
of extremely low income families to the PHA's voucher program during a 
PHA fiscal year exceeds the 75 percent minimum targeting requirement for 
the PHA's voucher program (see 24 CFR 982.201(b)(2)), such excess shall 
be credited (subject to the limitations in paragraph (b)(2)(ii) of this 
section) against the PHA's basic targeting requirement for the same 
fiscal year.
    (ii) The fiscal year credit for voucher program admissions that 
exceed the minimum voucher program targeting requirement shall not 
exceed the lower of:
    (A) Ten percent of public housing waiting list admissions during the 
PHA fiscal year;
    (B) Ten percent of waiting list admission to the PHA's Section 8 
tenant-based assistance program during the PHA fiscal year; or
    (C) The number of qualifying low income families who commence 
occupancy during the fiscal year of PHA public housing units located in 
census tracts with a poverty rate of 30 percent or more. For this 
purpose, qualifying low income family means a low income family other 
than an extremely low income family.
    (c) Adoption and availability of tenant selection policies. These 
selection policies shall:
    (1) Be duly adopted and implemented;
    (2) Be publicized by posting copies thereof in each office where 
applications are received and by furnishing copies to applicants or 
tenants upon request, free or at their expense, at the discretion of the 
PHA; and
    (3) Be consistent with the fair housing and equal opportunity 
provisions of Sec. 5.105 of this title; and
    (4) Be submitted to the HUD field office upon request from that 
office.

[[Page 440]]



Sec. 960.203  Standards for PHA tenant selection criteria.

    (a) The tenant selection criteria to be established and information 
to be considered shall be reasonably related to individual attributes 
and behavior of an applicant and shall not be related to those which may 
be imputed to a particular group or category of persons of which an 
applicant may be a member. The PHA may use local preferences, as 
provided in Sec. 960.206.
    (b) Under the Public Housing Assessment System (PHAS), PHAs that 
have adopted policies, implemented procedures and can document that they 
successfully screen out and deny admission to certain applicants with 
unfavorable criminal histories receive points. (See 24 CFR 
902.43(a)(5).) This policy takes into account the importance of 
screening to public housing communities and program integrity, and the 
demand for assisted housing by families who will adhere to lease 
responsibilities.
    (c) In selection of families for admission to its public housing 
program, or to occupy a public housing development or unit, the PHA is 
responsible for screening family behavior and suitability for tenancy. 
The PHA may consider all relevant information, which may include, but is 
not limited to:
    (1) An applicant's past performance in meeting financial 
obligations, especially rent;
    (2) A record of disturbance of neighbors, destruction of property, 
or living or housekeeping habits at prior residences which may adversely 
affect the health, safety or welfare of other tenants; and
    (3) A history of criminal activity involving crimes of physical 
violence to persons or property and other criminal acts which would 
adversely affect the health, safety or welfare of other tenants. (See 
Sec. 960.204.) With respect to criminal activity described in Sec. 
960.204:
    (i) The PHA may require an applicant to exclude a household member 
in order to be admitted to the housing program where that household 
member has participated in or been culpable for actions described in 
Sec. 960.204 that warrants denial.
    (ii) The PHA may, where a statute requires that the PHA prohibit 
admission for a prescribed period of time after some disqualifying 
behavior or event, choose to continue that prohibition for a longer 
period of time.
    (d) In the event of the receipt of unfavorable information with 
respect to an applicant, consideration shall be given to the time, 
nature, and extent of the applicant's conduct (including the seriousness 
of the offense).
    (1) In a manner consistent with the PHA's policies, procedures and 
practices referenced in paragraph (b) of this section, consideration may 
be given to factors which might indicate a reasonable probability of 
favorable future conduct. For example:
    (i) Evidence of rehabilitation; and
    (ii) Evidence of the applicant family's participation in or 
willingness to participate in social service or other appropriate 
counseling service programs and the availability of such programs;
    (2) Consideration of rehabilitation. (i) In determining whether to 
deny admission for illegal drug use or a pattern of illegal drug use by 
a household member who is no longer engaging in such use, or for abuse 
or a pattern of abuse of alcohol by a household member who is no longer 
engaging in such abuse, the PHA may consider whether such household 
member is participating in or has successfully completed a supervised 
drug or alcohol rehabilitation program, or has otherwise been 
rehabilitated successfully (42 U.S.C. 13661). For this purpose, the PHA 
may require the applicant to submit evidence of the household member's 
current participation in, or successful completion of, a supervised drug 
or alcohol rehabilitation program or evidence of otherwise having been 
rehabilitated successfully.
    (ii) If rehabilitation is not an element of the eligibility 
determination (see Sec. 960.204(a)(1)), the PHA may choose not to 
consider whether the person has been rehabilitated.



Sec. 960.204  Denial of admission for criminal activity or drug abuse 
by household members.

    (a) Required denial of admission. (1) Persons evicted for drug-
related criminal activity. The PHA standards must prohibit admission of 
an applicant to the PHA's public housing program for

[[Page 441]]

three years from the date of the eviction if any household member has 
been evicted from federally assisted housing for drug-related criminal 
activity. However, the PHA may admit the household if the PHA 
determines:
    (i) The evicted household member who engaged in drug-related 
criminal activity has successfully completed a supervised drug 
rehabilitation program approved by the PHA; or
    (ii) The circumstances leading to the eviction no longer exist (for 
example, the criminal household member has died or is imprisoned).
    (2) Persons engaging in illegal use of a drug. The PHA must 
establish standards that prohibit admission of a household to the PHA's 
public housing program if:
    (i) The PHA determines that any household member is currently 
engaging in illegal use of a drug (For purposes of this section, a 
household member is ``currently engaged in'' the criminal activity if 
the person has engaged in the behavior recently enough to justify a 
reasonable belief that the behavior is current); or
    (ii) The PHA determines that it has reasonable cause to believe that 
a household member's illegal use or pattern of illegal use of a drug may 
threaten the health, safety, or right to peaceful enjoyment of the 
premises by other residents.
    (3) Persons convicted of methamphetamine production. The PHA must 
establish standards that permanently prohibit admission to the PHA's 
public housing program if any household member has ever been convicted 
of drug-related criminal activity for manufacture or production of 
methamphetamine on the premises of federally assisted housing.
    (4) Persons subject to sex offender registration requirement. The 
PHA must establish standards that prohibit admission to the PHA's public 
housing program if any member of the household is subject to a lifetime 
registration requirement under a State sex offender registration 
program. In the screening of applicants, the PHA must perform necessary 
criminal history background checks in the State where the housing is 
located and in other States where household members are known to have 
resided. (See part 5, subpart J of this title for provisions concerning 
access to sex offender registration records.)
    (b) Persons that abuse or show a pattern of abuse of alcohol. The 
PHA must establish standards that prohibit admission to the PHA's public 
housing program if the PHA determines that it has reasonable cause to 
believe that a household member's abuse or pattern of abuse of alcohol 
may threaten the health, safety, or right to peaceful enjoyment of the 
premises by other residents.
    (c) Use of criminal records. Before a PHA denies admission to the 
PHAs public housing program on the basis of a criminal record, the PHA 
must notify the household of the proposed action to be based on the 
information and must provide the subject of the record and the applicant 
with a copy of the criminal record and an opportunity to dispute the 
accuracy and relevance of that record. (See part 5, subpart J of this 
title for provisions concerning access to criminal records.)
    (d) Cost of obtaining criminal record. The PHA may not pass along to 
the applicant the costs of a criminal records check.



Sec. 960.205  Drug use by applicants: Obtaining information from drug 
treatment facility.

    (a) Purpose. This section addresses a PHA's authority to request and 
obtain information from drug abuse treatment facilities concerning 
applicants. This section does not apply to information requested or 
obtained from drug abuse treatment facilities other than under the 
authority of section 6(t).
    (b) Additional terms used in this section are as follows:
    (1) Currently engaging in illegal use of a drug. Illegal use of a 
drug occurred recently enough to justify a reasonable belief that there 
is continuing illegal drug use by a household member.
    (2) Drug abuse treatment facility. An entity:
    (i) That holds itself out as providing, and provides, diagnosis, 
treatment, or referral for treatment with respect to the illegal drug 
use; and

[[Page 442]]

    (ii) That is either an identified unit within a general care 
facility; or an entity other than a general medical care facility.
    (c) Authorization by household member for PHA to receive information 
from a drug abuse treatment facility. (1) The PHA may require each 
applicant to submit for all household members who are at least 18 years 
of age, and for each family head or spouse regardless of age, one or 
more consent forms signed by such household member that:
    (i) Requests any drug abuse treatment facility to inform the PHA 
only whether the drug abuse treatment facility has reasonable cause to 
believe that the household member is currently engaging in illegal drug 
use;
    (ii) Complies with the form of written consent required by 42 CFR 
2.31; and
    (iii) Authorizes the PHA to receive such information from the drug 
abuse treatment facility, and to utilize such information in determining 
whether to prohibit admission of the household member to the PHA's 
public housing program in accordance with Sec. 960.203. (See the Public 
Health Service Act, 42 U.S.C. 290dd-2, and implementing regulations at 
42 CFR part 2, with respect to responsibilities of the drug abuse 
treatment facility.)
    (2) The consent form submitted for a proposed household member must 
expire automatically after the PHA has made a final decision to either 
approve or deny the admission of such person.
    (d) PHA request for information from drug use treatment facility. 
(1) The PHA may request that a drug abuse treatment facility disclose 
whether the drug abuse treatment facility has reasonable cause to 
believe that the proposed household member is currently engaging in the 
illegal use of a drug (as defined in Sec. 5.100 of this title).
    (2) The PHA's request to the drug abuse treatment facility must 
include a copy of the consent form signed by the proposed household 
member.
    (3) A drug abuse treatment facility is not liable for damages based 
on any information required to be disclosed under this section if such 
disclosure is consistent with section 543 of the Public Health Service 
Act (42 U.S.C. 290dd-2).
    (4) The PHA is not obligated to request information from a drug 
treatment facility under this section, and is not liable for damages for 
failing to request or receive such information.
    (5) A drug abuse treatment facility may charge the PHA a reasonable 
fee for information provided under this section. The PHA may not pass 
along to the applicant or tenant the costs of obtaining this 
information.
    (e) Prohibition of discriminatory treatment of applicants. (1) A PHA 
may request information from a drug abuse treatment facility under 
paragraph (d) of this section only if the PHA has adopted and has 
consistently implemented either of the following policies, obtaining a 
signed consent form from the proposed household members:
    (i) Policy A--Request for all families. Under Policy A, the PHA must 
submit a request for information to a drug abuse treatment facility in 
accordance with paragraph (d) of this section before admitting any 
family to the PHA's public housing program. For each such family, the 
request must be submitted for each proposed household member described 
in paragraph (c)(1) of this section.
    (ii) Policy B--Request for certain household members. Under Policy 
B, the PHA must submit a request to a drug abuse treatment facility only 
with respect to each proposed household member:
    (A) Whose criminal record indicates prior arrest or conviction for 
any criminal activity that may be a basis for denial of admission under 
Sec. 960.205; or
    (B) Whose prior tenancy records indicate that the proposed household 
member:
    (1) Engaged in the destruction of property;
    (2) Engaged in violent activity against another person; or
    (3) Interfered with the right of peaceful enjoyment of the premises 
of other residents.
    (4) The policy adopted by the PHA must be included in the PHA 
administrative plan and the PHA plan.
    (f) Records management and confidentiality. Each PHA that receives 
information from a drug abuse treatment

[[Page 443]]

facility under this section must establish and implement a system of 
records management that ensures that any information which the PHA 
receives from the drug abuse treatment facility about a person:
    (1) Is maintained confidentially in accordance with section 543 of 
the Public Health Service Act (12 U.S.C. 290dd-2);
    (2) Is not misused or improperly disseminated; and
    (3) Is destroyed, as applicable:
    (i) Not later than 5 business days after the PHA makes a final 
decision to admit the person as a household member under the PHA's 
public housing program; or
    (ii) If the PHA denies the admission of such person as a household 
member, in a timely manner after the date on which the statute of 
limitations for the commencement of a civil action based upon that 
denial of admissions has expired without the filing of a civil action or 
until final disposition of any such litigation.



Sec. 960.206  Waiting list: Local preferences in admission to public 
housing program.

    (a) Establishment of PHA local preferences. (1) The PHA may adopt a 
system of local preferences for selection of families admitted to the 
PHA's public housing program. The PHA system of selection preferences 
must be based on local housing needs and priorities as determined by the 
PHA. In determining such needs and priorities, the PHA shall use 
generally accepted data sources. Such sources include public comment on 
the PHA plan (as received pursuant to Sec. 903.17 of this chapter), and 
on the consolidated plan for the relevant jurisdiction (as received 
pursuant to part 91 of this title).
    (2) The PHA may limit the number of applicants that qualify for any 
local preference.
    (3) PHA adoption and implementation of local preferences is subject 
to HUD requirements concerning income-targeting (Sec. 960.202(b)), 
deconcentration and income-mixing (Sec. 903.7), and selection 
preferences for developments designated exclusively for elderly or 
disabled families or for mixed population developments (Sec. 960.407).
    (4) The PHA must inform all applicants about available preferences 
and must give applicants an opportunity to show that they qualify for 
available preferences.
    (b) Particular local preferences--(1) Residency requirements or 
preferences.
    (i) Residency requirements are prohibited. Although a PHA is not 
prohibited from adopting a residency preference, the PHA may only adopt 
or implement residency preferences in accordance with non-discrimination 
and equal opportunity requirements listed at Sec. 5.105(a) of this 
title.
    (ii) A residency preference is a preference for admission of persons 
who reside in a specified geographic area (``residency preference 
area''). A county or municipality may be used as a residency preference 
area. An area smaller than a county or municipality may not be used as a 
residency preference area.
    (iii) Any PHA residency preferences must be included in the 
statement of PHA policies that govern eligibility, selection and 
admission to the program, which is included in the PHA annual plan (or 
supporting documents) pursuant to part 903 of this chapter. Such 
policies must specify that use of a residency preference will not have 
the purpose or effect of delaying or otherwise denying admission to the 
program based on the race, color, ethnic origin, gender, religion, 
disability, or age of any member of an applicant family.
    (iv) A residency preference must not be based on how long an 
applicant has resided or worked in a residency preference area.
    (v) Applicants who are working or who have been notified that they 
are hired to work in a residency preference area must be treated as 
residents of the residency preference area. The PHA may treat graduates 
of, or active participants in, education and training programs in a 
residency preference area as residents of the residency preference area 
if the education or training program is designed to prepare individuals 
for the job market.
    (2) Preference for working families. The PHA may adopt a preference 
for admission of working families (families

[[Page 444]]

where the head, spouse, or sole member, is employed). However, an 
applicant must be given the benefit of the working family preference if 
the head and spouse, or sole member is age 62 or older, or is a person 
with disabilities.
    (3) Preference for person with disabilities. The PHA may adopt a 
preference for admission of families that include a person with 
disabilities. However, the PHA may not adopt a preference for persons 
with a specific disability.
    (4) Preference for victims of domestic violence. The PHA should 
consider whether to adopt a local preference for admission of families 
that include victims of domestic violence.
    (5) Preference for single persons who are elderly, displaced, 
homeless or a person with disabilities. The PHA may adopt a preference 
for admission of single persons who are age 62 or older, displaced, 
homeless, or persons with disabilities over other single persons.
    (c) Selection for particular unit. In selecting a family to occupy a 
particular unit, the PHA may match characteristics of the family with 
the type of unit available, for example, number of bedrooms. In 
selection of families to occupy units with special accessibility 
features for persons with disabilities, the PHA must first offer such 
units to families which include persons with disabilities who require 
such accessibility features (see Sec. Sec. 8.27 and 100.202 of this 
title).
    (d) Housing assistance limitation for single persons. A single 
person who is not an elderly or displaced person, or a person with 
disabilities, or the remaining member of a resident family may not be 
provided a housing unit with two or more bedrooms.
    (e) Selection method. (1) The PHA must use the following to select 
among applicants on the waiting list with the same priority for 
admission:
    (i) Date and time of application; or
    (ii) A drawing or other random choice technique.
    (2) The method for selecting applicants must leave a clear audit 
trail that can be used to verify that each applicant has been selected 
in accordance with the method specified in the PHA plan.



Sec. 960.208  Notification to applicants.

    (a) The PHA must promptly notify any applicant determined to be 
ineligible for admission to a project of the basis for such 
determination, and must provide the applicant upon request, within a 
reasonable time after the determination is made, with an opportunity for 
an informal hearing on such determination.
    (b) When a determination has been made that an applicant is eligible 
and satisfies all requirements for admission, including the tenant 
selection criteria, the applicant must be notified of the approximate 
date of occupancy insofar as that date can be reasonably determined.



                    Subpart C_Rent and Reexamination

    Source: 65 FR 16726, Mar. 29, 2000, unless otherwise noted.



Sec. 960.253  Choice of rent.

    (a) Rent options. (1) Annual choice by family. Once a year, the PHA 
must give each family the opportunity to choose between the two methods 
for determining the amount of tenant rent payable monthly by the family. 
The family may choose to pay as tenant rent either a flat rent as 
determined in accordance with paragraph (b) of this section, or an 
income-based rent as determined in accordance with paragraph (c) of this 
section. Except for financial hardship cases as provided in paragraph 
(d) of this section, the family may not be offered this choice more than 
once a year.
    (2) Relation to minimum rent. Regardless of whether the family 
chooses to pay a flat rent or income-based rent, the family must pay at 
least the minimum rent as determined in accordance with Sec. 5.630 of 
this title.
    (b) Flat rent. (1) The flat rent is based on the market rent charged 
for comparable units in the private unassisted rental market. It is 
equal to the estimated rent for which the PHA could promptly lease the 
public housing unit after preparation for occupancy.
    (2) The PHA must use a reasonable method to determine the flat rent 
for a

[[Page 445]]

unit. To determine the flat rent, the PHA must consider:
    (i) The location, quality, size, unit type and age of the unit; and
    (ii) Any amenities, housing services, maintenance and utilities 
provided by the PHA.
    (3) The flat rent is designed to encourage self-sufficiency and to 
avoid creating disincentives for continued residency by families who are 
attempting to become economically self-sufficient.
    (4) If the family chooses to pay a flat rent, the PHA does not pay 
any utility reimbursement.
    (5) The PHA must maintain records that document the method used to 
determine flat rents, and also show how flat rents are determined by the 
PHA in accordance with this method, and document flat rents offered to 
families under this method.
    (c) Income-based rent. (1) An income-based rent is a tenant rent 
that is based on the family's income and the PHA's rent policies for 
determination of such rents.
    (2) The PHA rent policies may specify that the PHA will use 
percentage of family income or some other reasonable system to determine 
income-based rents. The PHA rent policies may provide for depositing a 
portion of tenant rent in an escrow or savings account, for imposing a 
ceiling on tenant rents, for adoption of permissive income deductions 
(see Sec. 5.611(b) of this title), or for another reasonable system to 
determining the amount of income-based tenant rent.
    (3) The income-based tenant rent must not exceed the total tenant 
payment (Sec. 5.628 of this title) for the family minus any applicable 
utility allowance for tenant-paid utilities. If the utility allowance 
exceeds the total tenant payment, the PHA shall pay such excess amount 
(the utility reimbursement) either to the family or directly to the 
utility supplier to pay the utility bill on behalf of the family. If the 
PHA elects to pay the utility supplier, the PHA must notify the family 
of the amount of utility reimbursement paid to the utility supplier.
    (d) Ceiling rent. Instead of using flat rents, a PHA may retain 
ceiling rents that were authorized and established before October 1, 
1999, for a period of three years from October 1, 1999. After this three 
year period, the PHA must adjust such ceiling rents to the level 
required for flat rents under this section; however, ceiling rents are 
subject to paragraph (a) of this section, the annual reexamination 
requirements, and the limitation that the tenant rent plus any utility 
allowance may not exceed the total tenant payment.
    (e) Information for families. For the family to make an informed 
choice about its rent options, the PHA must provide sufficient 
information for an informed choice. Such information must include at 
least the following written information:
    (1) The PHA's policies on switching type of rent in circumstances of 
financial hardship, and
    (2) The dollar amounts of tenant rent for the family under each 
option. If the family chose a flat rent for the previous year, the PHA 
is required to provide the amount of income-based rent for the 
subsequent year only the year the PHA conducts an income reexamination 
or if the family specifically requests it and submits updated income 
information. For a family that chooses the flat rent option, the PHA 
must conduct a reexamination of family income at least once every three 
years.
    (f) Switch from flat rent to income-based rent because of hardship. 
(1) A family that is paying a flat rent may at any time request a switch 
to payment of income-based rent (before the next annual option to select 
the type of rent) if the family is unable to pay flat rent because of 
financial hardship. The PHA must adopt written policies for determining 
when payment of flat rent is a financial hardship for the family.
    (2) If the PHA determines that the family is unable to pay the flat 
rent because of financial hardship, the PHA must immediately allow the 
requested switch to income-based rent. The PHA shall make the 
determination within a reasonable time after the family request.
    (3) The PHA policies for determining when payment of flat rent is a 
financial hardship must provide that financial hardship include the 
following situations:

[[Page 446]]

    (i) The family has experienced a decrease in income because of 
changed circumstances, including loss or reduction of employment, death 
in the family, or reduction in or loss of earnings or other assistance;
    (ii) The family has experienced an increase in expenses, because of 
changed circumstances, for medical costs, child care, transportation, 
education, or similar items; and
    (iii) Such other situations determined by the PHA to be appropriate.



Sec. 960.255  Self-sufficiency incentives--Disallowance of increase in 
annual income.

    (a) Definitions. The following definitions apply for purposes of 
this section.
    Disallowance. Exclusion from annual income.
    Previously unemployed includes a person who has earned, in the 
twelve months previous to employment, no more than would be received for 
10 hours of work per week for 50 weeks at the established minimum wage.
    Qualified family. A family residing in public housing:
    (i) Whose annual income increases as a result of employment of a 
family member who was unemployed for one or more years previous to 
employment;
    (ii) Whose annual income increases as a result of increased earnings 
by a family member during participation in any economic self-sufficiency 
or other job training program; or
    (iii) Whose annual income increases, as a result of new employment 
or increased earnings of a family member, during or within six months 
after receiving assistance, benefits or services under any state program 
for temporary assistance for needy families funded under Part A of Title 
IV of the Social Security Act, as determined by the PHA in consultation 
with the local agencies administering temporary assistance for needy 
families (TANF) and Welfare-to-Work (WTW) programs. The TANF program is 
not limited to monthly income maintenance, but also includes such 
benefits and services as one-time payments, wage subsidies and 
transportation assistance--provided that the total amount over a six-
month period is at least $500.
    (b) Disallowance of increase in annual income. (1) Initial twelve 
month exclusion. During the cumulative twelve month period beginning on 
the date a member of a qualified family is first employed or the family 
first experiences an increase in annual income attributable to 
employment, the PHA must exclude from annual income (as defined in Sec. 
5.609 of this title) of a qualified family any increase in income of the 
family member as a result of employment over prior income of that family 
member.
    (2) Second twelve month exclusion and phase-in. During the second 
cumulative twelve month period after the date a member of a qualified 
family is first employed or the family first experiences an increase in 
annual income attributable to employment, the PHA must exclude from 
annual income of a qualified family fifty percent of any increase in 
income of such family member as a result of employment over income of 
that family member prior to the beginning of such employment.
    (3) Maximum four year disallowance. The disallowance of increased 
income of an individual family member as provided in paragraph (b)(1) or 
(b)(2) of this section is limited to a lifetime 48 month period. It only 
applies for a maximum of twelve months for disallowance under paragraph 
(b)(1) and a maximum of twelve months for disallowance under paragraph 
(b)(2), during the 48 month period starting from the initial exclusion 
under paragraph (b)(1) of this section.
    (c) Inapplicability to admission. The disallowance of increases in 
income as a result of employment under this section does not apply for 
purposes of admission to the program (including the determination of 
income eligibility and income targeting).
    (d) Individual Savings Accounts. As an alternative to the 
disallowance of increases in income as a result of employment described 
in paragraph (b) of this section, a PHA may choose to provide for 
individual savings accounts for public housing residents who pay an 
income-based rent, in accordance with a written policy, which must 
include the following provisions:

[[Page 447]]

    (1) The PHA must advise the family that the savings account option 
is available;
    (2) At the option of the family, the PHA must deposit in the savings 
account the total amount that would have been included in tenant rent 
payable to the PHA as a result of increased income that is disallowed in 
accordance with paragraph (b) of this section;
    (3) Amounts deposited in a savings account may be withdrawn only for 
the purpose of:
    (i) Purchasing a home;
    (ii) Paying education costs of family members;
    (iii) Moving out of public or assisted housing; or
    (iv) Paying any other expense authorized by the PHA for the purpose 
of promoting the economic self-sufficiency of residents of public 
housing;
    (4) The PHA must maintain the account in an interest bearing 
investment and must credit the family with the net interest income, and 
the PHA may not charge a fee for maintaining the account;
    (5) At least annually the PHA must provide the family with a report 
on the status of the account; and
    (6) If the family moves out of public housing, the PHA shall pay the 
tenant any balance in the account, minus any amounts owed to the PHA.



Sec. 960.257  Family income and composition: Regular and interim 
reexaminations.

    (a) When PHA is required to conduct reexamination. (1) For families 
who pay an income-based rent, the PHA must conduct a reexamination of 
family income and composition at least annually and must make 
appropriate adjustments in the rent after consultation with the family 
and upon verification of the information.
    (2) For families who choose flat rents, the PHA must conduct a 
reexamination of family composition at least annually, and must conduct 
a reexamination of family income at least once every three years.
    (3) For all families who include nonexempt individuals, as defined 
in Sec. 960.601, the PHA must determine compliance once each twelve 
months with community service and self-sufficiency requirements in 
subpart F of this part.
    (4) The PHA may use the results of these reexaminations to require 
the family to move to an appropriate size unit.
    (b) Interim reexaminations. A family may request an interim 
reexamination of family income or composition because of any changes 
since the last determination. The PHA must make the interim 
reexamination within a reasonable time after the family request. The PHA 
must adopt policies prescribing when and under what conditions the 
family must report a change in family income or composition.
    (c) PHA reexamination policies. The PHA must adopt admission and 
occupancy policies concerning conduct of annual and interim 
reexaminations in accordance with this section, and shall conduct 
reexaminations in accordance with such policies. The PHA reexamination 
policies must be in accordance with the PHA plan.



Sec. 960.259  Family information and verification.

    (a) Family obligation to supply information. (1) The family must 
supply any information that the PHA or HUD determines is necessary in 
administration of the public housing program, including submission of 
required evidence of citizenship or eligible immigration status (as 
provided by part 5, subpart E of this title). ``Information'' includes 
any requested certification, release or other documentation.
    (2) The family must supply any information requested by the PHA or 
HUD for use in a regularly scheduled reexamination or an interim 
reexamination of family income and composition in accordance with HUD 
requirements.
    (3) For requirements concerning the following, see part 5, subpart B 
of this title:
    (i) Family verification and disclosure of social security numbers;
    (ii) Family execution and submission of consent forms for obtaining 
wage and claim information from State Wage Information Collection 
Agencies (SWICAs).
    (4) Any information supplied by the family must be true and 
complete.

[[Page 448]]

    (b) Family release and consent. (1) As a condition of admission to 
or continued assistance under the program, the PHA shall require the 
family head, and such other family members as the PHA designates, to 
execute a consent form (including any release and consent as required 
under Sec. 5.230 of this title) authorizing any depository or private 
source of income, or any Federal, State or local agency, to furnish or 
release to the PHA or HUD such information as the PHA or HUD determines 
to be necessary.
    (2) The use or disclosure of information obtained from a family or 
from another source pursuant to this release and consent shall be 
limited to purposes directly connected with administration of the 
program.
    (c) PHA responsibility for reexamination and verification. (1) The 
PHA must obtain and document in the family file third party verification 
of the following factors, or must document in the file why third party 
verification was not available:
    (i) Reported family annual income;
    (ii) The value of assets;
    (iii) Expenses related to deductions from annual income; and
    (iv) Other factors that affect the determination of adjusted income 
or income-based rent.



Sec. 960.261  Restriction on eviction of families based on income.

    No PHA shall commence eviction proceedings based on the income of 
the tenant family unless:
    (a) It has determined that there is decent, safe, and sanitary 
housing of suitable size for the family available at a rent not 
exceeding the tenant rent; or
    (b) It is required to do so by local law.



Subpart D_Preference for Elderly Families and Disabled Families in Mixed 
                           Population Projects

    Source: 59 FR 17667, Apr. 13, 1994, unless otherwise noted.



Sec. 960.401  Purpose.

    This subpart establishes a preference for elderly families and 
disabled families for admission to mixed population public housing 
projects, as defined in Sec. 960.405.



Sec. 960.403  Applicability.

    (a) This subpart applies to all dwelling units in mixed population 
projects (as defined in Sec. 960.405), or portions of mixed population 
projects, assisted under the U.S. Housing Act of 1937. These projects 
formerly were known as elderly projects.
    (b) This subpart does not apply to section 23 and section 10(c) 
leased housing projects or the section 23 Housing Assistance Payments 
Program where the owners enter into leases directly with the tenants, or 
to the Section 8 Housing Assistance Payments Program, the Low-Rent 
Housing Homeownership Opportunities Program (Turnkey III), the Mutual 
Help Homeownership Opportunities Program, or to Indian Housing 
Authorities. (For applicability to Indian Housing Authorities, see part 
905 of this chapter.) Additionally, this subpart is not applicable to 
projects designated for elderly families or designated for disabled 
families in accordance with 24 CFR part 945.



Sec. 960.407  Selection preference for mixed population developments.

    (a) The PHA must give preference to elderly families and disabled 
families equally in determining priority for admission to mixed 
population developments. The PHA may not establish a limit on the number 
of elderly families or disabled families who may be accepted for 
occupancy in a mixed population development.
    (b) In selecting elderly families and disabled families to occupy 
units in mixed population developments, the PHA must first offer units 
that have special accessibility features for persons with disabilities 
to families who include persons with disabilities who require the 
accessibility features of such units (see Sec. Sec. 8.27 and 100.202 of 
this title).

[65 FR 16729, Mar. 29, 2000]

[[Page 449]]



     Subpart E_Occupancy by Over-Income Families or Police Officers

    Source: 65 FR 16729, Mar. 29, 2000, unless otherwise noted.



Sec. 960.503  Occupancy by over-income families.

    A PHA that owns or operates fewer than two hundred fifty (250) 
public housing units, may lease a unit in a public housing development 
to an over-income family (a family whose annual income exceeds the limit 
for a low income family at the time of initial occupancy), in accordance 
with its PHA annual plan (or supporting documents), if all the following 
conditions are satisfied:
    (a) There are no eligible low income families on the PHA waiting 
list or applying for public housing assistance when the unit is leased 
to an over-income family;
    (b) The PHA has publicized availability of the unit for rental to 
eligible low income families, including publishing public notice of such 
availability in a newspaper of general circulation in the jurisdiction 
at least thirty days before offering the unit to an over-income family;
    (c) The over-income family rents the unit on a month-to-month basis 
for a rent that is not less than the PHA's cost to operate the unit;
    (d) The lease to the over-income family provides that the family 
agrees to vacate the unit when needed for rental to an eligible family; 
and
    (e) The PHA gives the over-income family at least thirty days notice 
to vacate the unit when the unit is needed for rental to an eligible 
family.



Sec. 960.505  Occupancy by police officers to provide security for 
public housing residents.

    (a) Police officer. For purpose of this subpart E, ``police 
officer'' means a person determined by the PHA to be, during the period 
of residence of that person in public housing, employed on a full-time 
basis as a duly licensed professional police officer by a Federal, State 
or local government or by any agency of these governments. An officer of 
an accredited police force of a housing agency may qualify.
    (b) Occupancy in public housing. For the purpose of increasing 
security for residents of a public housing development, the PHA may 
allow police officers who would not otherwise be eligible for occupancy 
in public housing, to reside in a public housing dwelling unit. The PHA 
must include in the PHA annual plan or supporting documents the number 
and location of the units to be occupied by police officers, and the 
terms and conditions of their tenancies; and a statement that such 
occupancy is needed to increase security for public housing residents.



  Subpart F_When Resident Must Perform Community Service Activities or 
                    Self-Sufficiency Work Activities

    Source: 65 FR 16729, Mar. 29, 2000, unless otherwise noted.



Sec. 960.600  Implementation.

    PHAs and residents must comply with the requirements of this subpart 
beginning with PHA fiscal years that commence on or after October 1, 
2000. Unless otherwise provided by Sec. 903.11 of this chapter, Annual 
Plans submitted for those fiscal years are required to contain 
information regarding the PHA's compliance with the community service 
requirement, as described in Sec. 903.7 of this chapter.



Sec. 960.601  Definitions.

    (a) Definitions found elsewhere.
    (1) General definitions. The following terms are defined in part 5, 
subpart A of this title: public housing, public housing agency (PHA).
    (2) Definitions concerning income and rent. The following terms are 
defined in part 5, subpart F of this title: economic self-sufficiency 
program, work activities.
    (b) Other definitions. In addition to the definitions in paragraph 
(a) of this section, the following definitions apply:
    Community service. The performance of voluntary work or duties that 
are a

[[Page 450]]

public benefit, and that serve to improve the quality of life, enhance 
resident self-sufficiency, or increase resident self-responsibility in 
the community. Community service is not employment and may not include 
political activities.
    Exempt individual. An adult who:
    (1) Is 62 years or older;
    (2)(i) Is a blind or disabled individual, as defined under 216(i)(1) 
or 1614 of the Social Security Act (42 U.S.C. 416(i)(1); 1382c), and who 
certifies that because of this disability she or he is unable to comply 
with the service provisions of this subpart, or
    (ii) Is a primary caretaker of such individual;
    (3) Is engaged in work activities;
    (4) Meets the requirements for being exempted from having to engage 
in a work activity under the State program funded under part A of title 
IV of the Social Security Act (42 U.S.C. 601 et seq.) or under any other 
welfare program of the State in which the PHA is located, including a 
State-administered welfare-to-work program; or
    (5) Is a member of a family receiving assistance, benefits or 
services under a State program funded under part A of title IV of the 
Social Security Act (42 U.S.C. 601 et seq.) or under any other welfare 
program of the State in which the PHA is located, including a State-
administered welfare-to-work program, and has not been found by the 
State or other administering entity to be in noncompliance with such a 
program.
    Service requirement. The obligation of each adult resident, other 
than an exempt individual, to perform community service or participate 
in an economic-self sufficiency program required in accordance with 
Sec. 960.603.



Sec. 960.603  General requirements.

    (a) Service requirement. Except for any family member who is an 
exempt individual, each adult resident of public housing must:
    (1) Contribute 8 hours per month of community service (not including 
political activities); or
    (2) Participate in an economic self-sufficiency program for 8 hours 
per month; or
    (3) Perform 8 hours per month of combined activities as described in 
paragraphs (a)(1) and (a)(2) of this section.
    (b) Family violation of service requirement. The lease shall specify 
that it shall be renewed automatically for all purposes, unless the 
family fails to comply with the service requirement. Violation of the 
service requirement is grounds for nonrenewal of the lease at the end of 
the twelve month lease term, but not for termination of tenancy during 
the course of the twelve month lease term (see Sec. 966.4(l)(2)(i) of 
this chapter).



Sec. 960.605  How PHA administers service requirements.

    (a) PHA policy. Each PHA must develop a local policy for 
administration of the community service and economic self-sufficiency 
requirements for public housing residents.
    (b) Administration of qualifying community service or self-
sufficiency activities for residents. The PHA may administer qualifying 
community service or economic self-sufficiency activities directly, or 
may make such activities available through a contractor, or through 
partnerships with qualified organizations, including resident 
organizations, and community agencies or institutions.
    (c) PHA responsibilities. (1) The PHA policy must describe how the 
PHA determines which family members are subject to or exempt from the 
service requirement, and the process for determining any changes to 
exempt or non-exempt status of family members.
    (2) The PHA must give the family a written description of the 
service requirement, and of the process for claiming status as an exempt 
person and for PHA verification of such status. The PHA must also notify 
the family of its determination identifying the family members who are 
subject to the service requirement, and the family members who are 
exempt persons.
    (3) The PHA must review family compliance with service requirements, 
and must verify such compliance annually at least thirty days before the 
end of the twelve month lease term. If qualifying activities are 
administered by an organization other than the PHA, the PHA shall obtain 
verification of family compliance from such third parties.

[[Page 451]]

    (4) The PHA must retain reasonable documentation of service 
requirement performance or exemption in participant files.
    (5) The PHA must comply with non-discrimination and equal 
opportunity requirements listed at Sec. 5.105(a) of this title.



Sec. 960.607  Assuring resident compliance.

    (a) Third-party certification. If qualifying activities are 
administered by an organization other than the PHA, a family member who 
is required to fulfill a service requirement must provide signed 
certification to the PHA by such other organization that the family 
member has performed such qualifying activities.
    (b) PHA notice of noncompliance. (1) If the PHA determines that 
there is a family member who is required to fulfill a service 
requirement, but who has violated this family obligation (noncompliant 
resident), the PHA must notify the tenant of this determination.
    (2) The PHA notice to the tenant must:
    (i) Briefly describe the noncompliance;
    (ii) State that the PHA will not renew the lease at the end of the 
twelve month lease term unless:
    (A) The tenant, and any other noncompliant resident, enter into a 
written agreement with the PHA, in the form and manner required by the 
PHA, to cure such noncompliance, and in fact cure such noncompliance in 
accordance with such agreement; or
    (B) The family provides written assurance satisfactory to the PHA 
that the tenant or other noncompliant resident no longer resides in the 
unit.
    (iii) State that the tenant may request a grievance hearing on the 
PHA determination, in accordance with part 966, subpart B of this 
chapter, and that the tenant may exercise any available judicial remedy 
to seek timely redress for the PHA's nonrenewal of the lease because of 
such determination.
    (c) Tenant agreement to comply with service requirement. If the 
tenant or another family member has violated the service requirement, 
the PHA may not renew the lease upon expiration of the term unless:
    (1) The tenant, and any other noncompliant resident, enter into a 
written agreement with the PHA, in the form and manner required by the 
PHA, to cure such noncompliance by completing the additional hours of 
community service or economic self-sufficiency activity needed to make 
up the total number of hours required over the twelve-month term of the 
new lease, and
    (2) All other members of the family who are subject to the service 
requirement are currently complying with the service requirement or are 
no longer residing in the unit.



Sec. 960.609  Prohibition against replacement of PHA employees.

    In implementing the service requirement under this subpart, the PHA 
may not substitute community service or self-sufficiency activities 
performed by residents for work ordinarily performed by PHA employees, 
or replace a job at any location where residents perform activities to 
satisfy the service requirement.



                Subpart G_Pet Ownership in Public Housing

    Source: 65 FR 42522, July 10, 2000, unless otherwise noted.



Sec. 960.701  Purpose.

    The purpose of this subpart is, in accordance with section 31 of the 
United States Housing Act of 1937 (42 U.S.C. 1437z-3), to permit pet 
ownership by residents of public housing, subject to compliance with 
reasonable requirements established by the public housing agency (PHA) 
for pet ownership.



Sec. 960.703  Applicability.

    This subpart applies to public housing as that term is defined in 
section 3(b) of the United States Housing Act of 1937 (42 U.S.C. 
1437a(b)), except that such term does not include public housing 
developments for the elderly or persons with disabilities. Regulations 
that apply to pet ownership in such developments are located in part 5, 
subpart C, of this title.

[[Page 452]]



Sec. 960.705  Animals that assist, support, or provide service to persons 
with disabilities.

    (a) This subpart G does not apply to animals that assist, support or 
provide service to persons with disabilities. PHAs may not apply or 
enforce any policies established under this subpart against animals that 
are necessary as a reasonable accommodation to assist, support or 
provide service to persons with disabilities. This exclusion applies to 
such animals that reside in public housing, as that term is used in 
Sec. 960.703, and such animals that visit these developments.
    (b) Nothing in this subpart G:
    (1) Limits or impairs the rights of persons with disabilities;
    (2) Authorizes PHAs to limit or impair the rights of persons with 
disabilities; or
    (3) Affects any authority that PHAs may have to regulate service 
animals that assist, support or provide service to persons with 
disabilities, under Federal, State, or local law.



Sec. 960.707  Pet ownership.

    (a) Ownership Conditions. A resident of a dwelling unit in public 
housing, as that term is used in Sec. 960.703, may own one or more 
common household pets or have one or more common household pets present 
in the dwelling unit of such resident, subject to the reasonable 
requirements of the PHA, if the resident maintains each pet:
    (1) Responsibly;
    (2) In accordance with applicable State and local public health, 
animal control, and animal anti-cruelty laws and regulations; and
    (3) In accordance with the policies established in the PHA Annual 
Plan for the agency as provided in part 903 of this chapter.
    (b) Reasonable requirements. Reasonable requirements may include but 
are not limited to:
    (1) Requiring payment of a non-refundable nominal fee to cover the 
reasonable operating costs to the development relating to the presence 
of pets, a refundable pet deposit to cover additional costs attributable 
to the pet and not otherwise covered, or both;
    (2) Limitations on the number of animals in a unit, based on unit 
size;
    (3) Prohibitions on types of animals that the PHA classifies as 
dangerous, provided that such classifications are consistent with 
applicable State and local law, and prohibitions on individual animals, 
based on certain factors, including the size and weight of animals;
    (4) Restrictions or prohibitions based on size and type of building 
or project, or other relevant conditions;
    (5) Registration of the pet with the PHA; and
    (6) Requiring pet owners to have their pets spayed or neutered.
    (c) Restriction. A PHA may not require pet owners to have any pet's 
vocal chords removed.
    (d) Pet deposit. A PHA that requires a resident to pay a pet deposit 
must place the deposit in an account of the type required under 
applicable State or local law for pet deposits or, if State or local law 
has no requirements regarding pet deposits, for rental security 
deposits, if applicable. The PHA shall comply with such applicable law 
as to retention of the deposit, interest, and return of the deposit or 
portion thereof to the resident, and any other applicable requirements.
    (e) PHA Plan. Unless otherwise provided by Sec. 903.11 of this 
chapter, Annual Plans are required to contain information regarding the 
PHA's pet policies, as described in Sec. 903.7(n) of this chapter, 
beginning with PHA fiscal years that commence on or after January 1, 
2001.



PART 963_PUBLIC HOUSING_CONTRACTING WITH RESIDENT-OWNED BUSINESSES--Table of Contents




                            Subpart A_General

Sec.
963.1 Purpose.
963.3 Applicability.
963.5 Definitions.

          Subpart B_Contracting with Resident-Owned Businesses

963.10 Eligible resident-owned businesses.
963.12 Alternative procurement process.

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

    Source: 57 FR 20189, May 11, 1992, unless otherwise noted.

[[Page 453]]



                            Subpart A_General



Sec. 963.1  Purpose.

    The purpose of this part is to enhance the economic opportunities of 
public housing residents by providing public housing agencies with a 
method of soliciting and contracting with eligible and qualifed 
resident-owned businesses (as defined in this part) for public housing 
services, supplies, or construction. The contract award method provided 
by this part is based on the established procurement procedures set 
forth in 24 CFR 85.36, with solicitation as provided by these procedures 
limited to resident-owned businesses. The contract award method provided 
by this part is not a requirement. It is an alternative procurement 
method available to public housing agencies, subject to the conditions 
set forth in this part, and subject to permissibility under State and 
local laws.



Sec. 963.3  Applicability.

    The policies and procedures contained in this part apply to public 
housing developments that are owned by public housing agencies (PHAs) 
and that are covered by Annual Contributions Contracts (ACC) with the 
Department. Public housing contracts eligible to be awarded under the 
alternative procurement process provided by this part are limited to 
individual contracts that do not exceed $1,000,000. Resident-owned 
businesses eligible to participate in the alternative procurement 
process are limited to those that meet the eligibility requirements of 
Sec. 963.10. The policies and procedures contained in this part are 
consistent with the objectives of section 3 of the Housing and Urban 
Development Act of 1968 (12 U.S.C. 1701u), and similar Federal 
requirements imposed on public housing programs. (See 24 CFR 941.208(a) 
and 24 CFR 968.110(a)).

[57 FR 20189, May 11, 1992, as amended at 59 FR 33895, June 30, 1994]



Sec. 963.5  Definitions.

    The terms HUD and Public housing agency (PHA) are defined in 24 CFR 
part 5.
    Act. The U.S. Housing Act of 1937 (42 U.S.C. 1437).
    Alternative procurement process. The alternative method of public 
housing contract award available to public housing agencies and eligible 
resident-owned businesses under the conditions set forth in this part.
    Annual Contributions Contract (ACC). See definition in 24 CFR 
968.105.
    Certification. A written assertion based on supporting evidence, 
which shall be kept available for inspection by the Secretary, the 
Inspector General, and the public, which assertion shall be deemed to be 
accurate for purposes of this part, unless the Secretary determines 
otherwise after inspecting the evidence and providing due notice and 
opportunity for comment.
    Contract or public housing contract. Any contract awarded by a PHA 
for services, supplies, or construction necessary for the development, 
operation, modernization, or maintenance of public housing.
    Management officials. The individuals who possess the power to make 
the day-to-day, as well as major, decisions on matters of management, 
policy, and operations of the resident-owned business.
    Principal. An owner, partner, director, or management official of 
the resident-owned business with the power and authority to represent 
the business and to execute contract, leases, agreements, and other 
documents on behalf of the business.
    Public housing or public housing development. Any public housing 
development which is owned by a Public Housing Agency (PHA) and is 
receiving funds under an Annual Contribution Contract (ACC).
    Public housing resident. Any individual who resides in public 
housing as a signatory on a public housing lease, or as a member of the 
family of the individual(s) who is the signatory on the public housing 
lease.
    Resident-owned business. Any business concern which is owned and 
controlled by public housing residents. (The term ``resident-owned 
business'' includes sole proprietorships.) For purposes of this part, 
``owned and controlled'' means a business:
    (1) Which is at least 51 percent owned by one or more public housing 
residents; and

[[Page 454]]

    (2) Whose management and daily business operations are controlled by 
one or more such individuals.

All securities which constitute ownership or control of a corporation 
for purposes of establishing the business as a resident-owned business 
shall be held directly by the public housing residents. No securities 
held in trust, or by any guardian for a minor, shall be considered as 
held by the public housing resident in determining the ownership or 
control of a corporation.

[57 FR 20189, May 11, 1992, as amended at 61 FR 5215, Feb. 9, 1996]



          Subpart B_Contracting With Resident-Owned Businesses



Sec. 963.10  Eligible resident-owned businesses.

    To be eligible for the alternative procurement process provided by 
this part, a business must meet the following requirements, and must 
submit evidence to the PHA, in the form described below, or as the PHA 
may require, that shows how each requirement has been met.
    (a) Legally formed business. The business shall submit certified 
copies of any State, county, or municipal licenses that may be required 
of the business to engage in the type of business activity for which it 
was formed. Where applicable (as for example, in the case of 
corporations), the business also shall submit a certified copy of its 
corporate charter or other organizational document that verifies that 
the business was properly formed in accordance with State law.
    (b) Resident-owned business. The business shall submit a 
certification that it is a resident-owned business as defined by this 
part. The business shall disclose to the PHA all owners of the business, 
and each owner's percentage of ownership interest in the business. The 
business also shall disclose all individuals who possess the power to 
make the day-to-day, as well as major, decisions on matters of 
management, policy, and operations (management officials). The business 
shall identify all owners and management officials who are not public 
housing residents, and shall disclose any relationship that these owners 
and officials may have to a business (resident- or non-resident-owned) 
engaged in the type of business activity with which the resident-owned 
business is engaged. For purposes of this part, ``relationship'' means 
employment by, or having an ownership interest in, a business. The 
business also shall submit such evidence as the PHA may require to 
verify that the owner or owners identified as public housing residents 
reside within public housing of the PHA.
    (c) Responsibility to complete contract. The business shall submit 
evidence sufficient to demonstrate to the satisfaction of the PHA that 
the business has the ability to perform successfully under the terms and 
conditions of the proposed contract. Consideration will be given to 
various factors, including but not limited to those identified in 24 CFR 
85.36(b)(8) and also to such matters as proof of completion of courses 
in business administration or financial management, and proof of job 
training or apprenticeship in the particular trade, business, 
profession, or occupation.
    (d) Limitation on alternative procurement contract awards. The 
business shall submit a certification as to the number of contracts 
awarded, and the dollar amount of each contract award received, under 
the alternative procurement process provided by this part. A resident-
owned business is not eligible to participate in the alternative 
procurement process provided by this part if the resident-owned business 
has received under this process one or more contracts with a total 
combined dollar value of $1,000,000.

[57 FR 20189, May 11, 1992, as amended at 59 FR 33895, June 30, 1994]



Sec. 963.12  Alternative procurement process.

    (a) Method of procurement. In contracting with resident-owned 
businesses, the PHA shall follow the applicable method of procurement as 
set forth in 24 CFR 85.36(d), with solicitation limited to resident-
owned businesses. Additionally, the PHA shall ensure that the method of 
procurement conforms to the procurement standards set forth in 24 CFR 
85.36(b).

[[Page 455]]

    (b) Contract awards. Contracts awarded under this part shall be made 
only to resident-owned businesses that meet the requirements of Sec. 
963.10, and that comply with such other requirements as may be required 
of a contractor under the particular procurement and the Department's 
regulations. An award shall not be made to the resident-owned business 
if the contract award exceeds the independent cost estimate required by 
24 CFR 85.36(f), and the price normally paid for comparable supplies, 
services, or construction in the project area.
    (c) Contract requirements. Any contract entered into between a PHA 
and a resident-owned business under this part shall comply with: the 
contract provisions of 24 CFR 85.36(i); the provisions of 24 CFR 
85.36(h), 24 CFR 968.240(d) or 24 CFR 968.335(c)(1) governing bonding 
requirements, where applicable; and such other contract terms that may 
be applicable to the particular procurement under the Department's 
regulations. In addition to the recordkeeping requirements imposed by 24 
CFR 85.36(i), the PHA also shall maintain records sufficient to detail 
the significant history of the procurement made under this part. These 
records will include, but are not necessarily limited to the following: 
The independent cost estimate and comparable price analysis as required 
by paragraph (b) of this section; the basis for contractor selection, 
including documentation concerning the eligibility of the selected 
resident-owned business under Sec. 963.10; and the basis for 
determining the reasonableness of the proposed contract price.



PART 964_TENANT PARTICIPATION AND TENANT OPPORTUNITIES IN PUBLIC 
HOUSING--Table of Contents




                      Subpart A_General Provisions

Sec.
964.1 Purpose.
964.3 Applicability and scope.
964.7 Definitions.
964.11 HUD policy on tenant participation.
964.12 HUD policy on the Tenant Opportunities Program (TOP).
964.14 HUD policy on partnerships.
964.15 HUD policy on resident management.
964.16 HUD role in activities under this part.
964.18 HA role in activities under subparts B & C.
964.24 HUD policy on FIC Program.
964.30 Other Program requirements.

                     Subpart B_Tenant Participation

964.100 Role of resident council.
964.105 Role of the jurisdiction-wide resident council.
964.115 Resident council requirements.
964.117 Resident council partnerships.
964.120 Resident management corporation requirements.
964.125 Eligibility for resident council membership.
964.130 Election procedures and standards.
964.135 Resident involvement in HA management operations.
964.140 Resident training.
964.145 Conflict of interest.
964.150 Funding tenant participation.

                 Subpart C_Tenant Opportunities Program

964.200 General.
964.205 Eligibility.
964.210 Notice of funding availability.
964.215 Grant agreement.
964.220 Technical assistance.
964.225 Resident management requirements.
964.230 Audit and administrative requirements.

            Subpart D_Family Investment Centers (FIC) Program

964.300 General.
964.305 Eligibility.
964.308 Supportive services requirements.
964.310 Audit/compliance requirements.
964.315 HAs role in activities under this part.
964.320 HUD Policy on training, employment, contracting and 
          subcontracting of public housing residents.
964.325 Notice of funding availability.
964.330 Grant set-aside assistance.
964.335 Grant agreement.
964.340 Resident compensation.
964.345 Treatment of income.
964.350 Administrative requirements.

                    Subpart E_Resident Board Members

964.400 Purpose.
964.405 Applicability.
964.410 Additional definitions.
964.415 Resident board members.
964.420 Resident board member may be elected.
964.425 Small public housing agencies.
964.430 Nondiscrimination.

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

[[Page 456]]


    Source: 59 FR 43636, Aug. 24, 1994, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 964.1  Purpose.

    The purpose of this part is to recognize the importance of resident 
involvement in creating a positive living environment and in actively 
participating in the overall mission of public housing.



Sec. 964.3  Applicability and scope.

    (a) The policies and procedures contained in this part apply to any 
PHA that has a Public Housing Annual Contributions Contract (ACC) with 
HUD. This part, except for subpart E, does not apply to PHAs with 
housing assistance payments contracts with HUD under section 8 of the 
U.S. Housing Act of 1937.
    (b) Subpart B of this part contains HUD policies, procedures, and 
requirements for the participation of residents in public housing 
operations. These policies, procedures, and requirements apply to all 
residents participating under this part.
    (c)(1) Subpart C of this part contains HUD policies, procedures, and 
requirements for residents participating in the Tenant Opportunities 
Program (TOP) (replaces the Resident Management Program under Section 20 
of the United States Housing Act of 1937). Resident management in public 
housing is viable and remains an option under TOP.
    (2) Subpart C of this part is not intended to negate any pre-
existing arrangements for resident management in public housing between 
a PHA and a resident management corporation. On or after September 23, 
1994, any new, renewed or renegotiated contracts must meet the 
requirements of this part, the ACC and all applicable laws and 
regulations.
    (d) Subpart D of this part includes requirements for the Family 
Investment Centers (FIC) Program which was established by Section 22 of 
the United States Housing Act of 1937 (42 U.S.C. 1437t) to provide 
families living in public housing and Indian housing with better access 
to educational and employment opportunities.
    (e) Subpart E of this part implements section 2(b) of the United 
States Housing Act of 1937 (42 U.S.C. 1437), which provides for resident 
membership on the board of directors or similar governing body of a PHA. 
Subpart E applies to any public housing agency that has a public housing 
annual contributions contract with HUD or administers tenant-based 
rental under section 8 of the United States Housing Act of 1937 (42 
U.S.C. 1437f).
    (f) The term ``resident,'' as used throughout this part, is 
interchangeable with the term ``tenant,'' to reflect the fact that local 
resident organizations have differing preferences for the terms. Terms 
such as ``resident council'' and ``tenant council'' and ``resident 
management'' and ``tenant management'' are interchangeable. Hereafter, 
for ease of discussion, the rule will use the terms resident, resident 
council and resident management corporation, as appropriate.

[57 9R 43636, Aug. 24, 1994, as amended at 64 FR 56879, Oct. 21, 1999]



Sec. 964.7  Definitions.

    Annual Contributions Contract (ACC). A contract (in the form 
prescribed by HUD) under which HUD agrees to provide financial 
assistance, and the HA agrees to comply with HUD requirements for the 
development and operation of the public housing project.
    Eligible residents for FIC. A participating resident of a 
participating HA. If the HA is combining FIC with the Family Self-
Sufficiency (FSS) program, the term also means Public Housing FSS and 
Section 8 families participating in the FSS program. Although Section 8 
FSS families are eligible residents for FIC, they do not qualify for 
income exclusions that are provided for public housing residents 
participating in employment and supportive service programs.
    Family Investment Centers (FIC). A facility on or near public 
housing which provides families living in public housing with better 
access to educational and employment opportunities to achieve self-
sufficiency and independence.
    FIC service coordinator. Any person who is responsible for:

[[Page 457]]

    (1) Determining the eligibility and assessing needs of families to 
be served by the FIC;
    (2) Assessing training and service needs of eligible residents;
    (3) Working with service providers to coordinate the provision of 
services on a HA-wide or less than HA-wide basis, and to tailor the 
services to the needs and characteristics of eligible residents;
    (4) Mobilizing public and private resources to ensure that the 
supportive services identified can be funded over the five-year period, 
at least, following the initial receipt of funding.
    (5) Monitoring and evaluating the delivery, impact, and 
effectiveness of any supportive service funded with capital or operating 
assistance under the FIC program;
    (6) Coordinating the development and implementation of the FIC 
program with other self-sufficiency programs, and other education and 
employment programs; and
    (7) Performing other duties and functions that are appropriate for 
providing eligible residents with better access to educational and 
employment opportunities.
    HA means the same as Public Housing Agency (PHA).
    Management. All activities for which the HA is responsible to HUD 
under the ACC, within the definition of ``operation'' under the Act and 
the ACC, including the development of resident programs and services.
    Management contract. A written agreement between a resident 
management corporation and a HA, as provided by subpart C.
    Public Housing Agency (PHA) is defined in 24 CFR part 5.
    Public housing development (Development). The term ``development'' 
has the same meaning as that provided for ``low-income housing project'' 
as that term is defined Section 3(b)(1) of the Act.
    Resident management. The performance of one or more management 
activities for one or more projects by a resident management corporation 
under a management contract with the HA.
    Resident management corporation. An entity that proposes to enter 
into, or enters into, a contract to manage one or more management 
activities of a HA.
    Resident-owned business. Any business concern which is owned and 
controlled by public housing residents. (The term ``resident-owned 
business'' includes sole proprietorships.) For purposes of this part, 
``owned and controlled'' means a business:
    (1) Which is at least 51 percent owned by one or more public housing 
residents; and
    (2) Whose management and daily business operations are controlled by 
one or more such individuals.
    Supportive services for FIC. New or significantly expanded services 
that are essential to providing families living with children in public 
housing with better access to educational and employment opportunities 
to achieve self-sufficiency and independence.
    Tenant Opportunities Program (TOP). The TOP program is designed to 
prepare residents to experience the dignity of meaningful work, to own 
and operate resident businesses, to move toward financial independence, 
and to enable them to choose where they want to live and engage in 
meaningful participation in the management of housing developments in 
which they live. Financial assistance in the form of technical 
assistance grants is available to RCs/RMCs to prepare to manage 
activities in their public housing developments.
    Vacant unit under FIC. A dwelling unit that is not under an 
effective lease to an eligible family. An effective lease is a lease 
under which an eligible family has a right to possession of the unit and 
is being charged rent, even if the amount of any utility allowance 
equals or exceeds the amount of a total resident payment that is based 
on income and, as a result, the amount paid by the family to the HA is 
zero.

[59 FR 43636, Aug. 24, 1994, as amended at 61 FR 5215, Feb. 9, 1996]



Sec. 964.11  HUD policy on tenant participation.

    HUD promotes resident participation and the active involvement of 
residents in all aspects of a HA's overall mission and operation. 
Residents have a right to organize and elect a resident council

[[Page 458]]

to represent their interests. As long as proper procedures are followed, 
the HA shall recognize the duly elected resident council to participate 
fully through a working relationship with the HA. HUD encourages HAs and 
residents to work together to determine the most appropriate ways to 
foster constructive relationships, particularly through duly-elected 
resident councils.



Sec. 964.12  HUD policy on the Tenant Opportunities Program (TOP).

    HUD promotes TOP programs to support activities that enable 
residents to improve the quality of life and resident satisfaction, and 
obtain other social and economic benefits for residents and their 
families. Tenant opportunity programs are proven to be effective in 
facilitating economic uplift, as well as in improving the overall 
conditions of the public housing communities.



Sec. 964.14  HUD policy on partnerships.

    HUD promotes partnerships between residents and HAs which are an 
essential component to building, strengthening and improving public 
housing. Strong partnerships are critical for creating positive changes 
in lifestyles thus improving the quality of life for public housing 
residents, and the surrounding community.



Sec. 964.15  HUD policy on resident management.

    It is HUD's policy to encourage resident management. HUD encourages 
HAs, resident councils and resident management corporations to explore 
the various functions involved in management to identify appropriate 
opportunities for contracting with a resident management corporation. 
Potential benefits of resident-managed entities include improved quality 
of life, experiencing the dignity of meaningful work, enabling residents 
to choose where they want to live, and meaningful participation in the 
management of the housing development.



Sec. 964.16  HUD role in activities under this part.

    (a) General. Subject to the requirements of this part and other 
requirements imposed on HAs by the ACC, statute or regulation, the form 
and extent of resident participation including resident management are 
local decisions to be made jointly by resident councils/resident 
management corporations and their HAs. HUD will promote tenant 
participation and tenant opportunities programs, and will provide 
additional guidance, as necessary and appropriate. In addition, HUD will 
endeavor to provide technical assistance in connection with these 
initiatives.
    (b) Monitoring. HUD shall ensure that the requirements under this 
part are operating efficiently and effectively.



Sec. 964.18  HA role in activities under subparts B & C.

    (a) HAs with 250 units or more. (1) A HA shall officially recognize 
a duly elected resident council as the sole representative of the 
residents it purports to represent, and support its tenant participation 
activities.
    (2) When requested by residents, a HA shall provide appropriate 
guidance to residents to assist them in establishing and maintaining a 
resident council.
    (3) A HA may consult with residents, or resident councils (if they 
exist), to determine the extent to which residents desire to participate 
in activities involving their community, including the management of 
specific functions of a public housing development that may be mutually 
agreeable to the HA and the resident council/resident management 
corporation.
    (4) A HA shall provide the residents or any resident council with 
current information concerning the HA's policies on tenant participation 
in management.
    (5) If requested, a HA should provide a duly recognized resident 
council office space and meeting facilities, free of charge, preferably 
within the development it represents. If there is no community or rental 
space available, a request to approve a vacant unit for this non-
dwelling use will be considered on a case-by-case basis.
    (6) If requested, a HA shall negotiate with the duly elected 
resident council on all uses of community space for meetings, recreation 
and social services and other resident participation activities pursuant 
to HUD guidelines. Such agreements shall be put into a written document 
to be signed by the

[[Page 459]]

HA and the resident council. If a HA fails to negotiate with a resident 
council in good faith or, after negotiations, refuses to permit such 
usage of community space, the resident council may file an informal 
appeal with HUD, setting out the circumstances and providing copies of 
relevant materials evidencing the resident council's efforts to 
negotiate a written agreement. HUD shall require the HA to respond with 
a report stating the HA's reasons for rejecting the request or for 
refusing to negotiate. HUD shall require the parties (with or without 
direct HUD participation) to undertake or to resume negotiations on an 
agreement. If no resolution is achieved within 90 days from the date HUD 
required the parties to undertake or resume such negotiations, HUD shall 
serve notice on both parties that administrative remedies have been 
exhausted (except that, pursuant to mutual agreement of the parties, the 
time for negotiations may be extended by no more than an additional 30 
days).
    (7) In no event shall HUD or a HA recognize a competing resident 
council once a duly elected resident council has been established. Any 
funding of resident activities and resident input into decisions 
concerning public housing operations shall be made only through the 
officially recognized resident council.
    (8) The HA shall ensure open communication and frequent meetings 
between HA management and resident councils and shall encourage the 
formation of joint HA management-resident committees to work on issues 
and planning.
    (9) The resident council shall hold frequent meetings with the 
residents to ensure that residents have input, and are aware and 
actively involved in HA management-resident council decisions and 
activities.
    (10) The HA and resident council shall put in writing in the form of 
a Memorandum of Understanding the elements of their partnership 
agreement and it shall be updated at least once every three (3) years.
    (11) The HA, in collaboration with the resident councils, shall 
assume the lead role for assuring maximum opportunities for skills 
training for public housing residents. To the extent possible, the 
training resources should be local to ensure maximum benefit and on-
going access.
    (b) HAs with fewer than 250 units. (1) HAs with fewer than 250 units 
of public housing have the option of participating in programs under 
this part.
    (2) HAs shall not deny residents the opportunity to organize. If the 
residents decide to organize and form a resident council, the HA shall 
comply with the following:
    (i) A HA shall officially recognize a duly elected resident council 
as the sole representative of the residents it purports to represent, 
and support its tenant participation activities.
    (ii) When requested by residents, a HA shall provide appropriate 
guidance to residents to assist them in establishing and maintaining a 
resident council.
    (iii) A HA shall provide the residents or any resident council with 
current information concerning the HA's policies on tenant participation 
in management.
    (iv) In no event shall HUD or a HA officially recognize a competing 
resident council once a duly elected resident council has been 
established. If a duly elected resident council has been formed, any 
input into changes concerning public housing operations shall be made 
only through the officially recognized resident council.



Sec. 964.24  HUD policy on FIC Program.

    HUD promotes Family Investment Centers which provide better access 
to educational and employment opportunities for residents living in 
public housing. HUD encourages resident involvement in the FIC Program 
and promotes resident-HA partnerships to achieve mutual goals.



Sec. 964.30  Other Program requirements.

    In addition to the requirements set forth in 24 CFR part 5, the 
following Federal requirements apply to this program:
    (a) Affirmative Outreach. (1) The Affirmative Fair Housing Marketing 
Program requirements of 24 CFR part 200, subpart M and the implementing 
regulations at 24 CFR part 108; and

[[Page 460]]

    (2) The fair housing advertising and poster guidelines at 24 CFR 
parts 109 and 110.
    (b) Title II of the Americans with Disabilities Act of 1990 (42 
U.S.C. 12131) and implementing regulations at 28 CFR part 35.

[61 FR 5216, Feb. 9, 1996]



                     Subpart B_Tenant Participation



Sec. 964.100  Role of resident council.

    The role of a resident council is to improve the quality of life and 
resident satisfaction and participate in self-help initiatives to enable 
residents to create a positive living environment for families living in 
public housing. Resident councils may actively participate through a 
working partnership with the HA to advise and assist in all aspects of 
public housing operations.



Sec. 964.105  Role of the jurisdiction-wide resident council.

    (a) Jurisdiction-wide resident council. Resident councils may come 
together to form an organization which can represent the interest of 
residents residing in units under a HA's jurisdiction. This can be 
accomplished by the presidents of duly elected resident councils forming 
an organization, by resident councils electing a representative to the 
organization, or through jurisdiction-wide elections. If duly elected 
resident councils form such an organization, the HA shall recognize it 
as the voice of authority-wide residents for input into housing 
authority policy making.
    (b) Function. The jurisdiction-wide council may advise the Board of 
Commissioners and executive director in all areas of HA operations, 
including but not limited to occupancy, general management, maintenance, 
security, resident training, resident employment, social services and 
modernization priorities.
    (c) Cooperation with other groups. There shall be regularly 
scheduled meetings between the HA and the local duly elected resident 
council, and the jurisdiction-wide resident council to discuss problems, 
plan activities and review progress.



Sec. 964.115  Resident council requirements.

    A resident council shall consist of persons residing in public 
housing and must meet each of the following requirements in order to 
receive official recognition from the HA/HUD, and be eligible to receive 
funds for resident council activities, and stipends for officers for 
their related costs for volunteer work in public housing:
    (a) It may represent residents residing:
    (1) In scattered site buildings;
    (2) In areas of contiguous row houses; or
    (3) In one or more contiguous buildings;
    (4) In a development; or
    (5) In a combination of these buildings or developments;
    (b) It must adopt written procedures such as by-laws, or a 
constitution which provides for the election of residents to the 
governing board by the voting membership of the residents residing in 
public housing, described in paragraph (b) of this section, on a regular 
basis but at least once every three (3) years. The written procedures 
must provide for the recall of the resident board by the voting 
membership. These provisions shall allow for a petition or other 
expression of the voting membership's desire for a recall election, and 
set the number of percentage of voting membership (``threshold'') who 
must be in agreement in order to hold a recall election. This threshold 
shall not be less than 10 percent of the voting membership.
    (c) It must have a democratically elected governing board that is 
elected by the voting membership. At a minimum, the governing board 
should consist of five (5) elected board members.
    The voting membership must consist of heads of households (any age) 
and other residents at least 18 years of age or older and whose name 
appears on a lease for the unit in the public housing that the resident 
council represents.



Sec. 964.117  Resident council partnerships.

    A resident council may form partnerships with outside organizations, 
provided that such relationships are complementary to the resident 
council in

[[Page 461]]

its duty to represent the residents, and provided that such outside 
organizations do not become the governing entity of the resident 
council.



Sec. 964.120  Resident management corporation requirements.

    A resident management corporation must consist of residents residing 
in public housing and have each of the following characteristics in 
order to receive official recognition by the HA and HUD:
    (a) It shall be a non-profit organization that is validly 
incorporated under the laws of the State in which it is located;
    (b) It may be established by more than one resident council, so long 
as each such council:
    (1) Approves the establishment of the corporation; and
    (2) Has representation on the Board of Directors of the corporation;
    (c) It shall have an elected Board of Directors, and elections must 
be held at least once every three (3) years;
    (d) Its by-laws shall require the Board of Directors to include 
resident representatives of each resident council involved in 
establishing the corporation; include qualifications to run for office, 
frequency of elections, procedures for recall, and term limits if 
desired.
    (e) Its voting members shall be heads of households (any age) and 
other residents at least 18 years of age and whose name appears on the 
lease of a unit in the public housing represented by the resident 
management corporation;
    (f) Where a resident council already exists for the development, or 
a portion of the development, the resident management corporation shall 
be approved by the resident council board and a majority of the 
residents. If there is no resident council, a majority of the residents 
of the public housing development it will represent must approve the 
establishment of such a corporation for the purposes of managing the 
project; and
    (g) It may serve as both the resident management corporation and the 
resident council, so long as the corporation meets the requirements of 
this part for a resident council.



Sec. 964.125  Eligibility for resident council membership.

    (a) Any member of a public housing household whose name is on the 
lease of a unit in the public housing development and meets the 
requirements of the by-laws is eligible to be a member of a resident 
council. The resident council may establish additional criteria that are 
non-discriminatory and do not infringe on rights of other residents in 
the development. Such criteria must be stated in the by-laws or 
constitution as appropriate.
    (b) The right to vote for resident council board shall be limited to 
designated heads of households (any age) and other members of the 
household who are 18 years or older whose name appears on the lease of a 
unit in the public housing development represented by the resident 
council.
    (c) Any qualified voting member of a resident council who meets the 
requirements described in the by-laws and is in compliance with the 
lease may seek office and serve on the resident council governing board.



Sec. 964.130  Election procedures and standards.

    At a minimum, a resident council may use local election boards/
commissions. The resident council shall use an independent third-party 
to oversee elections and recall procedures.
    (a) Resident councils shall adhere to the following minimum 
standards regarding election procedures:
    (1) All procedures must assure fair and frequent elections of 
resident council members--at least once every three years for each 
member.
    (2) Staggered terms for resident council governing board members and 
term limits shall be discretionary with the resident council.
    (3) Each resident council shall adopt and issue election and recall 
procedures in their by-laws.
    (4) The election procedures shall include qualifications to run for 
office, frequency of elections, procedures for recall, and term limits 
if desired.
    (5) All voting members of the resident community must be given 
sufficient notice (at least 30 days) for nomination and election. The 
notice should

[[Page 462]]

include a description of election procedures, eligibility requirements, 
and dates of nominations and elections.
    (b) If a resident council fails to satisfy HUD minimum standards for 
fair and frequent elections, or fails to follow its own election 
procedures as adopted, HUD shall require the HA to withdraw recognition 
of the resident council and to withhold resident services funds as well 
as funds provided in conjunction with services rendered for resident 
participation in public housing.
    (c) HAs shall monitor the resident council election process and 
shall establish a procedure to appeal any adverse decision relating to 
failure to satisfy HUD minimum standards. Such appeal shall be submitted 
to a jointly selected third-party arbitrator at the local level. If 
costs are incurred by using a third-party arbitrator, then such costs 
should be paid from the HAs resident services funds pursuant to Sec. 
964.150.



Sec. 964.135  Resident involvement in HA management operations.

    Residents shall be involved and participate in the overall policy 
development and direction of Public Housing operations.
    (a) Resident management corporations (RMCs) may contract with HAs to 
perform one or more management functions provided the resident entity 
has received sufficient training and/or has staff with the necessary 
expertise to perform the management functions and provided the RMC meets 
bonding and licensing requirements.
    (b) Residents shall be actively involved in a HA's decision-making 
process and give advice on matters such as modernization, security, 
maintenance, resident screening and selection, and recreation.
    (c) While a HA has responsibility for management operations, it 
shall ensure strong resident participation in all issues and facets of 
its operations through the duly elected resident councils at public 
housing developments, and with jurisdiction-wide resident councils.
    (d) A HA shall work in partnership with the duly elected resident 
councils.
    (e) HAs, upon request from the duly elected resident council, shall 
ensure that the duly elected resident council officers as defined in 
subpart B of this part, and other residents in the development are fully 
trained and involved in developing and implementing Federal programs 
including but not limited to Comprehensive Improvement Assistance 
Program (CIAP), Comprehensive Grant Program, Urban Revitalization 
Demonstration, Drug Elimination, and FIC.
    (f) HAs shall involve resident council officers and other interested 
residents at the development through education and direct participation 
in all phases of the budgetary process.
    (g) Resident council officers shall be encouraged to become involved 
in the resident screening and selection process for prospective 
residents at the development. Those selected to perform resident 
screening and selection functions must be trained by the HA in resident 
screening and selection and must sign a legal document committing to 
confidentiality.



Sec. 964.140  Resident training.

    (a) Resident training opportunities. HUD encourages a partnership 
between the residents, the HA and HUD, as well as with the public and 
non-profit sectors to provide training opportunities for public housing 
residents. The categories in which training could occur include, but are 
not limited to:
    (1) Community organization and leadership training;
    (2) Organizational development training for Resident Management 
Corporations and duly elected Resident Councils;
    (3) Public housing policies, programs, rights and responsibilities 
training; and
    (4) Business entrepreneurial training, planning and job skills.
    (b) Local training resources. HUD encourages the use of local 
training resources to ensure the ongoing accessibility and availability 
of persons to provide training and technical assistance. Possible 
training resources may include:
    (1) Resident organizations;
    (2) Housing authorities;

[[Page 463]]

    (3) Local community colleges, vocational schools; and
    (4) HUD and other Federal agencies and other local public, private 
and non-profit organizations.



Sec. 964.145  Conflict of interest.

    Resident council officers can not serve as contractors or employees 
if they are in policy making or supervisory positions at the HA.



Sec. 964.150  Funding tenant participation.

    (a) Funding duly elected resident councils and jurisdiction wide 
resident councils. (1) The HA shall provide funds it receives for this 
purpose to the duly elected resident council at each development and/or 
those jurisdiction-wide councils eligible to receive the resident 
portion of the tenant services account to use for resident participation 
activities. This shall be an addition to the Performance Funding System 
(PFS), as provided by 24 CFR part 990, to permit HAs to fund $25 per 
unit per year for units represented by duly elected resident councils 
for resident services, subject to the availability of appropriations. Of 
this amount, $15 per unit per year would be provided to fund tenant 
participation activities under subpart B of this part for duly elected 
resident councils and/or jurisdiction-wide councils and $10 per unit per 
year would be used by the HA to pay for costs incurred in carrying out 
tenant participation activities under subpart B of this part, including 
the expenses for conducting elections, recalls or arbitration required 
under Sec. 964.130 in subpart B. This will guarantee the resources 
necessary to create a bona fide partnership among the duly elected 
resident councils, the HA and HUD. Where both local and jurisdiction-
wide councils exist, the distribution will be agreed upon by the HA and 
the respective councils.
    (2) If funds are available through appropriations, the HA must 
provide tenant services funding to the duly elected resident councils 
regardless of the HA's financial status. The resident council funds 
shall not be impacted or restricted by the HA financial status and all 
said funds must be used forthe purpose set forth in subparts B and C of 
this part.
    (3) The HA and the duly elected resident council at each development 
and/or those jurisdiction-wide councils shall collaborate on how the 
funds will be distributed for tenant participation activities. If 
disputes regarding funding decisions arise between the parties, the 
matter shall be referred to the Field Office for intervention. HUD Field 
Office shall require the parties to undertake further negotiations to 
resolve the dispute. If no resolution is achieved within 90 days from 
the date of the Field Office intervention, the Field Office shall refer 
the matter to HUD Headquarters for final resolution.
    (b) Stipends. (1) HUD encourages HAs to provide stipends to resident 
council officers who serve as volunteers in their public housing 
developments. The amount of the stipend, up to $200 per month/per 
officer, shall be decided locally by the resident council and the HA. 
Subject to appropriations, the stipends will be funded from the resident 
council's portion of the operating subsidy funding for resident council 
expenses ($15.00 per unit per year).
    (2) Pursuant to Sec. 913.106, stipends are not to be construed as 
salaries and should not be included as income for calculation of rents, 
and are not subject to conflict of interest requirements.
    (3) Funding provided by a HA to a duly elected resident council may 
be made only under a written agreement between the HA and a resident 
council, which includes a resident council budget and assurance that all 
resident council expenditures will not contravene provisions of law and 
will promote serviceability, efficiency, economy and stability in the 
operation of the local development. The agreement must require the local 
resident council to account to the HA for the use of the funds and 
permit the HA to inspect and audit the resident council's financial 
records related to the agreement.

[[Page 464]]



                 Subpart C_Tenant Opportunities Program



Sec. 964.200  General.

    (a) The Tenant Opportunities Program (TOP) provides technical 
assistance for various activities, including but not limited to resident 
management, for resident councils/resident management corporations as 
authorized by Section 20 of the U.S. Housing Act of 1937. The TOP 
provides opportunities for resident organizations to improve living 
conditions and resident satisfaction in public housing communities.
    (b) This subpart establishes the policies, procedures and 
requirements for participating in the TOP with respect to applications 
for funding for programs identified in this subpart.
    (c) This subpart contains the policies, procedures and requirements 
for the resident management program as authorized by section 20 of the 
U.S. Housing Act of 1937.



Sec. 964.205  Eligibility.

    (a) Resident councils/resident management corporations. Any eligible 
resident council/resident management corporation as defined in subpart B 
of this part is eligible to participate in a program administered under 
this subpart.
    (b) Activities. Activities to be funded and carried out by an 
eligible resident council or resident management corporation, as defined 
in subpart B of this part, must improve the living conditions and public 
housing operations and may include any combination of, but are not 
limited to, the following:
    (1) Resident capacity building. (i) Training Board members in 
community organizing, Board development, and leadership training;
    (ii) Determining the feasibility of resident management enablement 
for a specific project or projects; and
    (iii) Assisting in the actual creation of an RMC, such as consulting 
and legal assistance to incorporate, preparing by-laws and drafting a 
corporate charter.
    (2) Resident management. (i) Training residents, as potential 
employees of an RMC, in skills directly related to the operation, 
management, maintenance and financial systems of a project;
    (ii) Training of residents with respect to fair housing 
requirements; and
    (iii) Gaining assistance in negotiating management contracts, and 
designing a long-range planning system.
    (3) Resident management business development. (i) Training related 
to resident-owned business development and technical assistance for job 
training and placement in RMC developments;
    (ii) Technical assistance and training in resident managed business 
development through:
    (A) Feasibility and market studies;
    (B) Development of business plans;
    (C) Outreach activities; and
    (D) Innovative financing methods including revolving loan funds; and
    (iii) Legal advice in establishing a resident managed business 
entity.
    (4) Social support needs (such as self-sufficiency and youth 
initiatives). (i) Feasibility studies to determine training and social 
services needs;
    (ii) Training in management-related trade skills, computer skills, 
etc;
    (iii) Management-related employment training and counseling;
    (iv) Coordination of support services;
    (v) Training for programs such as child care, early childhood 
development, parent involvement, volunteer services, parenting skills, 
before and after school programs;
    (vi) Training programs on health, nutrition and safety;
    (vii) Workshops for youth services, child abuse and neglect 
prevention, tutorial services, in partnership with community-based 
organizations such as local Boys and Girls Clubs, YMCA/YWCA, Boy/Girl 
Scouts, Campfire and Big Brother/Big Sisters, etc. Other HUD programs 
such as the Youth Sports Program and the Public Housing Drug Elimination 
Programs also provide funding in these areas;
    (viii) Training in the development of strategies to successfully 
implement a youth program. For example, assessing the needs and problems 
of the youth, improving youth initiatives that are currently active, and 
training youth, housing authority staff, resident management 
corporations and resident councils on youth initiatives and program 
activities; and
    (5) Homeownership Opportunity. Determining feasibility for 
homeownership

[[Page 465]]

by residents, including assessing the feasibility of other housing 
(including HUD owned or held single or multi-family) affordable for 
purchase by residents.
    (6) General. (i) Required training on HUD regulations and policies 
governing the operation of low-income public housing including 
contracting/procurement regulations, financial management, capacity 
building to develop the necessary skills to assume management 
responsibilities at the project and property management;
    (ii) Purchasing hardware, i.e., computers and software, office 
furnishings and supplies, in connection with business development. Every 
effort must be made to acquire donated or discounted hardware;
    (iii) Training in accessing other funding sources; and
    (iv) Hiring trainers or other experts (RCs/RMCs must ensure that 
this training is provided by a qualified housing management specialist, 
a community organizer, the HA, or other sources knowledgeable about the 
program).



Sec. 964.210  Notice of funding availability.

    A Notice of Funding Availability shall be published periodically in 
the Federal Register containing the amounts of funds available, funding 
criteria, where to obtain and submit applications, and the deadline for 
submissions.



Sec. 964.215  Grant agreement.

    (a) General. HUD shall enter into a grant agreement with the 
recipient of a technical assistance grant which defines the legal 
framework for the relationship between HUD and a resident council or 
resident management corporation for the proposed funding.
    (b) Term of grant agreement. A grant shall be for a term of three to 
five years (3-5 years), and renewable at the expiration of the term.



Sec. 964.220  Technical assistance.

    (a) Financial assistance. HUD will provide financial assistance, to 
the extent available, to resident councils or resident management 
corporations for technical assistance and training to further the 
activities under this subpart.
    (b) Requirements for a management specialist. If a resident council 
or resident management corporation seeks to manage a development, it 
must select, in consultation with the HA, a qualified housing management 
specialist to assist in determining the feasibility of, and to help 
establish, a resident management corporation and to provide training and 
other duties in connection with the daily operations of the project.



Sec. 964.225  Resident management requirements.

    The following requirements apply when a HA and its residents are 
interested in providing for resident performance of several management 
functions in one or more projects.
    (a) Resident management corporation responsibilities. Resident 
councils interested in contracting with a HA must establish a resident 
management corporation that meets the requirements for such a 
corporation, as specified in subpart B. The RMC and its employees must 
demonstrate their ability and skill to perform in the particular areas 
of management pursuant to the management contract.
    (b) HA responsibilities. HAs shall give full and serious 
consideration to resident management corporations seeking to enter into 
a management contract with the HA. A HA shall enter into good-faith 
negotiations with a corporation seeking to contract to provide 
management services.
    (c) Duty to bargain in good faith. If a HA refuses to negotiate with 
a resident management corporation in good faith or, after negotiations, 
refuses to enter into a contract, the corporation may file an informal 
appeal with HUD, setting out the circumstances and providing copies of 
relevant materials evidencing the corporation's efforts to negotiate a 
contract. HUD shall require the HA to respond with a report stating the 
HA's reasons for rejecting the corporation's contract offer or for 
refusing to negotiate. Thereafter, HUD shall require the parties (with 
or without direct HUD participation) to undertake

[[Page 466]]

or to resume negotiations on a contract providing for resident 
management, and shall take such other actions as are necessary to 
resolve the conflicts between the parties. If no resolution is achieved 
within 90 days from the date HUD required the parties to undertake or 
resume such negotiations, HUD shall serve notice on both parties that 
administrative remedies have been exhausted (except that, pursuant to 
mutual agreement of the parties, the time for negotiations may be 
extended by no more than an additional 30 days).
    (d) Management contract. A management contract between the HA and a 
resident management corporation is required for property management. The 
HA and the resident management corporation may agree to the performance 
by the corporation of any or all management functions for which the HA 
is responsible to HUD under the ACC and any other functions not 
inconsistent with the ACC and applicable state and local laws, 
regulations and licensing requirements.
    (e) Procurement requirements. The management contract shall be 
treated as a contracting out of services, and must be subject to any 
provision of a collective bargaining agreement regarding the contracting 
out of services to which the HA is subject. Provisions on competitive 
bidding and requirements of prior written HUD approval of contracts 
contained in the ACC do not apply to the decision of a HA to contract 
with a RMC.
    (f) Rights of families; operation of project. If a resident 
management corporation is approved by the tenant organization 
representing one or more buildings or an area of row houses that are 
part of a public housing project for purposes of part 941 of this 
chapter, the resident management program may not, as determined by the 
HA, interfere with the rights of other residents of such project or harm 
the efficient operation of such project.
    (g) Comprehensive improvement assistance with RMCs. (1) The HA may 
enter into a contract with the RMC to provide comprehensive improvement 
assistance under part 968 of this chapter to modernize a project managed 
by the RMC.
    (2) The HA shall not retain, for any administrative or other reason, 
any portion of the comprehensive improvement assistance provided, unless 
the PHA and the RMC provide otherwise by contract.
    (3) In assessing the modernization needs of its projects under 24 
CFR part 968, or other grant mechanisms established by the Housing and 
Community Development Act of 1987, the HAs must consult with the tenant 
management corporation regarding any project managed by the corporation, 
in order to determine the modernization needs and preferences of 
resident-managed projects. Evidence of this required consultation must 
be included with a HA's initial submission to HUD.
    (h) Direct provision of operating and capital assistance to RMC--(1) 
Direct provision of assistance to RMC. The ACC shall provide for the 
direct provision of operating and capital assistance by HUD to an RMC 
if:
    (i) The RMC petitions HUD for the release of funds;
    (ii) The contract provides for the RMC to assume the primary 
management responsibilities of the PHA;
    (iii) The RMC has been designated as at least a ``standard 
performer'' under the Public Housing Assessment System (PHAS) (see 24 
CFR part 902); and
    (iv) The RMC is not in violation of any financial, accounting, 
procurement, civil rights, fair housing or other program requirements 
that HUD determines call into question the capability of the RMC to 
effectively discharge its responsibilities under the contract.
    (2) Use of assistance. Any direct capital or operating assistance 
provided to the RMC must be used for purposes of performing eligible 
activities with respect to public housing as may be provided under the 
contract.
    (3) Responsibilities of PHA. If HUD provides direct funding to a RMC 
under paragraph (h)(1) of this section, the PHA is not responsible for 
the actions of the RMC.
    (i) Prohibited activities. A HA may not contract for assumption by 
the resident management corporation of the HA's underlying 
responsibilities to HUD under the ACC.

[[Page 467]]

    (j) Bonding, insurance, and licensing--(1) Bonding and insurance. 
Before assuming any management responsibility under its contract, the 
RMC must provide fidelity bonding and insurance, or equivalent 
protection that is adequate (as determined by HUD and the PHA) to 
protect HUD and the PHA against loss, theft, embezzlement, or fraudulent 
acts on the part of the RMC or its employees.
    (2) Licensing and other local requirements. An RMC must be in 
compliance with any local licensing, or other local requirement, 
governing the qualifications or operations of a property manager.
    (k) Waiver of HUD requirements. Upon the joint request of a resident 
management corporation and the HA, HUD may waive any requirement that 
HUD has established and that is not required by law, if HUD determines, 
after consultation with the resident management corporation and the HA, 
that the requirement unnecessarily increases the costs to the project or 
restricts the income of the project; and that the waiver would be 
consistent with the management contract and any applicable collective 
bargaining agreement. Any waiver granted to a resident management 
corporation under this section will apply as well to the HA to the 
extent the waiver affects the HA's remaining responsibilities relating 
to the resident management corporation's project.
    (l) Monitoring of RMC performance. The HA must review periodically 
(but not less than annually) the management corporation's performance to 
ensure that it complies with all applicable requirements and meets 
agreed-upon standards of performance. (The method of review and criteria 
used to judge performance should be specified in the management 
contract.)

[59 FR 43636, Aug. 24, 1994, as amended at 65 FR 42515, July 10, 2000]



Sec. 964.230  Audit and administrative requirements.

    (a) TOP grant recipients. The HUD Inspector General, the Comptroller 
General of the United States, or any duly authorized representative 
shall have access to all records required to be retained by this subpart 
or by any agreement with HUD for the purpose of audit or other 
examinations.
    (1) Grant recipients must comply with the requirements of OMB 
Circulars A-110 and A-122, as applicable.
    (2) A final audit shall be required of the financial statements made 
pursuant to this subpart by a Certified Public Accountant (CPA), in 
accordance with generally accepted government audit standards. A written 
report of the audit must be forwarded to HUD within 60 days of issuance.
    (b) Resident management corporations. Resident management 
corporations who have entered into a contract with a HA with respect to 
management of a development(s) must comply with the requirements of OMB 
Circulars A-110 and A-122, as applicable. Resident management 
corporations managing a development(s) must be audited annually by a 
licensed certified public accountant, designated by the corporation, in 
accordance with generally accepted government audit standards. A written 
report of each audit must be forwarded to HUD and the HA within 30 days 
of issuance. These requirements are in addition to any other Federal law 
or other requirement that would apply to the availability and audit of 
books and records of resident management corporations under this part.



            Subpart D_Family Investment Centers (FIC) Program



Sec. 964.300  General.

    The Family Investment Centers Program provides families living in 
public housing with better access to educational and employment 
opportunities by:
    (a) Developing facilities in or near public housing for training and 
support services;
    (b) Mobilizing public and private resources to expand and improve 
the delivery of such services;
    (c) Providing funding for such essential training and support 
services that cannot otherwise be funded; and
    (d) Improving the capacity of management to assess the training and 
service needs of families, coordinate the provision of training and 
services that meet such needs, and ensure the long-term provision of 
such training

[[Page 468]]

and services. FIC provides funding to HAs to access educational, 
housing, or other social service programs to assist public housing 
residents toward self-sufficiency.



Sec. 964.305  Eligibility.

    (a) Public Housing Authorities. HAs may apply to establish one or 
more FICs for more than one public housing development.
    (b) FIC Activities. Activities that may be funded and carried out by 
eligible HAs, as defined in Sec. 964.305(a) and Sec. 964.310(a) may 
include:
    (1) The renovation, conversion, or combination of vacant dwelling 
units in a HA development to create common areas to accommodate the 
provision of supportive services;
    (2) The renovation of existing common areas in a HA development to 
accommodate the provision of supportive services;
    (3) The acquisition, construction or renovation of facilities 
located near the premises of one or more HA developments to accommodate 
the provision of supportive services;
    (4) The provision of not more than 15 percent of the total cost of 
supportive services (which may be provided directly to eligible 
residents by the HA or by contract or lease through other appropriate 
agencies or providers), but only if the HA demonstrates that:
    (i) The supportive services are appropriate to improve the access of 
eligible residents to employment and educational opportunities; and
    (ii) The HA has made diligent efforts to use or obtain other 
available resources to fund or provide such services; and
    (5) The employment of service coordinators.
    (c) Follow up. A HA must demonstrate a firm commitment of assistance 
from one or more sources ensuring that supportive services will be 
provided for not less than one year following the completion of 
activities.
    (d) Environmental Review. Any environmental impact regarding 
eligible activities will be addressed through an environmental review of 
that activity as required by 24 CFR part 50, including the applicable 
related laws and authorities under Sec. 50.4, to be completed by HUD, 
to ensure that any environmental impact will be addressed before 
assistance is provided to the HA. Grantees will be expected to adhere to 
all assurances applicable to environmental concerns.



Sec. 964.308  Supportive services requirements.

    HAs shall provide new or significantly expanded services essential 
to providing families in public housing with better access to 
educational and employment opportunities to achieve self-sufficiency and 
independence. HAs applying for funds to provide supportive services must 
demonstrate that the services will be provided at a higher level than 
currently provided. Supportive services may include:
    (a) Child care, of a type that provides sufficient hours of 
operation and serves appropriate ages as needed to facilitate parental 
access to education and job opportunities;
    (b) Employment training and counseling (e.g., job training, 
preparation and counseling, job development and placement, and follow-up 
assistance after job placement);
    (c) Computer skills training;
    (d) Education (e.g., remedial education, literacy training, 
completion of secondary or post-secondary education, and assistance in 
the attainment of certificates of high school equivalency);
    (e) Business entrepreneurial training and counseling;
    (f) Transportation, as necessary to enable any participating family 
member to receive available services or to commute to his or her place 
of employment;
    (g) Personal welfare (e.g., substance/alcohol abuse treatment and 
counseling, self-development counseling, etc.);
    (h) Supportive Health Care Services (e.g., outreach and referral 
services); and
    (i) Any other services and resources, including case management, 
that are determined to be appropriate in assisting eligible residents.

[[Page 469]]



Sec. 964.310  Audit/compliance requirements.

    HAs cannot have serious unaddressed, outstanding Inspector General 
audit findings or fair housing and equal opportunity monitoring review 
findings or Field Office management review findings. In addition, the HA 
must be in compliance with civil rights laws and equal opportunity 
requirements. A HA will be considered to be in compliance if:
    (a) As a result of formal administrative proceedings, there are no 
outstanding findings of noncompliance with civil rights laws unless the 
HA is operating in compliance with a HUD-approved compliance agreement 
designed to correct the area(s) of noncompliance;
    (b) There is no adjudication of a civil rights violation in a civil 
action brought against it by a private individual, unless the HA 
demonstrates that it is operating in compliance with a court order, or 
implementing a HUD-approved resident selection and assignment plan or 
compliance agreement, designed to correct the area(s) of noncompliance;
    (c) There is no deferral of Federal funding based upon civil rights 
violations;
    (d) HUD has not deferred application processing by HUD under Title 
VI of the Civil Rights Act of 1964, the Attorney General's Guidelines 
(28 CFR 50.3) and HUD's Title VI regulations (24 CFR 1.8) and procedures 
(HUD Handbook 8040.1) [HAs only] or under Section 504 of the 
Rehabilitation Act of 1973 and HUD regulations (24 CFR 8.57) [HAs and 
IHAs];
    (e) There is no pending civil rights suit brought against the HA by 
the Department of Justice; and
    (f) There is no unresolved charge of discrimination against the HA 
issued by the Secretary under Section 810(g) of the Fair Housing Act, as 
implemented by 24 CFR 103.400.



Sec. 964.315  HAs role in activities under this part.

    The HAs shall develop a process that assures that RC/RMC 
representatives and residents are fully briefed and have an opportunity 
to comment on the proposed content of the HA's application for funding. 
The HA shall give full and fair consideration to the comments and 
concerns of the residents. The process shall include:
    (a) Informing residents of the selected developments regarding the 
preparation of the application, and providing for residents to assist in 
the development of the application.
    (b) Once a draft application has been prepared, the HA shall make a 
copy available for reading in the management office; provide copies of 
the draft to any resident organization representing the residents of the 
development(s) involved; and provide adequate opportunity for comment by 
the residents of the development and their representative organizations 
prior to making the application final.
    (c) After HUD approval of a grant, notify the duly elected resident 
organization and if none exists, notify the residents of the development 
of the approval of the grant; provide notification of the availability 
of the HUD-approved implementation schedule in the management office for 
reading; and develop a system to facilitate a regular resident role in 
all aspects of program implementation.



Sec. 964.320  HUD Policy on training, employment, contracting and 
subcontracting of public housing residents.

    In accordance with Section 3 of the Housing and Urban Development 
Act of 1968 and the implementing regulations at 24 CFR part 135, HAs, 
their contractors and subcontractors shall make best efforts, consistent 
with existing Federal, State, and local laws and regulations, to give 
low and very low-income persons the training and employment 
opportunities generated by Section 3 covered assistance (as this term is 
defined in 24 CFR 135.7) and to give Section 3 business concerns the 
contracting opportunities generated by Section 3 covered assistance. 
Training, employment and contracting opportunities connected with 
programs funded under the FIC and TOP are covered by Section 3.

[[Page 470]]



Sec. 964.325  Notice of funding availability.

    A Notice of Funding Availability will be published periodically in 
the Federal Register containing the amounts of funds available, funding 
criteria, where to obtain and submit applications, the deadline for the 
submissions, and further explanation of the selection criteria.



Sec. 964.330  Grant set-aside assistance.

    The Department may make available five percent (5%) of any amounts 
available in each fiscal year (subsequent to the first funding cycle) 
available to eligible HAs to supplement grants previously awarded under 
this program. These supplemental grants would be awarded if the HA 
demonstrates that the funds cannot otherwise be obtained and are needed 
to maintain adequate levels of services to residents.



Sec. 964.335  Grant agreement.

    (a) General. HUD will enter into a grant agreement with the 
recipients of a Family Investment Centers grant which defines the legal 
framework for the relationship between HUD and a HA.
    (b) Term of grant agreement. A grant will be for a term of three to 
five years depending upon the tasks undertaken, as defined under this 
subpart.



Sec. 964.340  Resident compensation.

    Residents employed to provide services or renovation or conversion 
work funded under this program shall be paid at a rate not less than the 
highest of:
    (a) The minimum wage that would be applicable to the employees under 
the Fair Labor Standards Act of 1938 (FLSA), if section 6(a)(1) of the 
FLSA applied to the resident and if the resident were not exempt under 
section 13 of the FLSA;
    (b) The State or local minimum wage for the most nearly comparable 
covered employment; or
    (c) The prevailing rate of pay for persons employed in similar 
public occupations by the same employer.



Sec. 964.345  Treatment of income.

    Program participation shall begin on the first day the resident 
enters training or begins to receive services. Furthermore, the earnings 
of and benefits to any HA resident resulting from participation in the 
FIC program shall not be considered as income in computing the 
resident's total annual income that is used to determine the resident 
rental payment during:
    (a) The period that the resident participates in the program; and
    (b) The period that begins with the commencement of employment of 
the resident in the first job acquired by the resident after completion 
of the program that is not funded by assistance under the 1937 Act, and 
ends on the earlier of:
    (1) The date the resident ceases to continue employment without good 
cause; or
    (2) The expiration of the 18-month period beginning on the date of 
commencement of employment in the first job not funded by assistance 
under this program. (See Sec. 913.106, Annual Income.) This provision 
does not apply to residents participating in the Family Self-Sufficiency 
Program who are utilizing the escrow account.



Sec. 964.350  Administrative requirements.

    The HUD Inspector General, the Comptroller General of the United 
States, or any duly authorized representative shall have access to all 
records required to be retained by this subpart or by any agreements 
with HUD for the purpose of audit or other examinations.
    (a) Each HA receiving a grant shall submit to HUD an annual progress 
report, participant evaluation and assessment data and other 
information, as needed, regarding the effectiveness of FIC in achieving 
self-sufficiency.
    (b) The policies, guidelines, and requirements of OMB Circular Nos. 
A-110 and A-122 are applicable with respect to the acceptance and use of 
assistance by private nonprofit organizations.

[[Page 471]]



                    Subpart E_Resident Board Members

    Source: 64 FR 56879, Oct. 21, 1999, unless otherwise noted.



Sec. 964.400  Purpose.

    The purpose of this subpart is to implement section 2(b) of the 
United States Housing Act of 1937 (42 U.S.C. 1437).



Sec. 964.405  Applicability.

    (a) General. Except as described in paragraph (b) of this section, 
this subpart applies to any public housing agency that has a public 
housing annual contributions contract with HUD or administers tenant-
based rental assistance under section 8 of the United States Housing Act 
of 1937 (42 U.S.C. 1437f).
    (b) Exceptions. The requirements of this subpart do not apply to a 
public housing agency that is:
    (1) Located in a State that requires the members of a governing 
board to be salaried and to serve on a full-time basis; or
    (2) Not governed by a governing board.



Sec. 964.410  Additional definitions.

    The following additional definitions apply to this subpart only:
    Directly assisted. Directly assisted means a public housing resident 
or a recipient of housing assistance in the tenant-based section 8 
program. Direct assistance does not include any State financed housing 
assistance or Section 8 project-based assistance.
    Eligible resident. An eligible resident is a person:
    (1) Who is directly assisted by a public housing agency;
    (2) Whose name appears on the lease; and
    (3) Is eighteen years of age or older.
    Governing board. Governing board means the board of directors or 
similar governing body of a public housing agency.
    Resident board member. A resident board member is a member of the 
governing board who is directly assisted by that public housing agency.



Sec. 964.415  Resident board members.

    (a) General. Except as provided in Sec. Sec. 964.405(b) and 
964.425, the membership of the governing board of each public housing 
agency must contain not less than one eligible resident board member.
    (b) Resident board member no longer directly assisted. (1) A 
resident board member who ceases to be directly assisted by the public 
housing agency is no longer an ``eligible resident'' as defined in Sec. 
964.410.
    (2) Such a board member may be removed from the PHA board for that 
cause, where such action is permitted under State or local law.
    (3) Alternatively, the board member may be allowed to complete his/
her current term as a member of the governing board. However, the board 
member may not be re-appointed (or re-elected) to the governing board 
for purposes of serving as the statutorily required resident board 
member.
    (c) Minimum qualifications for board membership. Any generally 
applicable qualifications for board membership also apply to residents, 
unless the application of the requirements would result in the governing 
board not containing at least one eligible resident as a member. 
Further, PHAs and localities may not establish eligibility requirements 
for board membership that are solely applicable to residents.



Sec. 964.420  Resident board member may be elected.

    (a) General. Residents directly assisted by a public housing agency 
may elect a resident board member if provided for in the public housing 
agency plan, adopted in accordance with 24 CFR part 903.
    (b) Notice to residents. The public housing agency must provide 
residents with at least 30 days advance notice for nominations and 
elections. The notice should include a description of the election 
procedures, eligibility requirements, and dates of nominations and 
elections. Any election procedures devised by the public housing agency 
must facilitate fair elections.

[[Page 472]]



Sec. 964.425  Small public housing agencies.

    (a) General. The requirements of this subpart do not apply to any 
public housing agency that:
    (1) Has less than 300 public housing units (or has no public housing 
units):
    (2) Has provided reasonable notice to the resident advisory board of 
the opportunity for residents to serve on the governing board;
    (3) Has not been notified of the intention of any resident to 
participate on the governing board within a reasonable time (which shall 
not be less than 30 days) of the resident advisory board receiving the 
notice described in paragraph (a)(3) of this section; and
    (4) Repeats the requirements of paragraphs (a)(2) and (a)(3) of this 
section at least once every year.
    (b) Public housing agencies that only administer Section 8 
assistance. A public housing agency that has no public housing units, 
but administers Section 8 tenant-based assistance, is eligible for the 
exception described in paragraph (a) of this section, regardless of the 
number of Section 8 vouchers it administers.
    (c) Failure to meet requirements for exception. A public housing 
agency that is otherwise eligible for the exception described in 
paragraphs (a) and (b) of this section, but does not meet the three 
conditions described in paragraphs (a)(2) through (a)(4) of this 
section, must comply with the requirements of this subpart.



Sec. 964.430  Nondiscrimination.

    (a) Membership status.--(1) General. A resident board member is a 
full member of the governing board.
    (2) Resident participation must include matters regarding Federal 
public housing and Section 8 tenant-based assistance. A resident board 
member must be allowed to take part in decisions related to the 
administration, operation, and management of Federal public housing 
programs and Section 8 tenant-based rental assistance programs. This 
rule does not extend to matters that:
    (i) Exclusively relate to other types of housing assistance (such as 
State financed housing assistance); or
    (ii) Do not involve housing assistance (as may occur where the city 
or county governing body also serves as the PHA board).
    (3) Public housing agency may expand scope of resident 
participation. A public housing agency may choose to expand the scope of 
resident member involvement to matters not required under paragraph 
(a)(2) of this section.
    (b) Residence status. A governing board may not prohibit any person 
from serving on the governing board because that person is a resident of 
a public housing project or is assisted under section 8 of the United 
States Housing Act of 1937 (42 U.S.C. 1437f).
    (c) Conflict of interest. A governing board may not exclude any 
resident board member from participating in any matter before the 
governing board on the grounds that the resident board member's lease 
with the public housing agency, or the resident board member's status as 
a public housing resident or recipient of Section 8 tenant-based 
assistance, either results or may result in a conflict of interest, 
unless the matter is clearly applicable to the resident board member 
only in a personal capacity and applies uniquely to that member and not 
generally to residents or to a subcategory of residents.



PART 965_PHA-OWNED OR LEASED PROJECTS_GENERAL PROVISIONS--Table of Contents




       Subpart A_Preemption of State Prevailing Wage Requirements

Sec.
965.101 Preemption of State prevailing wage requirements.

                  Subpart B_Required Insurance Coverage

965.201 Purpose and applicability.
965.205 Qualified PHA-owned insurance entity.
965.215 Lead-based paint liability insurance coverage.

        Subpart C_Energy Audits and Energy Conservation Measures

965.301 Purpose and applicability.
965.302 Requirements for energy audits.
965.303 [Reserved].
965.304 Order of funding.
965.305 Funding.
965.306 Energy conservation equipment and practices.
965.307 Compliance schedule.

[[Page 473]]

965.308 Energy performance contracts.

   Subpart D_Individual Metering of Utilities for Existing PHA-Owned 
                                Projects

965.401 Individually metered utilities.
965.402 Benefit/cost analysis.
965.403 Funding.
965.404 Order of conversion.
965.405 Actions affecting residents.
965.406 Benefit/cost analysis for similar projects.
965.407 Reevaluations of mastermeter systems.

               Subpart E_Resident Allowances for Utilities

965.501 Applicability.
965.502 Establishment of utility allowances by PHAs.
965.503 Categories for establishment of allowances.
965.504 Period for which allowances are established.
965.505 Standards for allowances for utilities.
965.506 Surcharges for excess consumption of PHA-furnished utilities.
965.507 Review and revision of allowances.
965.508 Individual relief.

     Subpart F_Physical Condition Standards and Physical Inspection 
                              Requirements

965.601 Physical condition standards; physical inspection requirements.

Subpart G [Reserved]

             Subpart H_Lead-Based Paint Poisoning Prevention

965.701 Lead-based paint poisoning prevention.

                          Subpart I_Fire Safety

965.800 Applicability.
965.805 Smoke detectors.

    Authority: 42 U.S.C. 1437, 1437a, 1437d, 1437g, and 3535(d). Subpart 
H is also issued under 42 U.S.C. 4821-4846.

    Source: 41 FR 20276, May 17, 1976, unless otherwise noted. 
Redesignated at 49 FR 6714, Feb. 23, 1984.



       Subpart A_Preemption of State Prevailing Wage Requirements



Sec. 965.101  Preemption of State prevailing wage requirements.

    (a) A prevailing wage rate including basic hourly rate and any 
fringe benefits) determined under State law shall be inapplicable to a 
contract or PHA-performed work item for the development, maintenance, 
and modernization of a project whenever:
    (1) The contract or work item: (i) Is otherwise subject to State law 
requiring the payment of wage rates determined by a State or local 
government or agency to be prevailing and (ii) is assisted with funds 
for low-income public housing under the U.S. Housing Act of 1937, as 
amended; and
    (2) The wage rate determined under State law to be prevailing with 
respect to an employee in any trade or position employed in the 
development, maintenance, and modernization of a project exceeds 
whichever of the following Federal wage rates is applicable:
    (i) The wage rate determined by the Secretary of Labor pursuant to 
the Davis-Bacon Act (40 U.S.C. 276a et seq.) to be prevailing in the 
locality with respect to such trade;
    (ii) An applicable apprentice wage rate based thereon specified in 
an apprenticeship program registered with the Department of Labor or a 
DOL-recognized State Apprenticeship Agency;
    (iii) An applicable trainee wage rate based thereon specified in a 
DOL-certified trainee program; or
    (iv) The wage rate determined by the Secretary of HUD to be 
prevailing in the locality with respect to such trade or position.
    (v) For the purpose of ascertaining whether a wage rate determined 
under State law for a trade or position exceeds the Federal wage rate: 
(A) Where a rate determined by the Secretary of Labor or an apprentice 
or trainee wage rate based thereon is applicable, the total wage rate 
determined under State law, including fringe benefits (if any) and basic 
hourly rate, shall be compared to the total wage rate determined by the 
Secretary of Labor or apprentice or trainee wage rate; and (B) where a 
rate determined by the Secretary of HUD is applicable, any fringe 
benefits determined under State law shall be excluded from the 
comparison with the rate determined by the Secretary of HUD.
    (b) Whenever paragraph (a)(1) of this section is applicable:

[[Page 474]]

    (1) Any solicitation of bids or proposals issued by the PHA and any 
contract executed by the PHA for development, maintenance, and 
modernization of the project shall include a statement that any 
prevailing wage rate (including basic hourly rate and any fringe 
benefits) determined under State law to be prevailing with respect to an 
employee in any trade or position employed under the contract is 
inapplicable to the contract and shall not be enforced against the 
contractor or any subcontractor with respect to employees engaged under 
the contract whenever either of the following occurs:
    (i) Such nonfederal prevailing wage rate exceeds: (A) The applicable 
wage rate determined by the Secretary of Labor pursuant to the Davis-
Bacon Act (40 U.S.C. 276a et seq.) to be prevailing in the locality with 
respect to such trade; (B) an applicable apprentice wage rate based 
thereon specified in an apprenticeship program registered with the 
Department of Labor or a DOL-recognized State Apprenticeship Agency or 
(C) an applicable trainee wage rate based thereon specified in a DOL-
certified trainee program; or
    (ii) Such nonfederal prevailing wage rate, exclusive of any fringe 
benefits, exceeds the applicable wage rate determined by the Secretary 
of HUD to be prevailing in the locality with respect to such trade or 
position.

Failure to include this statement may constitute grounds for requiring 
resolicitation of the bid or proposal;
    (2) The PHA itself shall not be required to pay the basic hourly 
rate or any fringe benefits comprising a prevailing wage rate determined 
under State law and described in paragraph (a)(2) of this section to any 
of its own employees who may be engaged in the work item for 
development, maintenance, and modernization of the project; and
    (3) Neither the basic hourly rate nor any fringe benefits comprising 
a prevailing wage rate determined under State law and described in 
paragraph (a)(2) shall be enforced against the PHA or any of its 
contractors or subcontractors with respect to employees engaged in the 
contract or PHA-performed work item for development, maintenance, and 
modernization of the project.
    (c) Nothing in this section shall affect the applicability of any 
wage rate established in a collective bargaining agreement with a PHA or 
its contractors or subcontractors where such wage rate equals or exceeds 
the applicable Federal wage rate referred to in paragraph (a)(2) of this 
section, nor does this section impose a ceiling on wage rates a PHA or 
its contractors or subcontractors may choose to pay independent of State 
law.
    (d) The provisions of this section shall be applicable to work 
performed under any prime contract entered into as a result of a 
solicitation of bids or proposals issued on or after October 6, 1988 and 
to any work performed by employees of a PHA on or after October 6, 1988, 
but not to work or contracts administered by Indian Housing Authorities 
(for which, see part 905 of this chapter).

[53 FR 30217, Aug. 10, 1988, as amended at 57 FR 28358, June 24, 1992; 
61 FR 8736, Mar. 5, 1996]



                  Subpart B_Required Insurance Coverage

    Source: 58 FR 51957, Oct. 5, 1993, unless otherwise noted.



Sec. 965.201  Purpose and applicability.

    (a) Purpose. The purpose of this subpart is to implement policies 
concerning insurance coverage required under the Annual Contributions 
Contract (ACC) between the U.S. Department of Housing and Urban 
Development (HUD) and a Public Housing Agency (PHA).
    (b) Applicability. The provisions of this subpart apply to all 
housing owned by PHAs, including Turnkey III housing. However, these 
provisions do not apply to Section 23 and Section 10(c) PHA-leased 
projects or to Section 8 Housing Assistance Payments Program projects.



Sec. 965.205  Qualified PHA-owned insurance entity.

    (a) Contractual requirements for insurance coverage. The Annual 
Contributions Contract (ACC) between PHAs and the U.S. Department of 
Housing and Urban Development requires that

[[Page 475]]

PHAs maintain specified insurance coverage for property and casualty 
losses that would jeopardize the financial stability of the PHAs. The 
insurance coverage is required to be obtained under procedures that 
provide ``for open and competitive bidding.'' The HUD Appropriations Act 
for Fiscal Year 1992 provided that a PHA could purchase insurance 
coverage without regard to competitive selection procedures when it 
purchases it from a nonprofit insurance entity owned and controlled by 
PHAs approved by HUD in accordance with standards established by 
regulation. This section specifies the standards.
    (b) Method of selecting insurance coverage. While 24 CFR part 85 
requires that grantees solicit full and open competition for their 
procurements, the HUD Appropriations Act for Fiscal Year 1992 provides 
an exception to this requirement. PHAs are authorized to obtain any line 
of insurance from a nonprofit insurance entity that is owned and 
controlled by PHAs and approved by HUD in accordance with this section, 
without regard to competitive selection procedures. Procurement of 
insurance from other entities is subject to competitive selection 
procedures.
    (c) Approval of a nonprofit insurance entity. Under the following 
conditions, HUD will approve a nonprofit self-funded insurance entity 
created by PHAs that limits participation to PHAs (and to nonprofit 
entities associated with PHAs that engage in activities or perform 
functions only for housing authorities or housing authority residents):
    (1) An insurance company (including a risk retention group). (i) The 
insurance company is licensed or authorized to do business in the State 
by the State Insurance Commissioner and has submitted documentation of 
this approval to HUD; and
    (ii) The insurance company has not been suspended from providing 
insurance coverage in the State or been suspended or debarred from doing 
business with the federal government. The insurance company is obligated 
to send to HUD a copy of any action taken by the authorizing official to 
withdraw the license or authorization.
    (2) An entity not organized as an insurance company. (i) The entity 
has competent underwriting staff (hired directly or engaged by contract 
with a third party), as evidenced by professionals with an average of at 
least five years of experience in large risk (exceeding $100,000 in 
annual premiums) commercial underwriting or at least five years of 
experience in the underwriting of risks for public entity risk pools. 
This standard may be satisfied by submission of evidence of competent 
underwriting staff, including copies of resumes of underwriting staff 
for the entity;
    (ii) The entity has efficient and qualified management (hired 
directly or engaged by contract with a third party), as evidenced by the 
report submitted to HUD in accordance with paragraph (d)(3) of this 
section and by having at least one senior staff person who has a minimum 
of five years of experience:
    (A) At the management level of Vice President of a property/casualty 
insurance entity;
    (B) As a senior branch manager of a branch office with annual 
property/casualty premiums exceeding $5 million; or
    (C) As a senior manager of a public entity risk pool. Documentation 
for this standard must include copies of resumes of key management 
personnel responsible for oversight and for the day-to-day operation of 
the entity;
    (iii) The entity maintains internal controls and cost containment 
measures, as evidenced by an annual budget;
    (iv) The entity maintains sound investments consistent with the 
State insurance commissioner's requirements for licensed insurance 
companies, or other State statutory requirements controlling investments 
of public entities, in the State in which the entity is organized, 
investing only in assets that qualify as ``admitted assets'';
    (v) The entity maintains adequate surplus and reserves for 
undischarged liabilities of all types, as evidenced by a current audited 
financial statement and an actuarial review conducted in accordance with 
paragraph (d) of this section; and

[[Page 476]]

    (vi) Upon application for initial approval, the entity has proper 
organizational documentation, as evidenced by copies of the articles of 
incorporation, by-laws, business plans, copies of contracts with third 
party administrators, and an opinion from legal counsel that 
establishment of the entity conforms with all legal requirements under 
Federal and State law. Any material changes made to these documents 
after initial approval must be submitted for review and approval before 
becoming effective.
    (d) Professional evaluations of performance. Audits and actuarial 
reviews are required to be prepared and submitted annually to the HUD 
Office of Public and Indian Housing, for review and appropriate action, 
by nonprofit insurance entities that are not insurance companies 
approved under paragraph (c)(1) of this section. In addition, an 
evaluation of other management factors is required to be performed by an 
insurance professional every three years. For fiscal years ending on or 
after December 31, 1993, the initial audit, actuarial review, and 
insurance management review required for a nonprofit insurance entity 
must be submitted to HUD within 90 days after the entity's fiscal year.
    (1) The annual financial statement prepared in accordance with 
generally accepted accounting principles (including any supplementary 
data required under GASB 10) is to be audited by an independent auditor 
(see 24 CFR part 44), in accordance with generally accepted auditing 
standards. The independent auditor shall express an opinion on whether 
the entity's financial statement is presented fairly in accordance with 
generally accepted accounting principles. A copy of this audit must be 
submitted to HUD.
    (2) The actuarial review must be done consistent with requirements 
established by the National Association of Insurance Commissioners and 
must be conducted by an independent property/casualty actuary who is an 
Associate or Fellow of a recognized professional actuarial organization, 
such as the Casualty Actuary Society. The report issued, a copy of which 
must be submitted to HUD, must include an opinion on any over or under 
reserving and the adequacy of the reserves maintained for the open 
claims and for incurred but unreported claims.
    (3) A review must be conducted, a copy of which must be submitted to 
HUD, by an independent insurance consulting firm that has at least one 
person on staff who has received the professional designation of 
chartered property/casualty underwriter (CPCU), associate in risk 
management (ARM), or associate in claims (AIC), of the following:
    (i) Efficiency of any Third Party Administrator;
    (ii) Timeliness of the claim payments and reserving practices; and
    (iii) The adequacy of reinsurance coverage.
    (e) Revocation of approval of a nonprofit insurance entity. HUD may 
revoke its approval of a nonprofit insurance entity under this section 
when it no longer meets the requirements of this section. The nonprofit 
insurance entity will be notified in writing of: the proposed revocation 
of its approval, the reasons for the action, and the manner and time in 
which to request a hearing to challenge the determination. The procedure 
to be followed is specified in 24 CFR part 26, subpart A.

[41 FR 20276, May 17, 1976, as amended at 61 FR 7969, Feb. 29, 1996; 61 
FR 50219, Sept. 24, 1996]



Sec. 965.215  Lead-based paint liability insurance coverage.

    (a) General. The purpose of this section is to specify what HUD 
deems reasonable insurance coverage with respect to the hazards 
associated with lead-based paint activities that the PHA undertakes, in 
accordance with the PHA's ACC with HUD. The insurance coverage does not 
relieve the PHA of its responsibility for assuring that lead-based paint 
activities are conducted in a responsible manner.
    (b) Insurance coverage requirements. When the PHA undertakes lead-
based paint activities, it must assure that it has reasonable insurance 
coverage for itself for potential personal injury liability associated 
with those activities. If the work is being done by PHA employees, the 
PHA must obtain a liability insurance policy directly to protect the 
PHA. If the work is being done by

[[Page 477]]

a contractor, the PHA must obtain, from the insurer of the contractor 
performing this type of work in accordance with a contract, a 
certificate of insurance providing evidence of such insurance and naming 
the PHA as an additional insured; or obtain such insurance directly. 
Insurance must remain in effect during the entire period of lead-based 
paint activity and must comply with the following requirements:
    (1) Named insured. If purchased by the PHA, the policy shall name 
the PHA as insured. If purchased by an independent contractor, the 
policy shall name the contractor as insured and the PHA as an additional 
insured, in connection with performing work under the PHA's contract 
pertaining to lead-based paint activities. If the PHA has executed a 
contract with a Resident Management Corporation (RMC) to manage a 
building/project on behalf of the PHA, the RMC shall be an additional 
insured under the policy in connection with the PHA's contract related 
to lead-based paint activities. (The duties of the RMC are similar to 
those of a real estate management firm.)
    (2) Coverage limits. The minimum limit of liability shall be 
$500,000 per occurrence written, with a combined single limit for bodily 
injury and property damage.
    (3) Deductible. A deductible, if any, may not exceed $5,000 per 
occurrence.
    (4) Supplementary payments. Payments for such supplementary costs as 
the costs of defending against a claim must be in addition to, and not 
as a reduction of, the limit of liability. However, it will be 
permissible for the policy to have a limit on the amount payable for 
defense costs. If a limit is applicable, it must not be less than 
$250,000 per claim prior to such costs being deducted from the limit of 
liability.
    (5) Occurrence form policy. The form used must be an ``occurrence'' 
form, or a ``claims made'' form that contains an extended reporting 
period of at least five years. (Under an occurrence form, coverage 
applies to any loss regardless of when the claim is made.)
    (6) Aggregate limit. If the policy contains an aggregate limit, the 
minimum acceptable limit is $1,000,000.
    (7) Cancellation. In the event of cancellation, at least 30 days' 
advance notice is to be given to the insured and any additional insured.
    (c) Exception to requirements. Insurance already purchased by the 
PHA or contractor and enforced on the day this section is effective 
which provides coverage for lead-based paint activities shall be 
considered as meeting the requirements of this section until the 
expiration of the policy. This section is not applicable to architects, 
engineers or consultants who do not physically perform lead-based paint 
activities.
    (d) Insurance for the existence of lead-based paint hazards. A PHA 
may also purchase special liability insurance against the existence of 
lead-based paint hazards, although it is not a required coverage. A PHA 
may purchase this coverage if, in the opinion of the PHA, the policy 
meets the PHA's requirements, the premium is reasonable and the policy 
is obtained in accordance with applicable procurement standards. (See 
part 85 of this title and Sec. 965.205 of this title.) If this coverage 
is purchased, the premium must be paid from funds available under the 
Performance Funding System or from reserves.

[59 FR 31930, June 21, 1994, as amended at 64 FR 50228, Sept. 15, 1999]



        Subpart C_Energy Audits and Energy Conservation Measures

    Source: 61 FR 7969, Feb. 29, 1996, unless otherwise noted.



Sec. 965.301  Purpose and applicability.

    (a) Purpose. The purpose of this subpart C is to implement HUD 
policies in support of national energy conservation goals by requiring 
PHAs to conduct energy audits and undertake certain cost-effective 
energy conservation measures.
    (b) Applicability. The provisions of this subpart apply to all PHAs 
with PHA-owned housing, but they do not apply to Indian Housing 
Authorities. (For similar provisions applicable to Indian housing, see 
part 950 of this

[[Page 478]]

chapter.) No PHA-leased project or Section 8 Housing Assistance Payments 
Program project, including a PHA-owned Section 8 project, is covered by 
this subpart.



Sec. 965.302  Requirements for energy audits.

    All PHAs shall complete an energy audit for each PHA-owned project 
under management, not less than once every five years. Standards for 
energy audits shall be equivalent to State standards for energy audits. 
Energy audits shall analyze all of the energy conservation measures, and 
the payback period for these measures, that are pertinent to the type of 
buildings and equipment operated by the PHA.



Sec. 965.303  [Reserved]



Sec. 965.304  Order of funding.

    Within the funds available to a PHA, energy conservation measures 
should be accomplished with the shortest pay-back periods funded first. 
A PHA may make adjustments to this funding order because of insufficient 
funds to accomplish high-cost energy conservation measures (ECM) or 
where an ECM with a longer pay-back period can be more efficiently 
installed in conjunction with other planned modernization. A PHA may not 
install individual utility meters that measure the energy or fuel used 
for space heating in dwelling units that need substantial 
weatherization, when installation of meters would result in economic 
hardship for residents. In these cases, the ECMs related to 
weatherization shall be accomplished before the installation of 
individual utility meters.



Sec. 965.305  Funding.

    (a) The cost of accomplishing cost-effective energy conservation 
measures, including the cost of performing energy audits, shall be 
funded from operating funds of the PHA to the extent feasible. When 
sufficient operating funds are not available for this purpose, such 
costs are eligible for inclusion in a modernization program, for funding 
from any available development funds in the case of projects still in 
development, or for other available funds that HUD may designate to be 
used for energy conservation.
    (b) If a PHA finances energy conservation measures from sources 
other than modernization or operating reserves, such as a loan from a 
utility entity or a guaranteed savings agreement with a private energy 
service company, HUD may agree to provide adjustments in its calculation 
of the PHA's operating subsidy eligibility under the PFS for the project 
and utility involved based on a determination that payments can be 
funded from the reasonably anticipated energy cost savings (See Sec. 
990.107(g) of this chapter).



Sec. 965.306  Energy conservation equipment and practices.

    In purchasing original or, when needed, replacement equipment, PHAs 
shall acquire only equipment that meets or exceeds the minimum 
efficiency requirements established by the U.S. Department of Energy. In 
the operation of their facilities, PHAs shall follow operating practices 
directed to maximum energy conservation.



Sec. 965.307  Compliance schedule.

    All energy conservation measures determined by energy audits to be 
cost effective shall be accomplished as funds are available.



Sec. 965.308  Energy performance contracts.

    (a) Method of procurement. Energy performance contracting shall be 
conducted using one of the following methods of procurement:
    (1) Competitive proposals (see 24 CFR 85.36(d)(3)). In identifying 
the evaluation factors and their relative importance, as required by 
Sec. 85.36(d)(3)(i) of this title, the solicitation shall state that 
technical factors are significantly more important than price (of the 
energy audit); or
    (2) If the services are available only from a single source, 
noncompetitive proposals (see 24 CFR 85.36(d)(4)(i)(A)).
    (b) HUD Review. Solicitations for energy performance contracting 
shall be submitted to the HUD Field Office for review and approval prior 
to issuance. Energy performance contracts shall be submitted to the HUD 
Field Office for review and approval before award.

[[Page 479]]



   Subpart D_Individual Metering of Utilities for Existing PHA-Owned 
                                Projects

    Source: 61 FR 7970, Feb. 29, 1996, unless otherwise noted.



Sec. 965.401  Individually metered utilities.

    (a) All utility service shall be individually metered to residents, 
either through provision of retail service to the residents by the 
utility supplier or through the use of checkmeters, unless:
    (1) Individual metering is impractical, such as in the case of a 
central heating system in an apartment building;
    (2) Change from a mastermetering system to individual meters would 
not be financially justified based upon a benefit/cost analysis; or
    (3) Checkmetering is not permissible under State or local law, or 
under the policies of the particular utility supplier or public service 
commission.
    (b) If checkmetering is not permissible, retail service shall be 
considered. Where checkmetering is permissible, the type of individual 
metering offering the most savings to the PHA shall be selected.



Sec. 965.402  Benefit/cost analysis.

    (a) A benefit/cost analysis shall be made to determine whether a 
change from a mastermetering system to individual meters will be cost 
effective, except as otherwise provided in Sec. 965.405.
    (b) Proposed installation of checkmeters shall be justified on the 
basis that the cost of debt service (interest and amortization) of the 
estimated installation costs plus the operating costs of the checkmeters 
will be more than offset by reduction in future utilities expenditures 
to the PHA under the mastermeter system.
    (c) Proposed conversion to retail service shall be justified on the 
basis of net savings to the PHA. This determination involves making a 
comparison between the reduction in utility expense obtained through 
eliminating the expense to the PHA for PHA-supplied utilities and the 
resultant allowance for resident-supplied utilities, based on the cost 
of utility service to the residents after conversion.



Sec. 965.403  Funding.

    The cost to change mastermeter systems to individual metering of 
resident consumption, including the costs of benefit/cost analysis and 
complete installation of checkmeters, shall be funded from operating 
funds of the PHA to the extent feasible. When sufficient operating funds 
are not available for this purpose, such costs are eligible for 
inclusion in a modernization project or for funding from any available 
development funds.



Sec. 965.404  Order of conversion.

    Conversions to individually metered utility service shall be 
accomplished in the following order when a PHA has projects of two or 
more of the designated categories, unless the PHA has a justifiable 
reason to do otherwise, which shall be documented in its files.
    (a) In projects for which retail service is provided by the utility 
supplier and the PHA is paying all the individual utility bills, no 
benefit/cost analysis is necessary, and residents shall be billed 
directly after the PHA adopts revised payment schedules providing 
appropriate allowances for resident-supplied utilities.
    (b) In projects for which checkmeters have been installed but are 
not being utilized as the basis for determining utility charges to the 
residents, no benefit/cost analysis is necessary. The checkmeters shall 
be used as the basis for utility charges, and residents shall be 
surcharged for excess utility use.
    (c) Projects for which meter loops have been installed for 
utilization of checkmeters shall be analyzed both for the installation 
of checkmeters and for conversion to retail service.
    (d) Low- or medium-rise family units with a mastermeter system 
should be analyzed for both checkmetering and conversion to retail 
service, because of their large potential for energy savings.
    (e) Low- or medium-rise housing for the elderly should next be 
analyzed for both checkmetering and conversion to retail service, since 
the potential for energy saving is less than for family units.

[[Page 480]]

    (f) Electric service under mastermeters for high-rise buildings, 
including projects for the elderly, should be analyzed for both use of 
retail service and of checkmeters.



Sec. 965.405  Actions affecting residents.

    (a) Before making any conversion to retail service, the PHA shall 
adopt revised payment schedules, providing appropriate allowances for 
the resident-supplied utilities resulting from the conversion.
    (b) Before implementing any modifications to utility services 
arrangements with the residents or charges with respect thereto, the PHA 
shall make the requisite changes in resident dwelling leases in 
accordance with 24 CFR part 966.
    (c) PHAs must work closely with resident organizations, to the 
extent practicable, in making plans for conversion of utility service to 
individual metering, explaining the national policy objectives of energy 
conservation, the changes in charges and rent structure that will 
result, and the goals of achieving an equitable structure that will be 
advantageous to residents who conserve energy.
    (d) A transition period of at least six months shall be provided in 
the case of initiation of checkmeters, during which residents will be 
advised of the charges but during which no surcharge will be made based 
on the readings. This trial period will afford residents ample notice of 
the effects the checkmetering system will have on their individual 
utility charges and also afford a test period for the adequacy of the 
utility allowances established.
    (e) During and after the transition period, PHAs shall advise and 
assist residents with high utility consumption on methods for reducing 
their usage. This advice and assistance may include counseling, 
installation of new energy conserving equipment or appliances, and 
corrective maintenance.



Sec. 965.406  Benefit/cost analysis for similar projects.

    PHAs with more than one project of similar design and utilities 
service may prepare a benefit/cost analysis for a representative 
project. A finding that a change in metering is not cost effective for 
the representative project is sufficient reason for the PHA not to 
perform a benefit/cost analysis on the remaining similar projects.



Sec. 965.407  Reevaluations of mastermeter systems.

    Because of changes in the cost of utility services and the periodic 
changes in utility regulations, PHAs with mastermeter systems are 
required to reevaluate mastermeter systems without checkmeters by making 
benefit/cost analyses at least every 5 years. These analyses may be 
omitted under the conditions specified in Sec. 965.406.



               Subpart E_Resident Allowances for Utilities

    Source: 61 FR 7971, Feb. 29, 1996, unless otherwise noted.



Sec. 965.501  Applicability.

    (a) This subpart E applies to public housing, including the Turnkey 
III Homeownership Opportunities program. This subpart E also applies to 
units assisted under sections 10(c) and 23 of the U. S. Housing Act of 
1937 (42 U.S.C. 1437 et seq.) as in effect before amendment by the 
Housing and Community Development Act of 1974 (12 U.S.C. 1706e) and to 
which 24 CFR part 900 is not applicable. This subpart E does not apply 
to Indian housing projects (see 24 CFR part 950).
    (b) In rental units for which utilities are furnished by the PHA but 
there are no checkmeters to measure the actual utilities consumption of 
the individual units, residents shall be subject to charges for 
consumption by resident-owned major appliances, or for optional 
functions of PHA-furnished equipment, in accordance with Sec. 
965.502(e) and 965.506(b), but no utility allowance will be established.



Sec. 965.502  Establishment of utility allowances by PHAs.

    (a) PHAs shall establish allowances for PHA-furnished utilities for 
all checkmetered utilities and allowances for resident-purchased 
utilities for all utilities purchased directly by residents from the 
utilities suppliers.

[[Page 481]]

    (b) The PHA shall maintain a record that documents the basis on 
which allowances and scheduled surcharges, and revisions thereof, are 
established and revised. Such record shall be available for inspection 
by residents.
    (c) The PHA shall give notice to all residents of proposed 
allowances, scheduled surcharges, and revisions thereof. Such notice 
shall be given, in the manner provided in the lease or homebuyer 
agreement, not less than 60 days before the proposed effective date of 
the allowances or scheduled surcharges or revisions; shall describe with 
reasonable particularity the basis for determination of the allowances, 
scheduled surcharges, or revisions, including a statement of the 
specific items of equipment and function whose utility consumption 
requirements were included in determining the amounts of the allowances 
or scheduled surcharges; shall notify residents of the place where the 
PHA's record maintained in accordance with paragraph (b) of this section 
is available for inspection; and shall provide all residents an 
opportunity to submit written comments during a period expiring not less 
than 30 days before the proposed effective date of the allowances or 
scheduled surcharges or revisions. Such written comments shall be 
retained by the PHA and shall be available for inspection by residents.
    (d) Schedules of allowances and scheduled surcharges shall not be 
subject to approval by HUD before becoming effective, but will be 
reviewed in the course of audits or reviews of PHA operations.
    (e) The PHA's determinations of allowances, scheduled surcharges, 
and revisions thereof shall be final and valid unless found to be 
arbitrary, capricious, an abuse of discretion, or otherwise not in 
accordance with the law.



Sec. 965.503  Categories for establishment of allowances.

    Separate allowances shall be established for each utility and for 
each category of dwelling units determined by the PHA to be reasonably 
comparable as to factors affecting utility usage.



Sec. 965.504  Period for which allowances are established.

    (a) PHA-furnished utilities. Allowances will normally be established 
on a quarterly basis; however, residents may be surcharged on a monthly 
basis. The allowances established may provide for seasonal variations.
    (b) Resident-purchased utilities. Monthly allowances shall be 
established. The allowances established may provide for seasonal 
variations.



Sec. 965.505  Standards for allowances for utilities.

    (a) The objective of a PHA in designing methods of establishing 
utility allowances for each dwelling unit category and unit size shall 
be to approximate a reasonable consumption of utilities by an energy-
conservative household of modest circumstances consistent with the 
requirements of a safe, sanitary, and healthful living environment.
    (b) Allowances for both PHA-furnished and resident-purchased 
utilities shall be designed to include such reasonable consumption for 
major equipment or for utility functions furnished by the PHA for all 
residents (e.g., heating furnace, hot water heater), for essential 
equipment whether or not furnished by the PHA (e.g., range and 
refrigerator), and for minor items of equipment (such as toasters and 
radios) furnished by residents.
    (c) The complexity and elaborateness of the methods chosen by the 
PHA, in its discretion, to achieve the foregoing objective will depend 
upon the nature of the housing stock, data available to the PHA and the 
extent of the administrative resources reasonably available to the PHA 
to be devoted to the collection of such data, the formulation of methods 
of calculation, and actual calculation and monitoring of the allowances.
    (d) In establishing allowances, the PHA shall take into account 
relevant factors affecting consumption requirements, including:
    (1) The equipment and functions intended to be covered by the 
allowance for which the utility will be used. For instance, natural gas 
may be used for cooking, heating domestic water, or

[[Page 482]]

space heating, or any combination of the three;
    (2) The climatic location of the housing projects;
    (3) The size of the dwelling units and the number of occupants per 
dwelling unit;
    (4) Type of construction and design of the housing project;
    (5) The energy efficiency of PHA-supplied appliances and equipment;
    (6) The utility consumption requirements of appliances and equipment 
whose reasonable consumption is intended to be covered by the total 
resident payment;
    (7) The physical condition, including insulation and weatherization, 
of the housing project;
    (8) Temperature levels intended to be maintained in the unit during 
the day and at night, and in cold and warm weather; and
    (9) Temperature of domestic hot water.
    (e) If a PHA installs air conditioning, it shall provide, to the 
maximum extent economically feasible, systems that give residents the 
option of choosing to use air conditioning in their units. The design of 
systems that offer each resident the option to choose air conditioning 
shall include retail meters or checkmeters, and residents shall pay for 
the energy used in its operation. For systems that offer residents the 
option to choose air conditioning, the PHA shall not include air 
conditioning in the utility allowances. For systems that offer residents 
the option to choose air conditioning but cannot be checkmetered, 
residents are to be surcharged in accordance with Sec. 965.506. If an 
air conditioning system does not provide for resident option, residents 
are not to be charged, and these systems should be avoided whenever 
possible.



Sec. 965.506  Surcharges for excess consumption of PHA-furnished utilities.

    (a) For dwelling units subject to allowances for PHA-furnished 
utilities where checkmeters have been installed, the PHA shall establish 
surcharges for utility consumption in excess of the allowances. 
Surcharges may be computed on a straight per unit of purchase basis 
(e.g., cents per kilowatt hour of electricity) or for stated blocks of 
excess consumption, and shall be based on the PHA's average utility 
rate. The basis for calculating such surcharges shall be described in 
the PHA's schedule of allowances. Changes in the dollar amounts of 
surcharges based directly on changes in the PHA's average utility rate 
shall not be subject to the advance notice requirements of this section.
    (b) For dwelling units served by PHA-furnished utilities where 
checkmeters have not been installed, the PHA shall establish schedules 
of surcharges indicating additional dollar amounts residents will be 
required to pay by reason of estimated utility consumption attributable 
to resident-owned major appliances or to optional functions of PHA-
furnished equipment. Such surcharge schedules shall state the resident-
owned equipment (or functions of PHA-furnished equipment) for which 
surcharges shall be made and the amounts of such charges, which shall be 
based on the cost to the PHA of the utility consumption estimated to be 
attributable to reasonable usage of such equipment.



Sec. 965.507  Review and revision of allowances.

    (a) Annual review. The PHA shall review at least annually the basis 
on which utility allowances have been established and, if reasonably 
required in order to continue adherence to the standards stated in Sec. 
965.505, shall establish revised allowances. The review shall include 
all changes in circumstances (including completion of modernization and/
or other energy conservation measures implemented by the PHA) indicating 
probability of a significant change in reasonable consumption 
requirements and changes in utility rates.
    (b) Revision as a result of rate changes. The PHA may revise its 
allowances for resident-purchased utilities between annual reviews if 
there is a rate change (including fuel adjustments) and shall be 
required to do so if such change, by itself or together with prior rate 
changes not adjusted for, results in a change of 10 percent or more from 
the rates on which such allowances were

[[Page 483]]

based. Adjustments to resident payments as a result of such changes 
shall be retroactive to the first day of the month following the month 
in which the last rate change taken into account in such revision became 
effective. Such rate changes shall not be subject to the 60 day notice 
requirement of Sec. 965.502(c).



Sec. 965.508  Individual relief.

    Requests for relief from surcharges for excess consumption of PHA-
purchased utilities, or from payment of utility supplier billings in 
excess of the allowances for resident-purchased utilities, may be 
granted by the PHA on reasonable grounds, such as special needs of 
elderly, ill or disabled residents, or special factors affecting utility 
usage not within the control of the resident, as the PHA shall deem 
appropriate. The PHA's criteria for granting such relief, and procedures 
for requesting such relief, shall be adopted at the time the PHA adopts 
the methods and procedures for determining utility allowances. Notice of 
the availability of such procedures (including identification of the PHA 
representative with whom initial contact may be made by residents), and 
the PHA's criteria for granting such relief, shall be included in each 
notice to residents given in accordance with Sec. 965.502(c) and in the 
information given to new residents upon admission.



     Subpart F_Physical Condition Standards and Physical Inspection 
                              Requirements



Sec. 965.601  Physical condition standards; physical inspection requirements.

    Housing owned or leased by a PHA, and public housing owned by 
another entity approved by HUD, must be maintained in accordance with 
the physical condition standards in 24 CFR part 5, subpart G. For each 
PHA, HUD will perform an independent physical inspection of a 
statistically valid sample of such housing based upon the physical 
condition standards in 24 CFR part 5, subpart G.

[63 FR 46580, Sept. 1, 1998]

Subpart G [Reserved]



             Subpart H_Lead-Based Paint Poisoning Prevention



Sec. 965.701  Lead-based paint poisoning prevention.

    The requirements of the Lead-Based Paint Poisoning Prevention Act 
(42 U.S.C. 4821-4846), the Residential Lead-Based Paint Hazard Reduction 
Act of 1992 (42 U.S.C. 4851-4856), and implementing regulations at part 
35, subparts A, B, L, and R of this title apply to this program.

[64 FR 50229, Sept. 15, 1999]



                          Subpart I_Fire Safety

    Source: 57 FR 33853, July 30, 1992, unless otherwise noted.



Sec. 965.800  Applicability.

    This subpart applies to all PHA-owned or -leased housing housing, 
including Mutual Help and Turnkey III.



Sec. 965.805  Smoke detectors.

    (a) Performance requirement. (1) After October 30, 1992, each unit 
covered by this subpart must be equipped with at least one battery-
operated or hard-wired smoke detector, or such greater number as may be 
required by state or local codes, in working condition, on each level of 
the unit. In units occupied by hearing-impaired residents, smoke 
detectors must be hard-wired.
    (2) After October 30, 1992, the public areas of all housing covered 
by this subpart must be equipped with a sufficient number, but not less 
than one for each area, of battery-operated or hard-wired smoke 
detectors to serve as adequate warning of fire. Public areas include, 
but are not limited to, laundry rooms, community rooms, day care 
centers, hallways, stairwells, and other common areas.
    (b) Acceptability criteria. (1) The smoke detector for each 
individual unit must be located, to the extent practicable, in a hallway 
adjacent to the bedroom or bedrooms. In units occupied by hearing-
impaired residents, hard-wired smoke detectors must be connected to an 
alarm system designed

[[Page 484]]

for hearing-impaired persons and installed in the bedroom or bedrooms 
occupied by the hearing-impaired residents. Individual units that are 
jointly occupied by both hearing and hearing-impaired residents must be 
equipped with both audible and visual types of alarm devices.
    (2) If needed, battery-operated smoke detectors, except in units 
occupied by hearing-impaired residents, may be installed as a temporary 
measure where no detectors are present in a unit. Temporary battery-
operated smoke detectors must be replaced with hard-wired electric smoke 
detectors in the normal course of a PHA's planned CIAP or CGP program to 
meet the required HUD Modernization Standards or state or local codes, 
whichever standard is stricter. Smoke detectors for units occupied by 
hearing-impaired residents must be installed in accordance with the 
acceptability criteria in paragraph (b)(1) of this section.
    (c) Funding. PHAs shall use operating funds to provide battery-
operated smoke detectors in units that do not have any smoke detector in 
place. If operating funds or reserves are insufficient to accomplish 
this, PHAs may apply for emergency CIAP funding. The PHAs may apply for 
CIAP or CGP funds to replace battery-operated smoke detectors with hard-
wired smoke detectors in the normal course of a planned modernization 
program.



PART 966_PUBLIC HOUSING LEASE AND GRIEVANCE PROCEDURE--Table of Contents




         Subpart A_Dwelling Leases, Procedures and Requirements

Sec.
966.1 Purpose and applicability.
966.2 Definitions.
966.3 Tenants' opportunity for comment.
966.4 Lease requirements.
966.5 Posting of policies, rules and regulations.
966.6 Prohibited lease provisions.
966.7 Accommodation of persons with disabilities.

             Subpart B_Grievance Procedures and Requirements

966.50 Purpose and scope.
966.51 Applicability.
966.52 Requirements.
966.53 Definitions.
966.54 Informal settlement of grievance.
966.55 Procedures to obtain a hearing.
966.56 Procedures governing the hearing.
966.57 Decision of the hearing officer or hearing panel.

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



         Subpart A_Dwelling Leases, Procedures and Requirements

    Source: 40 FR 33402, Aug. 7, 1975, unless otherwise noted. 
Redesignated at 49 FR 6714, Feb. 23, 1984.



Sec. 966.1  Purpose and applicability.

    (a) This part is applicable to public housing.
    (b) Subpart A of this part prescribes the provisions that must be 
incorporated in leases for public housing dwelling units.
    (c) Subpart B of this part prescribes public housing grievance 
hearing requirements.

[66 FR 28802, May 24, 2001]



Sec. 966.2  Definitions.

    The following terms are defined in part 5, subpart A of this title: 
1937 Act, covered person, drug, drug-related criminal activity, 
federally assisted housing, guest, household, HUD, other person under 
the tenant's control, public housing, premises, public housing agency, 
Section 8, violent criminal activity.

[66 FR 28802, May 24, 2001]



Sec. 966.3  Tenants' opportunity for comment.

    Each PHA shall provide at least 30 days notice to tenants and 
resident organizations setting forth proposed changes in the lease form 
used by the PHA, and providing an opportunity to present written 
comments. Subject to requirements of this rule, comments submitted shall 
be considered by the PHA before formal adoption of any new lease form.

[56 FR 51576, Oct. 11, 1991]



Sec. 966.4  Lease requirements.

    A lease shall be entered into between the PHA and each tenant of a 
dwelling unit which shall contain the provisions described hereinafter.

[[Page 485]]

    (a) Parties, dwelling unit and term. (1) The lease shall state:
    (i) The names of the PHA and the tenant;
    (ii) The unit rented (address, apartment number, and any other 
information needed to identify the dwelling unit);
    (iii) The term of the lease (lease term and renewal in accordance 
with paragraph (a)(2) of this section);
    (iv) A statement of what utilities, services and equipment are to be 
supplied by the PHA without additional cost, and what utilities and 
appliances are to be paid for by the tenant;
    (v) The composition of the household as approved by the PHA (family 
members and any PHA-approved live-in-aide). The family must promptly 
inform the PHA of the birth, adoption or court-awarded custody of a 
child. The family must request PHA approval to add any other family 
member as an occupant of the unit.
    (2) Lease term and renewal. (i) The lease shall have a twelve month 
term. Except as provided in paragraph (a)(2)(ii) of this section, the 
lease term must be automatically renewed for the same period.
    (ii) The PHA may not renew the lease if the family has violated the 
requirement for resident performance of community service or 
participation in an economic self-sufficiency program in accordance with 
part 960, subpart F of this chapter.
    (iii) At any time, the PHA may terminate the tenancy in accordance 
with Sec. 966.4(l).
    (3) Execution and modification. The lease must be executed by the 
tenant and the PHA, except for automatic renewals of a lease. The lease 
may modified at any time by written agreement of the tenant and the PHA.
    (b) Payments due under the lease. (1) Tenant rent. (i) The tenant 
shall pay the amount of the monthly tenant rent determined by the PHA in 
accordance with HUD regulations and other requirements. The amount of 
the tenant rent is subject to change in accordance with HUD 
requirements.
    (ii) The lease shall specify the initial amount of the tenant rent 
at the beginning of the initial lease term. The PHA shall give the 
tenant written notice stating any change in the amount of tenant rent, 
and when the change is effective.
    (2) PHA charges. The lease shall provide for charges to the tenant 
for maintenance and repair beyond normal wear and tear and for 
consumption of excess utilities. The lease shall state the basis for the 
determination of such charges (e.g., by a posted schedule of charges for 
repair, amounts charged for utility consumption in excess of the 
allowance stated in the lease, etc.). The imposition of charges for 
consumption of excess utilities is permissible only if such charges are 
determined by an individual check meter servicing the leased unit or 
result from the use of major tenant-supplied appliances.
    (3) Late payment penalties. At the option of the PHA, the lease may 
provide for payment of penalties for late payment.
    (4) When charges are due. The lease shall provide that charges 
assessed under paragraph (b) (2) and (3) of this section shall not be 
due and collectible until two weeks after the PHA gives written notice 
of the charges. Such notice constitutes a notice of adverse action, and 
must meet the requirements governing a notice of adverse action (see 
Sec. 966.4(e)(8)).
    (5) Security deposits. At the option of the PHA, the lease may 
provide for security deposits which shall not exceed one month's rent or 
such reasonable fixed amount as may be required by the PHA. Provision 
may be made for gradual accumulation of the security deposit by the 
tenant. Subject to applicable laws, interest earned on security deposits 
may be refunded to the tenant on vacation of the dwelling unit or used 
for tenant services or activities.
    (c) Redetermination of rent and family composition. The lease shall 
provide for redetermination of rent and family composition which shall 
include:
    (1) The frequency of regular rental redetermination and the basis 
for interim redetermination.
    (2) An agreement by the tenant to furnish such information and 
certifications regarding family composition and income as may be 
necessary for the PHA to make determinations with respect to rent, 
eligibility, and the appropriateness of dwelling size.

[[Page 486]]

    (3) An agreement by the tenant to transfer to an appropriate size 
dwelling unit based on family composition, upon appropriate notice by 
the PHA that such a dwelling unit is available.
    (4) When the PHA redetermines the amount of rent (Total Tenant 
Payment or Tenant Rent) payable by the tenant, not including 
determination of the PHA's schedule of Utility Allowances for families 
in the PHA's Public Housing Program, or determines that the tenant must 
transfer to another unit based on family composition, the PHA shall 
notify the tenant that the tenant may ask for an explanation stating the 
specific grounds of the PHA determination, and that if the tenant does 
not agree with the determination, the tenant shall have the right to 
request a hearing under the PHA grievance procedure.
    (d) Tenant's right to use and occupancy. (1) The lease shall provide 
that the tenant shall have the right to exclusive use and occupancy of 
the leased unit by the members of the household authorized to reside in 
the unit in accordance with the lease, including reasonable 
accommodation of their guests. The term guest is defined in 24 CFR 
5.100.
    (2) With the consent of the PHA, members of the household may engage 
in legal profitmaking activities in the dwelling unit, where the PHA 
determines that such activities are incidental to primary use of the 
leased unit for residence by members of the household.
    (3)(i) With the consent of the PHA, a foster child or a live-in aide 
may reside in the unit. The PHA may adopt reasonable policies concerning 
residence by a foster child or a live-in-aide, and defining the 
circumstances in which PHA consent will be given or denied. Under such 
policies, the factors considered by the PHA may include:
    (A) Whether the addition of a new occupant may necessitate a 
transfer of the family to another unit, and whether such units are 
available.
    (B) The PHA's obligation to make reasonable accommodation for 
handicapped persons.
    (ii) Live-in aide means a person who resides with an elderly, 
disabled or handicapped person and who:
    (A) Is determined to be essential to the care and well-being of the 
person;
    (B) Is not obligated for the support of the person; and
    (C) Would not be living in the unit except to provide the necessary 
supportive services.
    (e) The PHA's obligations. The lease shall set forth the PHA's 
obligations under the lease which shall include the following:
    (1) To maintain the dwelling unit and the project in decent, safe 
and sanitary condition;
    (2) To comply with requirements of applicable building codes, 
housing codes, and HUD regulations materially affecting health and 
safety;
    (3) To make necessary repairs to the dwelling unit;
    (4) To keep project buildings, facilities and common areas, not 
otherwise assigned to the tenant for maintenance and upkeep, in a clean 
and safe condition;
    (5) To maintain in good and safe working order and condition 
electrical, plumbing, sanitary, heating, ventilating, and other 
facilities and appliances, including elevators, supplied or required to 
be supplied by the PHA;
    (6) To provide and maintain appropriate receptacles and facilities 
(except containers for the exclusive use of an individual tenant family) 
for the deposit of ashes, garbage, rubbish and other waste removed from 
the dwelling unit by the tenant in accordance with paragraph (f)(7) of 
this section;
    (7) To supply running water and reasonable amounts of hot water and 
reasonable amounts of heat at appropriate times of the year (according 
to local custom and usage) except where the building that includes the 
dwelling unit is not required by law to be equipped for that purpose, or 
where heat or hot water is generated by an installation within the 
exclusive control of the tenant and supplied by a direct utility 
connection; and
    (8)(i) To notify the tenant of the specific grounds for any proposed 
adverse action by the PHA. (Such adverse action includes, but is not 
limited to, a proposed lease termination, transfer of

[[Page 487]]

the tenant to another unit, or imposition of charges for maintenance and 
repair, or for excess consumption of utilities.)
    (ii) When the PHA is required to afford the tenant the opportunity 
for a hearing under the PHA grievance procedure for a grievance 
concerning a proposed adverse action:
    (A) The notice of proposed adverse action shall inform the tenant of 
the right to request such hearing. In the case of a lease termination, a 
notice of lease termination in accordance with paragraph (l)(3) of this 
section, shall constitute adequate notice of proposed adverse action.
    (B) In the case of a proposed adverse action other than a proposed 
lease termination, the PHA shall not take the proposed action until the 
time for the tenant to request a grievance hearing has expired, and (if 
a hearing was timely requested by the tenant) the grievance process has 
been completed.
    (f) Tenant's obligations. The lease shall provide that the tenant 
shall be obligated:
    (1) Not to assign the lease or to sublease the dwelling unit;
    (2) Not to provide accommodations for boarders or lodgers;
    (3) To use the dwelling unit solely as a private dwelling for the 
tenant and the tenant's household as identified in the lease, and not to 
use or permit its use for any other purpose;
    (4) To abide by necessary and reasonable regulations promulgated by 
the PHA for the benefit and well-being of the housing project and the 
tenants which shall be posted in the project office and incorporated by 
reference in the lease;
    (5) To comply with all obligations imposed upon tenants by 
applicable provisions of building and housing codes materially affecting 
health and safety;
    (6) To keep the dwelling unit and such other areas as may be 
assigned to the tenant for the tenant's exclusive use in a clean and 
safe condition;
    (7) To dispose of all ashes, garbage, rubbish, and other waste from 
the dwelling unit in a sanitary and safe manner;
    (8) To use only in a reasonable manner all electrical, plumbing, 
sanitary, heating, ventilating, air-conditioning and other facilities 
and appurtenances including elevators;
    (9) To refrain from, and to cause the household and guests to 
refrain from destroying, defacing, damaging, or removing any part of the 
dwelling unit or project;
    (10) To pay reasonable charges (other than for wear and tear) for 
the repair of damages to the dwelling unit, or to the project (including 
damages to project buildings, facilities or common areas) caused by the 
tenant, a member of the household or a guest.
    (11) To act, and cause household members or guests to act, in a 
manner which will not disturb other residents' peaceful enjoyment of 
their accommodations and will be conducive to maintaining the project in 
a decent, safe and sanitary condition;
    (12) (i) To assure that no tenant, member of the tenant's household, 
or guest engages in:
    (A) Any criminal activity that threatens the health, safety or right 
to peaceful enjoyment of the premises by other residents; or
    (B) Any drug-related criminal activity on or off the premises;
    (ii) To assure that no other person under the tenant's control 
engages in:
    (A) Any criminal activity that threatens the health, safety or right 
to peaceful enjoyment of the premises by other residents; or
    (B) Any drug-related criminal activity on the premises;
    (iii) To assure that no member of the household engages in an abuse 
or pattern of abuse of alcohol that affects the health, safety, or right 
to peaceful enjoyment of the premises by other residents.
    (g) Tenant maintenance. The lease may provide that the tenant shall 
perform seasonal maintenance or other maintenance tasks, as specified in 
the lease, where performance of such tasks by tenants of dwellings units 
of a similar design and construction is customary: Provided, That such 
provision is included in the lease in good faith and not for the purpose 
of evading the obligations of the PHA. The PHA shall exempt tenants who 
are unable to perform such tasks because of age or disability.

[[Page 488]]

    (h) Defects hazardous to life, health, or safety. The lease shall 
set forth the rights and obligations of the tenant and the PHA if the 
dwelling unit is damaged to the extent that conditions are created which 
are hazardous to life, health, or safety of the occupants and shall 
provide that:
    (1) The tenant shall immediately notify project management of the 
damage;
    (2) The PHA shall be responsible for repair of the unit within a 
reasonable time: Provided, That if the damage was caused by the tenant, 
tenant's household or guests, the reasonable cost of the repairs shall 
be charged to the tenant;
    (3) The PHA shall offer standard alternative accommodations, if 
available, where necessary repairs cannot be made within a reasonable 
time; and
    (4) Provisions shall be made for abatement of rent in proportion to 
the seriousness of the damage and loss in value as a dwelling if repairs 
are not made in accordance with paragraph (h)(2) of this section or 
alternative accommodations not provided in accordance with paragraph 
(h)(3) of this section, except that no abatement of rent shall occur if 
the tenant rejects the alternative accommodation or if the damage was 
caused by the tenant, tenant's household or guests.
    (i) Pre-occupancy and pre-termination inspections. The lease shall 
provide that the PHA and the tenant or representative shall be obligated 
to inspect the dwelling unit prior to commencement of occupancy by the 
tenant. The PHA will furnish the tenant with a written statement of the 
condition of the dwelling unit, and the equipment provided with the 
unit. The statement shall be signed by the PHA and the tenant, and a 
copy of the statement shall be retained by the PHA in the tenant's 
folder. The PHA shall be further obligated to inspect the unit at the 
time the tenant vacates the unit and to furnish the tenant a statement 
of any charges to be made in accordance with paragraph (b)(2) of this 
section. Provision shall be made for the tenant's participation in the 
latter inspection, unless the tenant vacates without notice to the PHA.
    (j) Entry of dwelling unit during tenancy. The lease shall set forth 
the circumstances under which the PHA may enter the dwelling unit during 
the tenant's possession thereof, which shall include provision that:
    (1) The PHA shall, upon reasonable advance notification to the 
tenant, be permitted to enter the dwelling unit during reasonable hours 
for the purpose of performing routine inspections and maintenance, for 
making improvement or repairs, or to show the dwelling unit for re-
leasing. A written statement specifying the purpose of the PHA entry 
delivered to the dwelling unit at least two days before such entry shall 
be considered reasonable advance notification;
    (2) The PHA may enter the dwelling unit at any time without advance 
notification when there is reasonable cause to believe that an emergency 
exists; and
    (3) If the tenant and all adult members of the household are absent 
from the dwelling unit at the time of entry, the PHA shall leave in the 
dwelling unit a written statement specifying the date, time and purpose 
of entry prior to leaving the dwelling unit.
    (k) Notice procedures. (1) The lease shall provide procedures to be 
followed by the PHA and the tenant in giving notice one to the other 
which shall require that:
    (i) Except as provided in paragraph (j) of this section, notice to a 
tenant shall be in writing and delivered to the tenant or to an adult 
member of the tenant's household residing in the dwelling or sent by 
prepaid first-class mail properly addressed to the tenant; and
    (ii) Notice to the PHA shall be in writing, delivered to the project 
office or the PHA central office or sent by prepaid first-class mail 
properly addressed.
    (2) If the tenant is visually impaired, all notices must be in an 
accessible format.
    (l) Termination of tenancy and eviction.--(1) Procedures. The lease 
shall state the procedures to be followed by the PHA and by the tenant 
to terminate the tenancy.

[[Page 489]]

    (2) Grounds for termination of tenancy. The PHA may terminate the 
tenancy only for:
    (i) Serious or repeated violation of material terms of the lease, 
such as the following:
    (A) Failure to make payments due under the lease;
    (B) Failure to fulfill household obligations, as described in 
paragraph (f) of this section;
    (ii) Other good cause. Other good cause includes, but is not limited 
to, the following:
    (A) Criminal activity or alcohol abuse as provided in paragraph 
(1)(5) of this section;
    (B) Discovery after admission of facts that made the tenant 
ineligible;
    (C) Discovery of material false statements or fraud by the tenant in 
connection with an application for assistance or with reexamination of 
income;
    (D) Failure of a family member to comply with service requirement 
provisions of part 960, subpart F, of this chapter--as grounds only for 
non-renewal of the lease and termination of tenancy at the end of the 
twelve-month lease term; and
    (E) Failure to accept the PHA's offer of a lease revision to an 
existing lease: that is on a form adopted by the PHA in accordance with 
Sec. 966.3; with written notice of the offer of the revision at least 
60 calendar days before the lease revision is scheduled to take effect; 
and with the offer specifying a reasonable time limit within that period 
for acceptance by the family.
    (3) Lease termination notice. (i) The PHA must give written notice 
of lease termination of:
    (A) 14 days in the case of failure to pay rent;
    (B) A reasonable period of time considering the seriousness of the 
situation (but not to exceed 30 days):
    (1) If the health or safety of other residents, PHA employees, or 
persons residing in the immediate vicinity of the premises is 
threatened; or
    (2) If any member of the household has engaged in any drug-related 
criminal activity or violent criminal activity; or
    (3) If any member of the household has been convicted of a felony;
    (C) 30 days in any other case, except that if a State or local law 
allows a shorter notice period, such shorter period shall apply.
    (ii) The notice of lease termination to the tenant shall state 
specific grounds for termination, and shall inform the tenant of the 
tenant's right to make such reply as the tenant may wish. The notice 
shall also inform the tenant of the right (pursuant to Sec. 966.4(m)) 
to examine PHA documents directly relevant to the termination or 
eviction. When the PHA is required to afford the tenant the opportunity 
for a grievance hearing, the notice shall also inform the tenant of the 
tenant's right to request a hearing in accordance with the PHA's 
grievance procedure.
    (iii) A notice to vacate which is required by State or local law may 
be combined with, or run concurrently with, a notice of lease 
termination under paragraph (l)(3)(i) of this section.
    (iv) When the PHA is required to afford the tenant the opportunity 
for a hearing under the PHA grievance procedure for a grievance 
concerning the lease termination (see Sec. 966.51(a)(1)), the tenancy 
shall not terminate (even if any notice to vacate under State or local 
law has expired) until the time for the tenant to request a grievance 
hearing has expired, and (if a hearing was timely requested by the 
tenant) the grievance process has been completed.
    (v) When the PHA is not required to afford the tenant the 
opportunity for a hearing under the PHA administrative grievance 
procedure for a grievance concerning the lease termination (see Sec. 
966.51(a)(2)), and the PHA has decided to exclude such grievance from 
the PHA grievance procedure, the notice of lease termination under 
paragraph (l)(3)(i) of this section shall:
    (A) State that the tenant is not entitled to a grievance hearing on 
the termination.
    (B) Specify the judicial eviction procedure to be used by the PHA 
for eviction of the tenant, and state that HUD has determined that this 
eviction procedure provides the opportunity for a hearing in court that 
contains the basic elements of due process as defined in HUD 
regulations.

[[Page 490]]

    (C) State whether the eviction is for a criminal activity as 
described in Sec. 966.51(a)(2)(i)(A) or for a drug-related criminal 
activity as described in Sec. 966.51(a)(2)(i)(B).
    (4) How tenant is evicted. The PHA may evict the tenant from the 
unit either:
    (i) By bringing a court action or;
    (ii) By bringing an administrative action if law of the jurisdiction 
permits eviction by administrative action, after a due process 
administrative hearing, and without a court determination of the rights 
and liabilities of the parties. In order to evict without bringing a 
court action, the PHA must afford the tenant the opportunity for a pre-
eviction hearing in accordance with the PHA grievance procedure.
    (5) PHA termination of tenancy for criminal activity or alcohol 
abuse.
    (i) Evicting drug criminals. (A) Methamphetamine conviction. The PHA 
must immediately terminate the tenancy if the PHA determines that any 
member of the household has ever been convicted of drug-related criminal 
activity for manufacture or production of methamphetamine on the 
premises of federally assisted housing.
    (B) Drug crime on or off the premises. The lease must provide that 
drug-related criminal activity engaged in on or off the premises by any 
tenant, member of the tenant's household or guest, and any such activity 
engaged in on the premises by any other person under the tenant's 
control, is grounds for the PHA to terminate tenancy. In addition, the 
lease must provide that a PHA may evict a family when the PHA determines 
that a household member is illegally using a drug or when the PHA 
determines that a pattern of illegal use of a drug interferes with the 
health, safety, or right to peaceful enjoyment of the premises by other 
residents.
    (ii) Evicting other criminals. (A) Threat to other residents. The 
lease must provide that any criminal activity by a covered person that 
threatens the health, safety, or right to peaceful enjoyment of the 
premises by other residents (including PHA management staff residing on 
the premises) or threatens the health, safety, or right to peaceful 
enjoyment of their residences by persons residing in the immediate 
vicinity of the premises is grounds for termination of tenancy.
    (B) Fugitive felon or parole violator. The PHA may terminate the 
tenancy if a tenant is fleeing to avoid prosecution, or custody or 
confinement after conviction, for a crime, or attempt to commit a crime, 
that is a felony under the laws of the place from which the individual 
flees, or that, in the case of the State of New Jersey, is a high 
misdemeanor; or violating a condition of probation or parole imposed 
under Federal or State law.
    (iii) Eviction for criminal activity. (A) Evidence. The PHA may 
evict the tenant by judicial action for criminal activity in accordance 
with this section if the PHA determines that the covered person has 
engaged in the criminal activity, regardless of whether the covered 
person has been arrested or convicted for such activity and without 
satisfying the standard of proof used for a criminal conviction.
    (B) Notice to Post Office. When a PHA evicts an individual or family 
for criminal activity, the PHA must notify the local post office serving 
the dwelling unit that the individual or family is no longer residing in 
the unit.
    (iv) Use of criminal record. If the PHA seeks to terminate the 
tenancy for criminal activity as shown by a criminal record, the PHA 
must notify the household of the proposed action to be based on the 
information and must provide the subject of the record and the tenant 
with a copy of the criminal record before a PHA grievance hearing or 
court trial concerning the termination of tenancy or eviction. The 
tenant must be given an opportunity to dispute the accuracy and 
relevance of that record in the grievance hearing or court trial.
    (v) Cost of obtaining criminal record. The PHA may not pass along to 
the tenant the costs of a criminal records check.
    (vi) Evicting alcohol abusers. The PHA must establish standards that 
allow termination of tenancy if the PHA determines that a household 
member has:
    (A) Engaged in abuse or pattern of abuse of alcohol that threatens 
the health, safety, or right to peaceful enjoyment of the premises by 
other residents; or

[[Page 491]]

    (B) Furnished false or misleading information concerning illegal 
drug use, alcohol abuse, or rehabilitation of illegal drug users or 
alcohol abusers.
    (vii) PHA action, generally. (A) Assessment under PHAS. Under the 
Public Housing Assessment System (PHAS), PHAs that have adopted 
policies, implemented procedures and can document that they 
appropriately evict any public housing residents who engage in certain 
activity detrimental to the public housing community receive points. 
(See 24 CFR 902.43(a)(5).) This policy takes into account the importance 
of eviction of such residents to public housing communities and program 
integrity, and the demand for assisted housing by families who will 
adhere to lease responsibilities.
    (B) Consideration of circumstances. In a manner consistent with such 
policies, procedures and practices, the PHA may consider all 
circumstances relevant to a particular case such as the seriousness of 
the offending action, the extent of participation by the leaseholder in 
the offending action, the effects that the eviction would have on family 
members not involved in the offending activity and the extent to which 
the leaseholder has shown personal responsibility and has taken all 
reasonable steps to prevent or mitigate the offending action.
    (C) Exclusion of culpable household member. The PHA may require a 
tenant to exclude a household member in order to continue to reside in 
the assisted unit, where that household member has participated in or 
been culpable for action or failure to act that warrants termination.
    (D) Consideration of rehabilitation. In determining whether to 
terminate tenancy for illegal drug use or a pattern of illegal drug use 
by a household member who is no longer engaging in such use, or for 
abuse or a pattern of abuse of alcohol by a household member who is no 
longer engaging in such abuse, the PHA may consider whether such 
household member is participating in or has successfully completed a 
supervised drug or alcohol rehabilitation program, or has otherwise been 
rehabilitated successfully (42 U.S.C. 13662). For this purpose, the PHA 
may require the tenant to submit evidence of the household member's 
current participation in, or successful completion of, a supervised drug 
or alcohol rehabilitation program or evidence of otherwise having been 
rehabilitated successfully.
    (E) Length of period of mandatory prohibition on admission. If a 
statute requires that the PHA prohibit admission of persons for a 
prescribed period of time after some disqualifying behavior or event, 
the PHA may apply that prohibition for a longer period of time.
    (F) Nondiscrimination limitation. The PHA's eviction actions must be 
consistent with fair housing and equal opportunity provisions of Sec. 
5.105 of this title.
    (m) Eviction: Right to examine PHA documents before hearing or 
trial. The PHA shall provide the tenant a reasonable opportunity to 
examine, at the tenant's request, before a PHA grievance hearing or 
court trial concerning a termination of tenancy or eviction, any 
documents, including records and regulations, which are in the 
possession of the PHA, and which are directly relevant to the 
termination of tenancy or eviction. The tenant shall be allowed to copy 
any such document at the tenant's expense. A notice of lease termination 
pursuant to Sec. 966.4(l) (3) shall inform the tenant of the tenant's 
right to examine PHA documents concerning the termination of tenancy or 
eviction. If the PHA does not make documents available for examination 
upon request by the tenant (in accordance with this Sec. 966.4(m)), the 
PHA may not proceed with the eviction.
    (n) Grievance procedures. The lease shall provide that all disputes 
concerning the obligations of the tenant or the PHA shall (except as 
provided in Sec. 966.51(a)(2)) be resolved in accordance with the PHA 
grievance procedures. The grievance procedures shall comply with subpart 
B of this part.
    (o) Provision for modifications. The lease shall provide that 
modification of the lease must be accomplished by a written rider to the 
lease executed by both parties, except for paragraph (c) of this section 
and Sec. 966.5.
    (p) Signature clause. The lease shall provide a signature clause 
attesting

[[Page 492]]

that the lease has been executed by the parties.

[56 FR 51576, Oct. 11, 1991, as amended at 61 FR 13273, Mar. 26, 1996; 
65 FR 16730, Mar. 29, 2000; 66 FR 28802, May 24, 2001; 66 FR 32875, June 
18, 2001; 66 FR 33134, June 20, 2001]



Sec. 966.5  Posting of policies, rules and regulations.

    Schedules of special charges for services, repairs and utilities and 
rules and regulations which are required to be incorporated in the lease 
by reference shall be publicly posted in a conspicuous manner in the 
Project Office and shall be furnished to applicants and tenants on 
request. Such schedules, rules and regulations may be modified from time 
to time by the PHA provided that the PHA shall give at least 30-day 
written notice to each affected tenant setting forth the proposed 
modification, the reasons therefor, and providing the tenant an 
opportunity to present written comments which shall be taken into 
consideration by the PHA prior to the proposed modification becoming 
effective. A copy of such notice shall be:
    (a) Delivered directly or mailed to each tenant; or
    (b) Posted in at least three (3) conspicuous places within each 
structure or building in which the affected dwelling units are located, 
as well as in a conspicuous place at the project office, if any, of if 
none, a similar central business location within the project.



Sec. 966.6  Prohibited lease provisions.

    Lease clauses of the nature described below shall not be included in 
new leases between a PHA and a tenant and shall be deleted from existing 
leases either by amendment thereof or execution of a new lease:
    (a) Confession of judgment. Prior consent by the tenant to any 
lawsuit the landlord may bring against him in connection with the lease 
and to a judgment in favor of the landlord.
    (b) Distraint for rent or other charges. Agreement by the tenant 
that landlord is authorized to take property of the tenant and hold it 
as a pledge until the tenant performs the obligation which the landlord 
has determined the tenant has failed to perform.
    (c) Exculpatory clauses. Agreement by the tenant not to hold the 
landlord or landlord's agent liable for any acts or omissions whether 
intentional or negligent on the part of the landlord or the landlord's 
authorized representatives or agents.
    (d) Waiver of legal notice by tenant prior to actions for eviction 
or money judgments. Agreements by the tenant that the landlord may 
institute suit without any notice to the tenant that the suit has been 
filed, thus preventing the tenant from defending against the lawsuit.
    (e) Waiver of legal proceedings. Authorization to the landlord to 
evict the tenant or hold or sell the tenant's possessions whenever the 
landlord determines that a breach or default has occurred without notice 
to the tenant or any determination by a court of the rights and 
liabilities of the parties.
    (f) Waiver of jury trial. Authorization of the landlord's lawyer to 
appear in court for the tenant and waive the right to a trial by jury.
    (g) Waiver of right to appeal judicial error in legal proceeding. 
Authorization to the landlord's lawyer to waive the right to appeal for 
judicial error in any suit or to waive the right to file a suit in 
equity to prevent the execution of a judgment.
    (h) Tenant chargeable with cost of legal actions regardless of 
outcome. Provision that the tenant agrees to pay attorney's fees or 
other legal costs whenever the landlord decides to take action against 
the tenant even though the court determines that the tenant prevails in 
the action. Prohibition of this type of provision does not mean that the 
tenant as a party to the lawsuit may not be obligated to pay attorney's 
fees or other costs if he loses the suit.



Sec. 966.7  Accommodation of persons with disabilities.

    (a) For all aspects of the lease and grievance procedures, a 
handicapped person shall be provided reasonable accommodation to the 
extent necessary to provide the handicapped person with an opportunity 
to use and occupy the dwelling unit equal to a non-handicapped person.
    (b) The PHA shall provide a notice to each tenant that the tenant 
may, at

[[Page 493]]

any time during the tenancy, request reasonable accommodation of a 
handicap of a household member, including reasonable accommodation so 
that the tenant can meet lease requirements or other requirements of 
tenancy.

[56 FR 51579, Oct. 11, 1991]



             Subpart B_Grievance Procedures and Requirements

    Source: 40 FR 33406, Aug. 7, 1975, unless otherwise noted. 
Redesignated at 49 FR 6714, Feb. 23, 1984.



Sec. 966.50  Purpose and scope.

    The purpose of this subpart is to set forth the requirements, 
standards and criteria for a grievance procedure to be established and 
implemented by public housing agencies (PHAs) to assure that a PHA 
tenant is afforded an opportunity for a hearing if the tenant disputes 
within a reasonable time any PHA action or failure to act involving the 
tenant's lease with the PHA or PHA regulations which adversely affect 
the individual tenant's rights, duties, welfare or status.

[56 FR 51579, Oct. 11, 1991]



Sec. 966.51  Applicablity.

    (a)(1) The PHA grievance procedure shall be applicable (except as 
provided in paragraph (a)(2) of this section) to all individual 
grievances as defined in Sec. 966.53 of this subpart between the tenant 
and the PHA.
    (2)(i) The term due process determination means a determination by 
HUD that law of the jurisdiction requires that the tenant must be given 
the opportunity for a hearing in court which provides the basic elements 
of due process (as defined in Sec. 966.53(c)) before eviction from the 
dwelling unit. If HUD has issued a due process determination, a PHA may 
exclude from the PHA administrative grievance procedure under this 
subpart any grievance concerning a termination of tenancy or eviction 
that involves:
    (A) Any criminal activity that threatens the health, safety or right 
to peaceful enjoyment of the premises of other residents or employees of 
the PHA;
    (B) Any violent or drug-related criminal activity on or off such 
premises; or
    (C) Any criminal activity that resulted in felony conviction of a 
household member.
    (iii) For guidance of the public, HUD will publish in the Federal 
Register a notice listing the judicial eviction procedures for which HUD 
has issued a due process determination. HUD will make available for 
public inspection and copying a copy of the legal analysis on which the 
determinations are based.
    (iv) If HUD has issued a due process determination, the PHA may 
evict the occupants of the dwelling unit through the judicial eviction 
procedures which are the subject of the determination. In this case, the 
PHA is not required to provide the opportunity for a hearing under the 
PHA's administrative grievance procedure.
    (b) The PHA grievance procedure shall not be applicable to disputes 
between tenants not involving the PHA or to class grievances. The 
grievance procedure is not intended as a forum for initiating or 
negotiating policy changes between a group or groups of tenants and the 
PHA's Board of Commissioners.

[40 FR 33406, Aug. 7, 1975. Redesignated at 49 FR 6714, Feb. 23, 1984, 
and amended at 56 FR 51579, Oct. 11, 1991; 61 FR 13273, Mar. 26, 1996; 
66 FR 28804, May 24, 2001]



Sec. 966.52  Requirements.

    (a) Each PHA shall adopt a grievance procedure affording each tenant 
an opportunity for a hearing on a grievance as defined in Sec. 966.53 
in accordance with the requirements, standards, and criteria contained 
in this subpart.
    (b) The PHA grievance procedure shall be included in, or 
incorporated by reference in, all tenant dwelling leases pursuant to 
subpart A of this part.
    (c) The PHA shall provide at least 30 days notice to tenants and 
resident organizations setting forth proposed changes in the PHA 
grievance procedure, and providing an opportunity to present written 
comments. Subject to requirements of this subpart, comments submitted 
shall be considered by the PHA before adoption of any grievance 
procedure changes by the PHA.

[[Page 494]]

    (d) The PHA shall furnish a copy of the grievance procedure to each 
tenant and to resident organizations.

[56 FR 51579, Oct. 11, 1991]



Sec. 966.53  Definitions.

    For the purpose of this subpart, the following definitions are 
applicable:
    (a) Grievance shall mean any dispute which a tenant may have with 
respect to PHA action or failure to act in accordance with the 
individual tenant's lease or PHA regulations which adversely affect the 
individual tenant's rights, duties, welfare or status.
    (b) Complainant shall mean any tenant whose grievance is presented 
to the PHA or at the project management office in accordance with 
Sec. Sec. 966.54 and 966.55(a).
    (c) Elements of due process shall mean an eviction action or a 
termination of tenancy in a State or local court in which the following 
procedural safeguards are required:
    (1) Adequate notice to the tenant of the grounds for terminating the 
tenancy and for eviction;
    (2) Right of the tenant to be represented by counsel;
    (3) Opportunity for the tenant to refute the evidence presented by 
the PHA including the right to confront and cross-examine witnesses and 
to present any affirmative legal or equitable defense which the tenant 
may have;
    (4) A decision on the merits.
    (d) Hearing officer shall mean a person selected in accordance with 
Sec. 966.55 of this subpart to hear grievances and render a decision 
with respect thereto.
    (e) Hearing panel shall mean a panel selected in accordance with 
Sec. 966.55 of this subpart to hear grievances and render a decision 
with respect thereto.
    (f) Tenant shall mean the adult person (or persons) (other than a 
live-in aide):
    (1) Who resides in the unit, and who executed the lease with the PHA 
as lessee of the dwelling unit, or, if no such person now resides in the 
unit,
    (2) Who resides in the unit, and who is the remaining head of 
household of the tenant family residing in the dwelling unit.
    (g) Resident organization includes a resident management 
corporation.

[40 FR 33406, Aug. 7, 1975. Redesignated at 49 FR 6714, Feb. 23, 1984, 
and amended at 56 FR 51579, Oct. 11, 1991]



Sec. 966.54  Informal settlement of grievance.

    Any grievance shall be personally presented, either orally or in 
writing, to the PHA office or to the office of the project in which the 
complainant resides so that the grievance may be discussed informally 
and settled without a hearing. A summary of such discussion shall be 
prepared within a reasonable time and one copy shall be given to the 
tenant and one retained in the PHA's tenant file. The summary shall 
specify the names of the participants, dates of meeting, the nature of 
the proposed disposition of the complaint and the specific reasons 
therefor, and shall specify the procedures by which a hearing under 
Sec. 966.55 may be obtained if the complainant is not satisfied.



Sec. 966.55  Procedures to obtain a hearing.

    (a) Request for hearing. The complainant shall submit a written 
request for a hearing to the PHA or the project office within a 
reasonable time after receipt of the summary of discussion pursuant to 
Sec. 966.54. For a grievance under the expedited grievance procedure 
pursuant to Sec. 966.55(g) (for which Sec. 966.54 is not applicable), 
the complainant shall submit such request at such time as is specified 
by the PHA for a grievance under the expedited grievance procedure. The 
written request shall specify:
    (1) The reasons for the grievance; and
    (2) The action or relief sought.
    (b) Selection of Hearing Officer or Hearing Panel. (1) A grievance 
hearing shall be conducted by an impartial person or persons appointed 
by the PHA, other than a person who made or approved the PHA action 
under review or a subordinate of such person.
    (2) The method or methods for PHA appointment of a hearing officer 
or hearing panel shall be stated in the PHA grievance procedure. The PHA 
may use either of the following methods to appoint a hearing officer or 
panel:

[[Page 495]]

    (i) A method approved by the majority of tenants (in any building, 
group of buildings or project, or group of projects to which the method 
is applicable) voting in an election or meeting of tenants held for the 
purpose.
    (ii) Appointment of a person or persons (who may be an officer or 
employee of the PHA) selected in the manner required under the PHA 
grievance procedure.
    (3) The PHA shall consult the resident organizations before PHA 
appointment of each hearing officer or panel member. Any comments or 
recommendations submitted by the tenant organizations shall be 
considered by the PHA before the appointment.
    (c) Failure to request a hearing. If the complainant does not 
request a hearing in accordance with this paragraph, then the PHA's 
disposition of the grievance under Sec. 966.54 shall become final: 
Provided, That failure to request a hearing shall not constitute a 
waiver by the complainant of his right thereafter to contest the PHA's 
action in disposing of the complaint in an appropriate judicial 
proceeding.
    (d) Hearing prerequisite. All grievances shall be personally 
presented either orally or in writing pursuant to the informal procedure 
prescribed in Sec. 966.54 as a condition precedent to a hearing under 
this section: Provided, That if the complainant shall show good cause 
why he failed to proceed in accordance with Sec. 966.54 to the hearing 
officer or hearing panel, the provisions of this subsection may be 
waived by the hearing officer or hearing panel.
    (e) Escrow deposit. (1) Before a hearing is scheduled in any 
grievance involving the amount of rent (as defined in Sec. 966.4(b)) 
that the PHA claims is due, the family must pay an escrow deposit to the 
PHA. When a family is required to make an escrow deposit, the amount is 
the amount of rent the PHA states is due and payable as of the first of 
the month preceding the month in which the family's act or failure to 
act took place. After the first deposit, the family must deposit the 
same amount monthly until the family's complaint is resolved by decision 
of the hearing officer or hearing panel.
    (2) A PHA must waive the requirement for an escrow deposit where 
required by Sec. 5.630 of this title (financial hardship exemption from 
minimum rent requirements) or Sec. 5.615 of this title (effect of 
welfare benefits reduction in calculation of family income). Unless the 
PHA waives the requirement, the family's failure to make the escrow 
deposit will terminate the grievance procedure. A family's failure to 
pay the escrow deposit does not waive the family's right to contest in 
any appropriate judicial proceeding the PHA's disposition of the 
grievance.
    (f) Scheduling of hearings. Upon complainant's compliance with 
paragraphs (a), (d) and (e) of this section, a hearing shall be 
scheduled by the hearing officer or hearing panel promptly for a time 
and place reasonably convenient to both the complainant and the PHA. A 
written notification specifying the time, place and the procedures 
governing the hearing shall be delivered to the complainant and the 
appropriate PHA official.
    (g) Expedited grievance procedure. (1) The PHA may establish an 
expedited grievance procedure for any grievance concerning a termination 
of tenancy or eviction that involves:
    (i) Any criminal activity that threatens the health, safety, or 
right to peaceful enjoyment of the PHA's public housing premises by 
other residents or employees of the PHA, or
    (ii) Any drug-related criminal activity on or near such premises.
    (2) In the case of a grievance under the expedited grievance 
procedure, Sec. 966.54 (informal settlement of grievances) is not 
applicable.
    (3) Subject to the requirements of this subpart, the PHA may adopt 
special procedures concerning a hearing under the expedited grievance 
procedure, including provisions for expedited notice or scheduling, or 
provisions for expedited decision on the grievance.

[40 FR 33406, Aug. 7, 1975, as amended at 42 FR 5573, Jan. 28, 1977. 
Redesignated at 49 FR 6714, Feb. 23, 1984, and amended at 56 FR 51579, 
Oct. 11, 1991; 65 FR 16731, Mar. 29, 2000]



Sec. 966.56  Procedures governing the hearing.

    (a) The hearing shall be held before a hearing officer or hearing 
panel, as appropriate.

[[Page 496]]

    (b) The complainant shall be afforded a fair hearing, which shall 
include:
    (1) The opportunity to examine before the grievance hearing any PHA 
documents, including records and regulations, that are directly relevant 
to the hearing. (For a grievance hearing concerning a termination of 
tenancy or eviction, see also Sec. 966.4(m).) The tenant shall be 
allowed to copy any such document at the tenant's expense. If the PHA 
does not make the document available for examination upon request by the 
complainant, the PHA may not rely on such document at the grievance 
hearing.
    (2) The right to be represented by counsel or other person chosen as 
the tenant's representative, and to have such person make statements on 
the tenant's behalf;
    (3) The right to a private hearing unless the complainant requests a 
public hearing;
    (4) The right to present evidence and arguments in support of the 
tenant's complaint, to controvert evidence relied on by the PHA or 
project management, and to confront and cross-examine all witnesses upon 
whose testimony or information the PHA or project management relies; and
    (5) A decision based solely and exclusively upon the facts presented 
at the hearing.
    (c) The hearing officer or hearing panel may render a decision 
without proceeding with the hearing if the hearing officer or hearing 
panel determines that the issue has been previously decided in another 
proceeding.
    (d) If the complainant or the PHA fails to appear at a scheduled 
hearing, the hearing officer or hearing panel may make a determination 
to postpone the hearing for not to exceed five business days or may make 
a determination that the party has waived his right to a hearing. Both 
the complainant and the PHA shall be notified of the determination by 
the hearing officer or hearing panel: Provided, That a determination 
that the complainant has waived his right to a hearing shall not 
constitute a waiver of any right the complainant may have to contest the 
PHA's disposition of the grievance in an appropriate judicial 
proceeding.
    (e) At the hearing, the complainant must first make a showing of an 
entitlement to the relief sought and thereafter the PHA must sustain the 
burden of justifying the PHA action or failure to act against which the 
complaint is directed.
    (f) The hearing shall be conducted informally by the hearing officer 
or hearing panel and oral or documentary evidence pertinent to the facts 
and issues raised by the complaint may be received without regard to 
admissibility under the rules of evidence applicable to judicial 
proceedings. The hearing officer or hearing panel shall require the PHA, 
the complainant, counsel and other participants or spectators to conduct 
themselves in an orderly fashion. Failure to comply with the directions 
of the hearing officer or hearing panel to obtain order may result in 
exclusion from the proceedings or in a decision adverse to the interests 
of the disorderly party and granting or denial of the relief sought, as 
appropriate.
    (g) The complainant or the PHA may arrange, in advance and at the 
expense of the party making the arrangement, for a transcript of the 
hearing. Any interested party may purchase a copy of such transcript.
    (h) Accommodation of persons with disabilities. (1) The PHA must 
provide reasonable accommodation for persons with disabilities to 
participate in the hearing. Reasonable accommodation may include 
qualified sign language interpreters, readers, accessible locations, or 
attendants.
    (2) If the tenant is visually impaired, any notice to the tenant 
which is required under this subpart must be in an accessible format.

[40 FR 33406, Aug. 7, 1975. Redesignated at 49 FR 6714, Feb. 23, 1984, 
and amended at 56 FR 51580, Oct. 11, 1991]



Sec. 966.57  Decision of the hearing officer or hearing panel.

    (a) The hearing officer or hearing panel shall prepare a written 
decision, together with the reasons therefor, within a reasonable time 
after the hearing. A copy of the decision shall be sent to the 
complainant and the PHA. The PHA shall retain a copy of the decision in 
the tenant's folder. A copy of

[[Page 497]]

such decision, with all names and identifying references deleted, shall 
also be maintained on file by the PHA and made available for inspection 
by a prospective complainant, his representative, or the hearing panel 
or hearing officer.
    (b) The decision of the hearing officer or hearing panel shall be 
binding on the PHA which shall take all actions, or refrain from any 
actions, necessary to carry out the decision unless the PHA Board of 
Commissioners determines within a reasonable time, and promptly notifies 
the complainant of its determination, that
    (1) The grievance does not concern PHA action or failure to act in 
accordance with or involving the complainant's lease on PHA regulations, 
which adversely affect the complainant's rights, duties, welfare or 
status;
    (2) The decision of the hearing officer or hearing panel is contrary 
to applicable Federal, State or local law, HUD regulations or 
requirements of the annual contributions contract between HUD and the 
PHA.
    (c) A decision by the hearing officer, hearing panel, or Board of 
Commissioners in favor of the PHA or which denies the relief requested 
by the complainant in whole or in part shall not constitute a waiver of, 
nor affect in any manner whatever, any rights the complainant may have 
to a trial de novo or judicial review in any judicial proceedings, which 
may thereafter be brought in the matter.



PART 968_PUBLIC HOUSING MODERNIZATION--Table of Contents




                            Subpart A_General

Sec.
968.101 Purpose and applicability.
968.102 Special requirements for Turnkey III developments.
968.103 Allocation of funds under section 14.
968.104 Reserve for emergencies and disasters.
968.105 Definitions.
968.108 Displacement, relocation, and real property acquisition.
968.110 Other program requirements.
968.112 Eligible costs.
968.115 Modernization and energy conservation standards.
968.120 Force account.
968.125 Initiation of modernization activities.
968.130 Fund requisitions.
968.135 Contracting requirements.
968.140 On-site inspections.
968.145 Fiscal closeout.

 Subpart B_Comprehensive Improvement Assistance Program (For PHAs That 
                  Own or Operate Fewer Than 250 Units)

968.205 Definitions.
968.210 Procedures for obtaining approval of a modernization program.
968.215 Resident and homebuyer participation.
968.225 Budget revisions.
968.230 Progress reports.
968.235 Time extensions.
968.240 HUD review of PHA performance.

Subpart C_Comprehensive Grant Program (for PHAs That Own or Operate 250 
                      or More Public Housing Units)

968.305 Definitions.
968.310 Determination of formula amount.
968.315 Comprehensive Plan (including five-year action plan).
968.320 HUD review and approval of comprehensive plan (including five-
          year action plan).
968.325 Annual submission of activities and expenditures.
968.330 PHA performance and evaluation report.
968.335 HUD review of PHA performance.

                   Subpart D_Vacancy Reduction Program

Sec.
968.416 Fund requisitions.
968.419 Grantee's oversight responsibilities.
968.422 Progress reports and completion schedule.
968.425 HUD review of grantee performance.
968.428 Program closeout.
968.435 Other program requirements.

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

    Source: 54 FR 52689, Dec. 21, 1989, unless otherwise noted.



                            Subpart A_General



Sec. 968.101  Purpose and applicability.

    (a) Purpose. The purpose of this part is to set forth the policies 
and procedures for the Modernization program authorizing HUD to provide 
financial assistance to Public Housing Agencies (PHAs).
    (b) Applicability. (1) Subpart A of this part applies to all 
modernization under

[[Page 498]]

this part. Subpart B of this part sets forth the requirements and 
procedures for the Comprehensive Improvement Assistance Program (CIAP) 
for PHAs that own or operate fewer than 250 public housing units. 
Subpart C of this part sets forth the requirements and procedures for 
the Comprehensive Grant Program (CGP) for PHAs that own or operate 250 
or more units. A PHA that qualifies for participation in the CGP is not 
eligible to participate in the CIAP. A PHA that has already qualified to 
participate in the CGP may elect to continue to participate in the CGP 
so long as it owns or operates at least 200 units.
    (2) This part applies to PHA-owned low-income public housing 
developments (including developments managed by a resident management 
corporation pursuant to a contract with the PHA); conveyed Lanham Act 
and Public Works Administration (PWA) developments; and to Section 23 
Leased Housing Bond-Financed developments. Rental developments which are 
planned for conversion to homeownership under sections 5(h), 21, or 301 
of the Act, but which have not yet been sold by a PHA, continue to 
qualify for assistance under this part. This part does not apply to 
developments under the Section 23 Leased Housing Non-Bond Financed 
program, the Section 10(c) Leased program, or the Section 23 or Section 
8 Housing Assistance Payments programs.
    (3) A section 23 Leased Housing Bond-Financed development is 
eligible for modernization only if HUD determines that the development 
has met the following conditions:
    (i) The development was financed by the issuance of bonds;
    (ii) Clear title to the development will be conveyed to or vested in 
the PHA at the end of the section 23 lease term;
    (iii) There are no legal obstacles affecting the PHA's use of the 
property as public housing during the 20-year period of the 
modernization;
    (iv) After completion of the modernization, the development will 
have a remaining useful life of at least 20 years and it is in the 
financial interest of the Federal Government to improve the development; 
and
    (v) The development is covered by a cooperation agreement between 
the PHA and local governing body during the 20-year period of the 
modernization.
    (4) A section 23 Leased Housing Bond-Financed development which has 
been conveyed to the PHA after the bonds have been retired is similarly 
eligible for modernization if the conditions specified under paragraph 
(b)(3) of this section have been satisfied.
    (5) A development/building/unit which is assisted under section 
5(j)(2) of the Act (Major Reconstruction of Obsolete Projects) (MROP) is 
eligible for section 14 funding (CIAP or CGP) where it received MROP 
funding after FFY 1988 and has reached Date of Full Availability (DOFA) 
or where it received MROP funding during FFYs 1986-1988 and all MROP 
funds have been expended.
    (c) Transition. Any amount that HUD has approved for a PHA must be 
used for the purposes for which the funding was provided, or:
    (1) For a CGP PHA, for purposes consistent with an approved Annual 
Statement or Five-Year Action Plan submitted by the PHA, as the PHA 
determines to be appropriate; or
    (2) For a CIAP PHA, in accordance with a revised CIAP budget.
    (d) Approved information collections. The following sections of this 
subpart have been approved by the Office of Management and Budget in 
accordance with the Paperwork Reduction Act of 1995 and assigned OMB 
approval number 2577-0044: Sec. Sec. 968.135, 968.145, 968.210, 
968.215, 968.225, and 968.230. The following sections of this subpart 
have been similarly approved and assigned approval number 2577.0157: 
Sec. Sec. 968.310, 968.315, 968.325, and 968.330.

[57 FR 5570, Feb. 14, 1992, as amended at 58 FR 13930, Mar. 15, 1993; 61 
FR 8737, Mar. 5, 1996]



Sec. 968.102  Special requirements for Turnkey III developments.

    (a) Modernization Costs. Modernization work on a Turnkey III unit 
shall not increase the purchase price or amortization period of the 
home.
    (b) Eligibility of paid-off and conveyed units for assistance.--(1) 
Paid-off units. A Turnkey III unit that is paid off but

[[Page 499]]

has not been conveyed at the time the CIAP application or CGP Annual 
Submission is submitted, is eligible for any physical improvement under 
Sec. 968.112(d).
    (2) Conveyed units. Where modernization work has been approved 
before conveyance, the PHA may complete the work even if title to the 
unit is subsequently conveyed before the work is completed. However, 
once conveyed, the unit is not eligible for additional or future 
assistance. A PHA shall not use funds provided under this part for the 
purpose of modernizing units if the modernization work was not approved 
before conveyance of title.
    (c) Other. The homebuyer family must be in compliance with its 
financial obligations under its homebuyer agreement in order to be 
eligible for non-emergency physical improvements, with the exception of 
work necessary to meet statutory and regulatory requirements, (e.g., 
accessibility for persons with disabilities and lead-based paint 
activities) and the correction of development deficiencies. 
Notwithstanding the above requirement, a PHA may, with prior HUD 
approval, complete non-emergency physical improvements on any 
homeownership unit where the PHA demonstrates that, due to economies of 
scale or geographic constraints, substantial cost savings may be 
realized by completing all necessary work in a development at one time.

[59 FR 44837, Aug. 30, 1994, as amended at 61 FR 8737, Mar. 5, 1996; 62 
FR 27126, May 16, 1997; 64 FR 50229, Sept. 15, 1999]



Sec. 968.103  Allocation of funds under section 14.

    (a) General. This section describes the process for allocating 
modernization funds to the aggregate of PHAs and IHAs participating in 
the CIAP and to individual PHAs and IHAs participating in the CGP.
    (b) Set-aside for emergencies and disasters. For each FFY, HUD shall 
reserve from amounts approved in the appropriation act for grants under 
this part and part 950 of this title, an amount not to exceed $75 
million (which shall include unused reserve amounts carried over from 
previous FFYs), which shall be made available to PHAs and IHAs for 
modernization needs resulting from natural and other disasters, and from 
emergencies. HUD shall replenish this reserve at the beginning of each 
FFY. Any unused funds from previous years may remain in the reserve 
until allocated. The requirements governing the reserve for disasters 
and emergencies and the procedures by which a PHA may request such 
funds, are set forth in Sec. 968.104.
    (c) Set-aside for credits for mod troubled PHAs under subpart C of 
this part. After deducting an amount for the reserve for natural and 
other disasters and for emergencies under paragraph (b) of this section, 
HUD shall set aside from the funds remaining no more than five percent 
for the purpose of providing credits to PHAs that were formerly 
designated as mod troubled agencies under the Public Housing Management 
Assessment Program (PHMAP) (see 24 CFR part 901). The purpose of this 
set-aside is to compensate these PHAs for amounts previously withheld by 
HUD because of a PHA's prior designation as a mod troubled agency. Since 
part 901 of this chapter does not apply to IHAs, they are not classified 
as ``mod troubled'' and they do not participate in the set-aside credits 
established under paragraph (c) of this section.
    (d) Formula allocation based on relative needs. After determining 
the amounts to be reserved under paragraphs (b) and (c) of this section, 
HUD shall allocate the amount remaining pursuant to the formula set 
forth in paragraphs (e) and (f) of this section, which is designed to 
measure the relative backlog and accrual needs of PHAs and IHAs.\1\
---------------------------------------------------------------------------

    \1\ In construing all terms used in the statutory indicators for 
estimating backlog and accrual need, HUD shall use the meanings cited in 
Appendix B of the HUD Report to the Congress on Alternative Methods for 
Funding Public Housing Modernization (April 1990). Copies of the HUD 
Report to Congress may be obtained by contacting the HUD User at 1-800-
245-2691.
---------------------------------------------------------------------------

    (e) Allocation for backlog needs. HUD shall allocate half of the 
formula amount under paragraph (d) of this section based on the relative 
backlog needs of PHAs and IHAs, as follows:
    (1) Determination of backlog need:
    (i) Statistically reliable data are available. Where HUD determines 
that the

[[Page 500]]

data concerning the categories of backlog need identified under 
paragraph (e)(4) of this section are statistically reliable for 
individual IHAs and PHAs with 250 or more units, or for the aggregate of 
IHAs and PHAs with fewer than 250 units, which are not participating in 
the formula funding portion of the modernization program, it will base 
its allocation on direct estimates of the statutory categories of 
backlog need, based on the most recently available, statistically 
reliable data;
    (ii) Statistically reliable data are unavailable. Where HUD 
determines that statistically reliable data concerning the categories of 
backlog need identified under paragraph (e)(4) of this section are not 
available for individual PHAs and IHAs with 250 or more units, it will 
base its allocation of funds under this section on estimates of the 
categories of backlog need using:
    (A) The most recently available data on the categories of backlog 
need under paragraph (e)(4) of this section;
    (B) Objectively measurable data concerning the following PHA or IHA, 
community and development characteristics:
    (1) The average number of bedrooms in the units in a development. 
(Weighted at 2858.7);
    (2) The proportion of units in a development available for occupancy 
by very large families. (Weighted at 7295.7);
    (3) The extent to which units for families are in high-rise elevator 
developments. (Weighted at 5555.8);
    (4) The age of the developments, as determined by the DOFA date 
(date of full availability). In the case of acquired developments, HUD 
will use the DOFA date unless the PHA provides HUD with the actual date 
of construction, in which case HUD will use the actual date of 
construction (or, for scattered sites, the average dates of construction 
of all the buildings), subject to a 50 year cap. (Weighted at 206.5);
    (5) In the case of a large agency, the number of units with 2 or 
more bedrooms. (Weighted at .433);
    (6) The cost of rehabilitating property in the area. (Weighted at 
27544.3);
    (7) For family developments, the extent of population decline in the 
unit of general local government determined on the basis of the 1970 and 
1980 censuses. (Weighted at 759.5);
    (C) An equation constant of 1412.9.
    (2) Calibration of backlog need for developments constructed prior 
to 1985. The estimated backlog need, as determined under either 
paragraph (e)(1)(i) or (e)(1)(ii) of this section, shall be adjusted 
upward for developments constructed prior to 1985 by a constant ratio of 
1.5 to more accurately reflect the costs of modernizing the categories 
of backlog need under paragraph (e)(4) of this section for the public 
housing stock as of 1991.
    (3) Replacement factor to reflect backlog need for developments with 
demolition, disposition, or conversion occurring on or after October 1, 
1996. (i) PHAs that have a reduction in units attributable to 
demolition, disposition, or conversion of units during the period 
(reflected in data maintained by HUD) that lowers the formula unit count 
for the Comprehensive Grant formula calculations qualify for application 
of a replacement housing factor, subject to satisfaction of criteria 
stated in paragraph (e)(3)(ii) of this section. The factor will be 
added, where applicable, for the first 5 years after such reduction, and 
consists of 50 percent of the published Total Development Cost for a 
two-bedroom unit in a walkup type structure for the period April 3, 1996 
through April 30, 1997, multiplied times the number of units to be 
demolished, disposed of, or converted. The total relative backlog need 
of the PHA resulting from application of this replacement factor cannot 
exceed the share it would have had if the demolition, disposition, or 
conversion had not taken place.
    (ii) A PHA is eligible for application of this factor only if the 
PHA satisfies the following criteria:
    (A) The PHA requests the application of the replacement factor;
    (B) The restored funding that results from the use of the 
replacement factor is used to provide replacement housing (in any year 
in which replacement housing is an eligible activity) or accelerated 
renovation of vacant but viable units, in accordance with the PHA's 
five-year action plan, approved by HUD (see Sec. 968.315);

[[Page 501]]

    (C) The PHA does not receive funding under the public housing 
development; Major Reconstruction of Obsolete Public Housing, or HOPE VI 
programs for the units developed or modernized with funds received under 
this replacement housing factor;
    (D) A PHA that has been determined by HUD to be troubled or mod-
troubled that is not already under the direction of HUD or a court-
appointed receiver, in accordance with part 901 of this chapter, must 
use an Alternative Management Entity as defined in Sec. 901.5 of this 
chapter for development of replacement housing and must comply with any 
applicable provisions of its Memorandum of Agreement executed with HUD 
under that part; and
    (E) Any development of replacement housing by any PHA must be done 
in accordance with part 941 of this chapter.
    (iii) If the PHA does not use the restored funding that results from 
the use of the replacement factor to provide replacement housing or 
renovate vacant units in a timely fashion, in accordance with Sec. 
968.125 and Sec. 941.501 of this chapter, and make reasonable progress 
on such use of the funding, in accordance with Sec. 968.335(a)(3) and 
Sec. 941.501, HUD may require appropriate corrective action under Sec. 
968.335 and Sec. 941.501; may recapture and reallocate the funds; or 
may use other remedies available to HUD.
    (4) Deduction for prior modernization: HUD shall deduct from the 
estimated backlog need, as determined under either paragraph (e)(1)(i) 
or (e)(1)(ii) of this section, amounts previously provided to a PHA or 
IHA for modernization, using one of the following methods:
    (i) Standard deduction for prior CIAP and MROP. HUD shall deduct 60 
percent of the CIAP funds made available on a PHA-wide or IHA-wide basis 
from FFY 1984 to 1991, and 40 percent of the funds made available on a 
development-specific basis for the Major Reconstruction of Obsolete 
Projects (MROP) (not to exceed the estimated formula need for the 
development), subject to a maximum fifty percent deduction of a PHA's or 
IHA's total need for backlog funding;
    (ii) Newly constructed units. Units with a DOFA date of October 1, 
1991 or thereafter will be considered to have a zero backlog; or
    (iii) Acquired developments. Developments acquired by a PHA with a 
DOFA date of October 1, 1991 or thereafter will be considered by HUD to 
have a zero backlog.
    (5) Categories of backlog need. The most recently available data 
used under either paragraph (e)(1)(i) or (e)(1)(ii) of this section must 
pertain to the following categories of backlog need:
    (i) Backlog of needed repairs and replacements of existing physical 
systems in public housing developments;
    (ii) Items that must be added to developments to meet HUD's 
modernization standards under Sec. 968.115, and State and local codes; 
and
    (iii) Items that are necessary or highly desirable for the long-term 
viability of a development, in accordance with HUD's modernization 
standards.
    (f) Allocation for accrual needs. HUD shall allocate the other half 
remaining under the formula allocation under paragraph (d) of this 
section based upon the relative accrual needs of PHAs and IHAs, 
determined as follows:
    (1) Statistically reliable data are available. Where HUD determines 
that statistically reliable data are available concerning the categories 
of need identified under paragraph (f)(3) of this section for individual 
PHAs and IHAs with 250 or more units, and for the aggregate of PHAs and 
IHAs with fewer than 250 units, it shall base its allocation of 
assistance under this section on the needs that are estimated to have 
accrued since the date of the last objective measurement of backlog 
needs under paragraph (e)(1)(i) of this section;
    (2) Statistically reliable data are unavailable. Where HUD 
determines that statistically reliable data concerning the categories of 
need identified under paragraph (f)(3) of this section are not available 
for individual PHAs and IHAs with 250 or more units, it shall base its 
allocation of assistance under this section on estimates of accrued need 
using:

[[Page 502]]

    (i) The most recently available data on the categories of accrual 
need under paragraph (f)(3) of this section;
    (ii) Objectively measurable data concerning the following PHA or 
IHA, community, and development characteristics:
    (A) The average number of bedrooms in the units in a development. 
(Weighted at 100.1);
    (B) The proportion of units in a development available for occupancy 
by very large families. (Weighted at 356.7);
    (C) The age of the developments. (Weighted 10.4);
    (D) The extent to which the buildings in developments of an agency 
average fewer than 5 units. (Weighted at 87.1);
    (E) The cost of rehabilitating property in the area. (Weighted at 
679.1);
    (F) The total number of units of each PHA or IHA that owns or 
operates 250 or more units. (weighted at .0144);
    (iii) An equation constant of 602.1.
    (3) Categories of need. The data to be provided under either 
paragraph (f)(1) or (2) of this section must pertain to the following 
categories of need:
    (i) Backlog of needed repairs and replacements of existing physical 
systems in public housing developments; and
    (ii) Items that must be added to developments to meet HUD's 
modernization standards under Sec. 968.115, and State and local codes.
    (4) Replacement factor to reflect accrual need for developments with 
demolition, disposition, or conversion occurring on or after October 1, 
1996. (i) PHAs that have a reduction in units attributable to 
demolition, disposition, or conversion of units during the period 
(reflected in data maintained by HUD) that lowers the formula unit count 
for the Comprehensive Grant formula calculations qualify for application 
of a replacement housing factor, subject to satisfaction of criteria 
stated in paragraph (f)(4)(ii) of this section. The factor will be 
added, where applicable, for the first five years after such reduction, 
and consists of two percent of the published Total Development Cost for 
a two-bedroom unit in a walkup type structure for the period April 3, 
1996 through April 30, 1997, multiplied times the number of units to be 
demolished, disposed of, or converted. The total relative accrual need 
of the PHA resulting from application of this replacement factor cannot 
exceed the share it would have had if the demolition, disposition, or 
conversion had not taken place.
    (ii) A PHA is eligible for application of this factor only if the 
PHA satisfies the following criteria:
    (A) The PHA requests the application of the replacement factor;
    (B) The restored funding that results from the use of the 
replacement factor is used to provide replacement housing (in any year 
in which replacement housing is an eligible activity) or accelerated 
renovation of vacant but viable units, in accordance with the PHA's 
five-year action plan, approved by HUD (see Sec. 968.315);
    (C) The PHA does not receive funding under the public housing 
development, Major Reconstruction of Obsolete Public Housing, or HOPE VI 
programs for the units developed or modernized with funding received 
under this replacement housing factor;
    (D) A PHA that has been determined by HUD to be troubled or mod-
troubled, in accordance with part 901 of this chapter that is not 
already under the direction of HUD or a court-appointed receiver, must 
use an Alternative Management Entity as defined in Sec. 901.5 of this 
chapter for development of replacement housing and must comply with any 
applicable provisions of its Memorandum of Agreement executed with HUD 
under that part; and
    (E) Any development of replacement housing by any PHA must be done 
in accordance with part 941 of this chapter.
    (iii) If the PHA does not use the restored funding that results from 
the use of the replacement factor to provide replacement housing or 
renovate vacant units in a timely fashion, in accordance with Sec. 
968.125 and Sec. 941.501 of this chapter, and make reasonable progress 
on such use of the funding, in accordance with Sec. 968.335(a)(3) and 
Sec. 941.501, HUD may require appropriate corrective action under Sec. 
968.335 and Sec. 941.501; may recapture and reallocate the funds; or 
may use other remedies available to HUD.
    (g) Allocation of CIAP. The formula amount determined under 
paragraphs (e) and (f) of this section for PHAs and

[[Page 503]]

IHAs with fewer than 250 units shall be allocated to PHAs in accordance 
with the requirements of subpart B of this part (the CIAP), and to IHAs 
in accordance with the requirements of 24 CFR part 950, subpart I.
    (h) Allocation for CGP. The formula amount determined under 
paragraphs (e) and (f) of this section for PHAs with 250 or more units 
shall be allocated in accordance with the requirements of subpart C of 
this part (the CGP), and for IHAs in accordance with the requirements of 
24 CFR part 950, subpart I. A PHA that is eligible to receive a grant 
under the CGP may appeal the amount of its formula allocation in 
accordance with the requirements set forth in Sec. 968.310(b). A PHA 
that is eligible to receive modernization funds under the CGP because it 
owns or operates 250 or more units is disqualified from receiving 
assistance under the CIAP under this part.
    (i) Use of formula allocation. Any amounts allocated to a PHA under 
paragraphs (e) and (f) of this section may be used for any eligible 
activity under this part, notwithstanding that the allocation amount is 
determined by allocating half based on the relative backlog needs and 
half based on the relative accrual needs of PHAs and IHAs.
    (j) Calculation of number of units. For purposes of determining 
under this section the number of units owned or operated by a PHA or 
IHA, and the relative modernization needs of PHAs and IHAs, HUD shall 
count as one unit each existing rental and section 23 bond-financed unit 
under the ACC, except that it shall count as one-fourth of a unit each 
existing unit under the Turnkey III program. In addition, HUD shall 
count as one unit each existing unit under the Mutual Help program. New 
development units that are added to an PHA's or IHA's inventory will be 
added to the overall unit count so long as they are under ACC amendment 
and have reached DOFA by the first day in the FFY in which the formula 
is being run. Any increase in units (reaching DOFA and under ACC 
amendment) as of the beginning of the FFY shall result in an adjustment 
upwards in the number of units under the formula. New units reaching 
DOFA after this date will be counted for formula purposes as of the 
following FFY.
    (k) Demolition, disposition and conversion of units--(1) General. 
Where an existing unit under an ACC is demolished, disposed of, or 
converted into a larger or smaller unit, including the substantial 
rehabilitation of a Mutual Help or Turnkey III unit, HUD shall not 
adjust the amount the PHA or IHA receives under the formula, unless more 
than one percent of the units are affected on a cumulative basis. Where 
more than one percent of the existing units are demolished, disposed of, 
or converted, HUD shall reduce the formula amount for the PHA or IHA 
over a 3-year period to reflect removal of the units from the ACC;
    (2) Determination of one percent cap. In determining whether more 
than one percent of the units are affected on a cumulative basis, HUD 
will compare the units eligible for funding in the initial year under 
formula funding with the number of units eligible for funding for 
formula funding purposes for the current year, and shall base its 
calculations on the following:
    (i) Increases in the number of units resulting from the conversion 
of existing units will be added to the overall unit count so long as 
they are under ACC amendment by the first day in the FFY in which the 
formula is being run;
    (ii) Units which are lost as a result of demolition, disposition or 
conversion shall not be offset against units subsequently added to a 
PHA's or IHA's inventory;
    (iii) For purposes of calculating the number of converted units, HUD 
shall regard the converted size of the unit as the appropriate unit 
count (e.g., a unit that originally was counted as one unit under 
paragraph (j) of this section, but which later was converted into two 
units, shall be counted as two units under the ACC).
    (3) Phased-in reduction of units. (i) Reduction less than one 
percent. If HUD determines that the reduction in units under paragraph 
(k)(2) of this section is less than one percent, the PHA or IHA will be 
funded as though no change had occurred;
    (ii) Reduction greater than one percent. If HUD determines that the 
reduction in units under paragraph (k)(2) of this

[[Page 504]]

section is greater than one percent, the number of units on which 
formula funding is based will be the number of units reported as 
eligible for funding for the current program, plus two thirds of the 
difference between the initial year and the current year in the first 
year, plus one third of the difference in the second year, and at the 
level of the current year in the third year;
    (iii) Exception. A unit which is conveyed under the Mutual Help or 
Turnkey III programs will result in an automatic (rather than a phased-
in) reduction in the unit count. Paid-off Mutual Help or Turnkey III 
units continue to be counted until they are conveyed.
    (4) Subsequent reductions in unit count. (i) Once a PHA's or IHA's 
unit count has been fully reduced under paragraph (k)(3)(ii) of this 
section to reflect the new number of units under the ACC, this new 
number of units will serve as the base for purposes of calculating 
whether there has been a one percent reduction in units on a cumulative 
basis;
    (ii) A reduction in formula funding, based upon additional 
reductions to the number of a PHA's or IHA's units, will also be phased 
in over a three-year period, as described in paragraph (k)(2) of this 
section.

[57 FR 5571, Feb. 14, 1992, as amended at 59 FR 30477, June 13, 1994; 59 
FR 44837, Aug. 30, 1994; 61 FR 8737, Mar. 5, 1996; 63 FR 46107, Aug. 28, 
1998]



Sec. 968.104  Reserve for emergencies and disasters.

    (a) Emergencies--(1) Eligibility for assistance. A PHA (including a 
PHA that has been designated as mod troubled under PHMAP) may obtain 
funds at any time, for any eligible emergency work item as defined in 
Sec. 968.305 (for CGP PHAs) or for any eligible emergency work item 
(described as emergency modernization in Sec. 968.205) (for CIAP PHAs), 
from the reserve established under Sec. 968.103(b). However, emergency 
reserve funds may not be provided to a CGP PHA that has the necessary 
funds available from any other source, including its annual formula 
allocation under Sec. 968.103 (e) and (f), other unobligated 
modernization funds, and its replacement reserves. A PHA is not required 
to have an approved comprehensive plan under Sec. 968.315 before it can 
request emergency assistance from this reserve. Emergency reserve funds 
may not be provided to a CIAP PHA unless it does not have the necessary 
funds available from any other source, including unobligated CIAP, and 
no CIAP modernization funding is available from HUD for the remainder of 
the fiscal year.
    (2) Procedure. To obtain emergency funds, a PHA must submit a 
request, in a form to be prescribed by HUD, which demonstrates that 
without the requested funds from the set-aside, the PHA does not have 
adequate funds available to correct the conditions which present an 
immediate threat to the health or safety of the residents. HUD will 
immediately process a request for such assistance and, if it determines 
that the PHA's request meets the requirements under paragraph (a)(1) of 
this section, it shall approve the request, subject to the availability 
of funds in the reserve;
    (3) Repayment. A CGP PHA that receives assistance for its emergency 
needs from the reserve under Sec. 968.103(b) must repay such assistance 
from its future allocations of assistance, where available. For CGP 
PHAs, HUD shall deduct up to 50 percent of a PHA's succeeding year's 
formula allocation under Sec. 968.103 (e) and (f) to repay emergency 
funds previously provided by HUD to the PHA. The remaining balance, if 
any, shall be deducted from a PHA's succeeding years' formula 
allocations. A CIAP PHA is not required to repay assistance for its 
emergency needs from the reserve.
    (b) Natural and other disasters--(1) Eligibility for assistance. A 
PHA (including a PHA that has been designated as mod troubled under 
PHMAP) may request assistance at any time from the reserve established 
under Sec. 968.103(b) for the purpose of permitting the PHA to address 
a natural or other disaster. To qualify for assistance, the disaster 
must pertain to an extraordinary event affecting only one or a few PHAs, 
such as an earthquake or hurricane. Any disaster declared by the 
President (or which HUD determines would qualify for a Presidential 
declaration if it were

[[Page 505]]

on a larger scale) qualifies for assistance under this paragraph. A PHA 
may receive funds from the reserve regardless of the availability of 
other modernization funds or reserves, but only to the extent that its 
needs are in excess of its insurance coverage or other Federal 
assistance. A CGP PHA is not required to have an approved comprehensive 
plan under Sec. 968.315 before it can request assistance from the 
reserve under Sec. 968.103(b);
    (2) Procedure. To obtain funding for natural or other disasters 
under Sec. 968.103(b), a PHA must submit a request, in a form to be 
prescribed by HUD, which demonstrates that the PHA meets the 
requirements of paragraph (b)(1) of this section. HUD will immediately 
process a request for such assistance and, if it determines that the 
request meets the requirements under paragraph (b)(1) of this section, 
it shall approve the request, subject to the availability of funds in 
the reserve;
    (3) Repayment. Funds provided to a PHA under Sec. 968.103(b) for 
natural and other disasters are not required to be repaid.

[57 FR 5575, Feb. 14, 1992, as amended at 59 FR 44838, Aug. 30, 1994. 
Redesignated and amended at 61 FR 8738, Mar. 5, 1996]



Sec. 968.105  Definitions.

    The terms HUD and Public Housing Agency (PHA) are defined in 24 CFR 
part 5.
    Act. The United States Housing Act of 1937, as amended, (42 U.S.C. 
1437 et seq.).
    Annual contributions contract (ACC). A contract under the Act 
between HUD and the PHA containing the terms and conditions under which 
the Department assists the PHA in providing decent, safe, and sanitary 
housing for low-income families. The ACC must be in a form prescribed by 
HUD under which HUD agrees to provide assistance in the development, 
modernization, and/or operation of a low-income housing project under 
the Act, and the PHA agrees to develop, modernize, and operate the 
project in compliance with all provisions of the ACC and the Act, and 
all HUD regulations and implementing requirements and procedures.
    CGP. The Comprehensive Grant Program, which provides modernization 
funds on a formula basis to PHAs with 250 or more public housing units.
    CIAP. The Comprehensive Improvement Assistance Program, which 
provides modernization funds on a competitive basis to PHAs with fewer 
than 250 public housing units.
    Development. The term development has the same meaning as that 
provided for low-income housing project, as that term is defined in 
section 3(b)(1) of the Act.
    FFY. Federal fiscal year.
    Force account labor. Labor employed directly by the PHA on either a 
permanent or a temporary basis. See Sec. 968.120.
    Hard costs. The physical improvement costs in development accounts 
1450 through 1475 of the Low-Rent Housing Accounting Handbook 7510.1, as 
revised, which include: Account 1450 Site Improvements; Account 1460 
Dwelling Structures; Account 1465.1 Dwelling Equipment--Nonexpendable; 
Account 1470 Nondwelling Structures; and Account 1475 Nondwelling 
Equipment.
    Homebuyer agreement. A Turnkey III Homebuyer Ownership Opportunity 
Agreement.
    Modernization funds. Funds derived from an allocation of budget 
authority for the purpose of funding physical and management 
improvements.
    Modernization program. A PHA's program for carrying out 
modernization, as set forth in the approved CIAP budget or CGP Annual 
Statement.
    Modernization project. The improvement of one or more existing 
public housing developments under a unique number designated for that 
modernization program. For each modernization project, HUD and the PHA 
shall enter into an ACC amendment, requiring low-income use of the 
housing for not less than 20 years from the date of the ACC amendment 
(subject to sale of homeownership units in accordance with the terms of 
the ACC). The terms ``modernization project number'' and ``comprehensive 
grant number'' are used interchangeably.
    Non-routine maintenance. Work items that ordinarily would be 
performed on a regular basis in the course of upkeep of property, but 
have become substantial in scope because they have been put off, and 
involve expenditures that would otherwise materially distort the

[[Page 506]]

level trend of maintenance expenses. Replacement of equipment and 
materials rendered unsatisfactory because of normal wear and tear by 
items of substantially the same kind does qualify, but reconstruction, 
substantial improvement in the quality or kind of original equipment and 
materials, or remodeling that alters the nature or type of housing units 
does not qualify.
    Partnership process. A specific and ongoing process that is designed 
to ensure that residents, resident groups, and the PHA work in a 
cooperative and collaborative manner to develop, implement and monitor 
the CIAP or CGP. At a minimum, a PHA shall ensure that the partnership 
process incorporates full resident participation in each of the required 
program components.
    PHMAP. The Public Housing Management Assessment Program (PHMAP) is a 
process designed to allow HUD and the PHA to identify PHA management 
capabilities and deficiencies, and to lead to overall better management 
of the public housing program, in accordance with 24 CFR part 901.
    Reasonable cost. Total unfunded hard cost needs for a development 
that do not exceed 90 percent of the computed Total Development Cost 
(TDC) for a new development with the same structure type and number and 
size of units in the market area.
    Soft costs. The non-physical improvement costs which exclude any 
costs in development accounts 1450 through 1475.

[54 FR 52689, Dec. 21, 1989, as amended at 56 FR 922, Jan. 9, 1991; 57 
FR 5573, Feb. 14, 1992; 58 FR 13931, Mar. 15, 1993; 61 FR 5216, Feb. 9, 
1996; 61 FR 8738, Mar. 5, 1996]



Sec. 968.108  Displacement, relocation, and real property acquisition.

    (a) Minimizing displacement. Consistent with the other goals and 
objectives of this part, PHAs must assure that they have taken all 
reasonable steps to minimize the displacement of persons (families, 
individuals, businesses, nonprofit organizations, and farms) as a result 
of a project assisted under this part.
    (b) Temporary relocation. Residents who will not be required to move 
permanently, but who must relocate temporarily (e.g., to permit 
rehabilitation), 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/utility costs; and
    (2) Appropriate advisory services, including reasonable advance 
written notice of:
    (i) The date and approximate duration of the temporary relocation;
    (ii) The location of the suitable, decent, safe, and sanitary 
housing to be made available for the temporary period;
    (iii) The terms and conditions under which the resident may lease 
and occupy a suitable, decent, safe, and sanitary dwelling in the 
building/complex following completion of the project; and
    (iv) The provisions of paragraph (b)(1) of this section.
    (c) Relocation assistance for displaced persons. A ``displaced 
person'' (defined in paragraph (g) of this section) must be provided 
relocation assistance at the levels described in, and in accordance with 
the requirements of, the Uniform Relocation Assistance and Real Property 
Acquisition Policies Act of 1970, as amended (URA) (42 U.S.C. 4601-4655) 
and implementing regulations at 49 CFR part 24. A ``displaced person'' 
shall be advised of his/her rights under the Fair Housing Act (42 U.S.C. 
3601-19), and, if the representative comparable replacement dwelling 
used to establish the amount of the replacement housing payment to be 
provided to a minority person is located in an area of minority 
concentration, such person also shall be given, if possible, referrals 
to comparable and suitable, decent, safe, and sanitary replacement 
dwellings not located in such areas.
    (d) Real property acquisition requirements. The acquisition of real 
property for a development is subject to the URA and the requirements 
described in 49 CFR part 24, subpart B.
    (e) Appeals. A person who disagrees with the PHA's determination 
concerning whether the person qualifies as a ``displaced person,'' or 
the amount of the relocation assistance for which the

[[Page 507]]

person is eligible, may file a written appeal of that determination with 
the PHA. A lower-income person who is dissatisfied with the PHA's 
determination on his or her appeal may submit a written request for 
review of that determination to the HUD Field Office.
    (f) Responsibility of PHA. (1) The PHA shall certify that it will 
comply (i.e., provide assurance of compliance, as required by 49 CFR 
part 24) with the URA, the regulations at 49 CFR part 24, and the 
requirements of this section and shall ensure such compliance, 
notwithstanding any third party's contractual obligation to the PHA to 
comply with these provisions.
    (2) The PHA shall maintain records in sufficient detail to 
demonstrate compliance with these provisions. The PHA shall maintain 
data on the race, ethnic, gender, and handicap status of displaced 
persons.
    (g) Definition of displaced person. (1) For purposes of this 
section, the term displaced person means a person (family, individual, 
business, nonprofit organization, or farm) that moves from real 
property, or moves personal property from real property, permanently, as 
a direct result of acquisition, rehabilitation, or demolition for a 
project assisted under this part. This includes any permanent, 
involuntary move for an assisted project, including any permanent move 
from the building/complex that is made:
    (i) On or after the date of the ``initiation of negotiations'' 
(defined in Sec. 968.108(h)), if the person is the resident of a 
dwelling and any one of the following three situations occurs:
    (A) The resident has not been provided, before the move, a written 
notice offering the resident the opportunity to lease and occupy a 
suitable, decent, safe, and sanitary dwelling in the same building/
complex upon completion of the project under reasonable terms and 
conditions. Such reasonable terms and conditions include a monthly rent 
and estimated average monthly utility costs that do not exceed the total 
tenant payment, as determined under 24 CFR 913.107; or
    (B) The resident is required to relocate temporarily, does not 
return to the building/complex, and either:
    (1) The resident is not offered payment for all reasonable out-of-
pocket expenses incurred in connection with the temporary relocation, or
    (2) Other conditions of the temporary relocation are not reasonable; 
or
    (C) The resident is required to move to another dwelling unit in the 
same building/complex but is not offered reimbursement for all 
reasonable out-of-pocket expenses incurred in connection with the move, 
or other conditions of the move are not reasonable; or
    (ii) Before the ``initiation of negotiations,'' if the PHA or HUD 
determines that the displacement resulted directly from acquisition, 
rehabilitation, or demolition for the assisted project;
    (2) Notwithstanding the provisions of paragraph (g)(1) of this 
section, a person does not qualify as a ``displaced person'' (and is not 
eligible for relocation assistance under the URA or this section), if:
    (i) The person has been evicted for serious or repeated violation of 
the terms and conditions of the lease or occupancy agreement, violation 
of applicable Federal, State or local law, or other good cause, and the 
PHA determines that the eviction was not undertaken for the purpose of 
evading the obligation to provide relocation assistance;
    (ii) The person moved into the property after the submission of the 
Annual Statement (CGP) or application (CIAP) and, before signing a lease 
and commencing occupancy, was provided written notice of the project, 
its possible impact on the person (e.g., that the person may be 
displaced or temporarily relocated) and the fact that he or she would 
not qualify as a ``displaced person'' (or for assistance under this 
section) as a result of the project;
    (iii) The person is ineligible under 49 CFR 24.2(g)(2); or
    (iv) HUD determines that the person was not displaced as a direct 
result of acquisition, rehabilitation, or demolition for the project.
    (3) The PHA may ask HUD, at any time, to determine whether a 
displacement is or would be covered by this section.
    (h) Definition of initiation of negotiations. For purposes of 
determining the formula for computing the replacement housing assistance 
to be provided to a

[[Page 508]]

resident who is displaced by rehabilitation or demolition, the term 
initiation of negotiations means 45 calendar days before (1) the 
issuance of the invitation for bids for the project or (2) the start of 
force account work, whichever is applicable.

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

[58 FR 13931, Mar. 15, 1993, as amended at 61 FR 8738, Mar. 5, 1996]



Sec. 968.110  Other program requirements.

    In addition to the Federal requirements set forth in 24 CFR part 5, 
the PHA shall comply with the following program requirements:
    (a) Nondiscrimination and equal opportunity. The PHA shall comply 
with Title II of the Americans with Disabilities Act and 28 CFR part 35; 
section 504 of the Rehabilitation Act of 1973 and 41 CFR part 60-471; 
and the Architectural Barriers Act of 1968 (42 U.S.C. 4151-4157) and 24 
CFR part 40.
    (b) [Reserved]
    (c) Environmental clearance. Before approving a proposed project, 
HUD will comply with the requirements of 24 CFR part 50, implementing 
the National Environmental Policy Act of 1969 (42 U.S.C. 4332 et seq.) 
and related requirements of 24 CFR 50.4.
    (d) Flood insurance. HUD will not approve for acquisition, 
construction, or improvement, a building located in an area that has 
been identified by the Federal Emergency Management Agency as having 
special flood hazards, unless the following conditions are met:
    (1) Flood insurance on the building is obtained in compliance with 
section 102(a) of the Flood Disaster Protection Act of 1973 (42 U.S.C. 
4001 et seq.); and
    (2) The community in which the area is situated is participating in 
the National Flood Insurance Program in accord with 44 CFR parts 59-79, 
or less than one year has passed since FEMA notification regarding flood 
hazards.
    (e) Wage rates. (1) Davis-Bacon. With respect to modernization work 
or contracts over $2,000 (except for nonroutine maintenance work), all 
laborers and mechanics (other than volunteers under the conditions set 
out in 24 CFR part 70) who are employed by the PHA or its contractors 
shall be paid not less than the wages prevailing in the locality, as 
predetermined by the Secretary of Labor pursuant to the Davis-Bacon Act 
(40 U.S.C. 276a-276a-5).
    (2) HUD-determined. With respect to all nonroutine maintenance work 
or contracts, all laborers and mechanics (other than volunteers under 
the conditions set out in 24 CFR part 70) who are employed by the PHA or 
its contractors shall be paid not less than the wages prevailing in the 
locality, as determined or adopted by HUD pursuant to section 12 of the 
United States Housing Act of 1937.
    (3) State. Prevailing wage rates determined under State law are 
inapplicable under the circumstances set forth in Sec. 965.101 of this 
chapter.
    (f) Technical wage rates. All architects, technical engineers, 
draftsmen and technicians (other than volunteers under the conditions 
set out in 24 CFR part 70) who are employed in the development of a 
project shall be paid not less than the wages prevailing in the 
locality, as determined or adopted (subsequent to a determination under 
applicable State or local law) by HUD.
    (g)-(j) [Reserved]
    (k) Lead-based paint poisoning prevention. The PHA shall comply with 
the relevant requirements of the Lead-Based Paint Poisoning Prevention 
Act (42 U.S.C. 4821-4846), the Residential Lead-Based Paint Hazard 
Reduction Act of 1992 (42 U.S.C. 4851-4856), and implementing 
regulations at part 35, subparts A, B, L, and R of this title.
    (l) [Reserved]
    (m) Coastal barriers. In accordance with the Coastal Barriers 
Resources Act, 16 U.S.C. 3501, no financial assistance under this part 
may be made available within the Coastal Barrier Resources System.

[54 FR 52689, Dec. 21, 1989, as amended at 56 FR 922, Jan. 9, 1991; 56 
FR 15175, Apr. 15, 1991; 57 FR 5573, Feb. 14, 1992; 57 FR 14761, Apr. 
22, 1992; 58 FR 13932, Mar. 15, 1993; 61 FR 5216, Feb. 9, 1996; 61 FR 
8738, Mar. 5, 1996; 64 FR 33637, June 23, 1999; 64 FR 50229, Sept. 15, 
1999]



Sec. 968.112  Eligible costs.

    (a) General. A PHA may use financial assistance received under this 
part for the following eligible costs:
    (1) For a CGP PHA, the eligible costs are:

[[Page 509]]

    (i) Undertaking activities described in its approved Annual 
Statement under Sec. 968.325 and approved Five-Year Action Plan under 
Sec. 968.315(e)(5);
    (ii) Carrying out emergency work, whether or not the need is 
indicated in the PHA's approved Comprehensive Plan, including Five-Year 
Action Plan, or Annual Statement;
    (iii) Funding a replacement reserve to carry out eligible activities 
in future years, subject to the restrictions set forth in paragraph (f) 
of this section;
    (iv) Preparing the Comprehensive Plan and Five-Year Action Plan 
under Sec. 968.315 and the Annual Submission under Sec. 968.325, 
including reasonable costs necessary to assist residents to participate 
in a meaningful way in the planning, implementation and monitoring 
process; and
    (v) Carrying out an audit, in accordance with 24 CFR part 44.
    (2) For a CIAP PHA, the eligible costs are activities approved by 
HUD and included in an approved CIAP budget.
    (b) Demonstration of viability. Except in the case of emergency 
work, a PHA shall only expend funds on a development for which the PHA 
has determined, and HUD agrees, that the completion of the improvements 
and replacements (for CGP PHAs, as identified in the Comprehensive Plan) 
will reasonably ensure the long-term physical and social viability of 
the development at a reasonable cost (as defined in Sec. 968.105), or 
for essential non-routine maintenance needed to keep the property 
habitable until the demolition or disposition application is approved 
and residents are relocated.
    (c) Physical improvements. Eligible costs include alterations, 
betterments, additions, replacements, and non-routine maintenance that 
are necessary to meet the modernization and energy conservation 
standards prescribed in Sec. 968.115. These mandatory standards may be 
exceeded when a PHA (and HUD in the case of CIAP PHAs) determines that 
it is necessary or highly desirable for the long-term physical and 
social viability of the individual development. Development specific 
work includes work items that are modest in design and cost, but still 
blend in with the design and architecture of the surrounding community 
by including amenities, quality materials and design and landscaping 
features that are customary for the locality and culture. The Field 
Office has the authority to approve nondwelling space where such space 
is needed to administer, and is of direct benefit to, the public housing 
program. If demolition or disposition is proposed, a PHA shall comply 
with 24 CFR part 970. Additional dwelling space may be added to existing 
units.
    (d) Turnkey III developments. (1) General. Eligible physical 
improvement costs for existing Turnkey III developments are limited to 
work items that are not the responsibility of the homebuyer families and 
that are related to health and safety, correction of development 
deficiencies, physical accessibility, energy audits and cost-effective 
energy conservation measures, or LBP testing, interim containment, 
professional risk assessment and abatement. In addition, management 
improvements are eligible costs.
    (2) Ineligible costs. Routine maintenance or replacements, and items 
that are the responsibility of the homebuyer families are ineligible 
costs.
    (3) Exception for vacant or non-homebuyer-occupied Turnkey III 
units.
    (i) Notwithstanding the requirements of paragraph (d)(1) of this 
section, a PHA may substantially rehabilitate a Turnkey III unit 
whenever the unit becomes vacant or is occupied by a non-homebuyer 
family in order to return the unit to the inventory or make the unit 
suitable for homeownership purposes. A PHA that intends to use funds 
under this paragraph must identify in its CIAP application or CGP annual 
submission the estimated number of units proposed for substantial 
rehabilitation and subsequent sale. In addition, a PHA must demonstrate, 
for each of the Turnkey III units proposed to be substantially 
rehabilitated, that it has homebuyers who both are eligible for 
homeownership, in accordance with the requirements of 24 CFR part 904, 
and have demonstrated their intent to be placed into the unit.
    (ii) Before a PHA may be approved for substantial rehabilitation of 
a unit

[[Page 510]]

under this paragraph, it must first deplete any Earned Home Payments 
Account (EHPA) or Non-Routine Maintenance Reserve (NRMR) pertaining to 
the unit, and request the maximum amount of operating subsidy. Any 
increase in the value of a unit caused by its substantial rehabilitation 
under this paragraph shall be reflected solely by its subsequent 
appraised value, and not by an automatic increase in its selling price.
    (e) Demolition and conversion costs. Eligible costs include:
    (1) Demolition of dwelling units or non-dwelling facilities, where 
the demolition is approved by HUD under 24 CFR part 970, and related 
costs, such as clearing and grading the site after demolition and 
subsequent site improvement to benefit the remaining portion of the 
existing development; and
    (2) Conversion of existing dwelling units to different bedroom sizes 
or to non-dwelling use.
    (f) Replacement reserve costs (for CGP only). (1) Funding a 
replacement reserve to carry out eligible activities in future years is 
an eligible cost, subject to the following restrictions:
    (i) Annual CGP funds are not needed for existing needs, as 
identified by the PHA in its needs assessments; or
    (ii) A physical improvement requires more funds than the PHA would 
receive under its annual formula allocation; or
    (iii) A management improvement requires more funds than the PHA may 
use under its 20% limit for management improvements (except as provided 
in paragraph (n)(2)(i) of this section), and the PHA needs to save a 
portion of its annual grant, in order to combine it with a portion of 
subsequent year(s) grants to fund the work item.
    (2) The PHA shall invest replacement reserve funds so as to generate 
a return equal to or greater than the average 91-day Treasury bill rate.
    (3) Interest earned on funds in the replacement reserve will not be 
added to the PHA's income in the determination of a PHA's operating 
subsidy eligibility, but must be used for eligible modernization costs.
    (4) To the extent that its annual formula allocation and any 
unobligated balances of modernization funds are not adequate to meet 
emergency needs, a PHA must first use its replacement reserve, where 
funded, to meet emergency needs, before requesting funds from the 
reserve under Sec. 968.104. Use of the replacement reserve is not 
required for emergencies if the amount that otherwise would be used from 
that reserve is an accumulation from application of the replacement 
housing factor (Sec. 968.103(e) (3) and (f)(4)) that is necessary so 
that replacement housing can be provided efficiently and effectively.
    (5) A PHA is not required to use its replacement reserve for costs 
related to natural and other disasters.
    (g) Management improvement costs. (1) General. Management 
improvements that are development-specific or PHA-wide in nature are 
eligible costs where needed to upgrade the operation of the PHA's 
developments, sustain physical improvements at those developments or 
correct management deficiencies. A PHA's ongoing operating expenses are 
ineligible management improvement costs. For CIAP PHAs, management 
improvements may be funded as a single work item.
    (2) Eligible costs. Eligible costs include:
    (i) General management improvement costs. Eligible costs include 
general management improvement costs, such as: management, financial, 
and accounting control systems of the PHA; adequacy and qualifications 
of PHA personnel, including training; resident programs and services 
through the coordination of the provision of social services from tribal 
or local government or other public and private entities; resident and 
development security; resident selection and eviction; occupancy; rent 
collection; maintenance; and equal opportunity.
    (ii) Economic development costs. Eligible costs include job training 
for residents and resident business development activities, for the 
purpose of carrying out activities related to the modernization-funded 
management and physical improvements. HUD encourages PHAs, to the 
greatest extent feasible, to hire residents as trainees, apprentices, or 
employees to carry out

[[Page 511]]

the modernization program under this part, and to contract with 
resident-owned businesses for modernization work.
    (iii) Resident management costs. Eligible costs include technical 
assistance to a resident council or resident management corporation 
(RMC), as defined in part 964, in order to: determine the feasibility of 
resident management to carry out management functions for a specific 
development or developments; train residents in skills directly related 
to the operations and management of the development(s) for potential 
employment by the RMC; train RMC board members in community 
organization, board development, and leadership; and assist in the 
formation of an RMC.
    (iv) Resident homeownership costs. Eligible costs are limited to the 
study of the feasibility of converting rental to homeownership units and 
the preparation of an application for conversion to homeownership or 
sale of units.
    (v) Preventive maintenance system. Eligible costs include the 
establishment of a preventive maintenance system or improvement of an 
existing system. A preventive maintenance system must provide for 
regular inspections of building structures, systems and units and 
distinguish between work eligible for operating funds (routine 
maintenance) and work eligible for modernization funding (non-routine 
maintenance).
    (h) Drug elimination costs. Eligible costs include drug elimination 
activities involving management or physical improvements, as specified 
by HUD.
    (i) Lead-based paint costs. Eligible costs include lead-based paint 
activities, such as insurance coverage and cleanup and disposal, in 
accordance with part 35 of this title.
    (j) Administrative costs. Administrative costs necessary for the 
planning, design, implementation and monitoring of the physical and 
management improvements are eligible costs and include the following:
    (1) Salaries. The salaries of non-technical and technical PHA 
personnel assigned full-time or part-time to modernization are eligible 
costs only where the scope and volume of the work are beyond that which 
could be reasonably expected to be accomplished by such personnel in the 
performance of their non-modernization duties. A PHA shall properly 
apportion to the appropriate program budget any direct charges for the 
salaries of assigned full- or part-time staff (e.g., to the CIAP, CGP or 
operating budget);
    (2) Employee benefit contributions. PHA contributions to employee 
benefit plans on behalf of non-technical and technical PHA personnel are 
eligible costs in direct proportion to the amount of salary charged to 
the CIAP or CGP, as appropriate;
    (3) Preparation of CIAP or CGP required documents;
    (4) Resident participation. Eligible costs include those associated 
with ensuring the meaningful participation of residents in the 
development of the CIAP Application or the CGP Annual Submission and 
Comprehensive Plan and the implementation and monitoring of the approved 
modernization program; and
    (5) Other administrative costs, such as telephone and facsimile, as 
specified by HUD.
    (k) Audit costs (CGP only). Eligible costs are limited to the 
portion of the audit costs that are attributable to the modernization 
program.
    (l) Architectural/engineering and consultant fees. Eligible costs 
include fees for planning, identification of needs, detailed design 
work, preparation of construction and bid documents and other required 
documents, LBP professional risk assessments and testing, and inspection 
of work in progress.
    (m) Relocation costs. Eligible costs include relocation and other 
assistance for permanent and temporary relocation, as a direct result of 
rehabilitation, demolition or acquisition for a modernization-funded 
activity, where this assistance is required by 49 CFR part 24 or Sec. 
968.108.
    (n) Cost limitations. (1) CIAP costs. (i) Management improvement 
costs. Management improvement costs shall not exceed a percentage of the 
CIAP funds available to a Field Office in a particular FFY, as specified 
by HUD.
    (ii) Planning costs. Planning costs are costs incurred before HUD 
approval of

[[Page 512]]

the CIAP application and which are related to developing the CIAP 
application or carrying out eligible modernization planning, such as 
detailed design work, preparation of solicitations, and LBP professional 
risk assessment and testing. Planning costs may be funded as a single 
work item. If a PHA incurs planning costs without prior HUD approval, a 
PHA does so with the full understanding that the costs may not be 
reimbursed upon approval of the CIAP application. Planning costs shall 
not exceed 5 percent of the CIAP funds available to a Field Office in a 
particular FFY.
    (2) CGP costs. (i) Management improvement costs. Notwithstanding the 
full fungibility of work items, a PHA shall not use more than a total of 
20 percent of its annual grant for management improvement costs in 
account 1408, unless specifically approved by HUD or the PHA has been 
designated as both an over-all high performer and mod-high performer 
under the PHMAP.
    (ii) Administrative costs. Notwithstanding the full fungibility of 
work items, a PHA shall not use more than a total of 10 percent of its 
annual grant on administrative costs in account 1410, excluding any 
costs related to lead-based paint or asbestos testing (whether conducted 
by force account employees or by a contractor), in-house architectural/
engineering (A/E) work, or other special administrative costs required 
by State or local law, unless specifically approved by HUD.
    (3) Program benefit. Where the physical or management improvement, 
including administrative cost, will benefit programs other than Public 
Housing, such as Section 8 or local revitalization programs, eligible 
costs are limited to the amount directly attributable to the public 
housing program.
    (4) No duplication. Any eligible cost for an activity funded by CIAP 
or CGP shall not also be funded by any other HUD program.
    (o) Ineligible costs. Ineligible costs include:
    (1) Luxury improvements;
    (2) Indirect administrative costs (overhead), as defined in OMB 
Circular A-87;
    (3) Public housing operating assistance;
    (4) Direct provision of social services, through either force 
account or contract labor, from FFY 1996 and future FFYs funds, unless 
otherwise provided by law; and
    (5) Other ineligible activities, as specified by HUD.
    (p) Expanded eligibility for FFY 1995 and prior year modernization 
funds. The FFY 1995 Rescissions Act expanded the eligible activities 
that may be funded with CIAP or CGP assistance provided from FFY 1995 
and prior FFY funds. Such activities include, but are not limited to:
    (1) New construction or acquisition of additional public housing 
units, including replacement units;
    (2) Modernization activities related to the public housing portion 
of housing developments held in partnership, or cooperation with non-
public housing entities; and
    (3) Other activities related to public housing, including activities 
eligible under the Urban Revitalization Demonstration (HOPE VI).

[61 FR 8738, Mar. 5, 1996, as amended at 62 FR 27126, May 16, 1997; 63 
FR 46108, Aug. 28, 1998; 64 FR 50229, Sept. 15, 1999]



Sec. 968.115  Modernization and energy conservation standards.

    All improvements funded under this part shall:
    (a) Meet the modernization standards as prescribed by HUD;
    (b) Incorporate cost-effective energy conservation measures, 
identified in the PHA's most recently updated energy audit, conducted 
pursuant to part 965, subpart C;
    (c) Where changing or installing a new utility system, conduct a 
life-cycle cost analysis, reflecting installation and operating costs; 
and
    (d) Provide decent, safe, and sanitary living conditions in PHA-
owned and PHA-operated public housing.

[61 FR 8740, Mar. 5, 1996]



Sec. 968.120  Force account.

    (a) For both CIAP and CGP, a PHA may undertake the activities using 
force account labor, only where specifically approved by HUD in the CIAP 
budget or CGP Annual Statement, except no prior HUD approval is required 
where the PHA is designated as both an

[[Page 513]]

overall high performer and Modernization high performer under the PHMAP.
    (b) If the entirety of modernization activity (including the 
planning and architectural design of the rehabilitation) is administered 
by the RMC, the PHA shall not retain for any administrative or other 
reason, any portion of the modernization funds provided, unless the PHA 
and the RMC provide otherwise by contract.

[61 FR 8740, Mar. 5, 1996]



Sec. 968.125  Initiation of modernization activities.

    After HUD has approved the modernization program and entered into an 
ACC amendment with the PHA, a PHA shall undertake the modernization 
activities and expenditures set forth in its approved CIAP budget or CGP 
Annual Statement/Five-Year Action Plan in a timely, efficient and 
economical manner. All approved funding must be obligated within two 
years of approval and expended within three years of approval unless HUD 
approves a longer time period in the PHA's implementation schedule, as 
set forth in the CIAP budget or CGP Annual Statement. HUD may approve a 
longer time period for such reasons as the large size of the grant or 
the complexity of the work.

[61 FR 8741, Mar. 5, 1996]



Sec. 968.130  Fund requisitions.

    To draw down modernization funds against the approved CIAP budget or 
CGP Annual Statement, a PHA shall comply with requirements prescribed by 
HUD.

[61 FR 8741, Mar. 5, 1996]



Sec. 968.135  Contracting requirements.

    In addition to the requirements specified in 24 CFR parts 5, 85, and 
965, subpart A, and Sec. 968.110(e), the following provisions apply:
    (a) Architect/engineer and other professional services contracts. 
For CIAP only and notwithstanding 24 CFR 85.36(g), a PHA shall comply 
with the following HUD requirements:
    (1) Where the proposed contract amount exceeds the HUD-established 
threshold, submit the contract for prior HUD approval before execution 
or issuance; or
    (2) Where the proposed contract amount does not exceed the HUD-
established threshold, certify that the scope of work is consistent with 
the originally approved modernization program, and that the amount is 
appropriate and does not result in the total HUD-approved CIAP budget 
being exceeded.
    (b) Assurance of completion. For both CIAP and CGP and 
notwithstanding 24 CFR 85.36(h), for each construction contract over 
$100,000, the contractor shall furnish a bid guarantee from each bidder 
equivalent to 5% of the bid price; and one of the following:
    (1) A performance and payment bond for 100 percent of the contract 
price; or
    (2) Separate performance and payment bonds, each for 50% or more of 
the contract price; or
    (3) A 20% cash escrow; or
    (4) a 25% irrevocable letter of credit.
    (c) Construction solicitations. For CIAP only and notwithstanding 24 
CFR 85.36(g), a PHA shall comply with HUD requirements to either:
    (1) Where the estimated contract amount exceeds the HUD-established 
threshold, submit a complete construction solicitation for prior HUD 
approval before issuance; or
    (2) Where the estimated contract amount does not exceed the HUD-
established threshold, certify receipt of the required architect's/
engineer's certification that the construction documents accurately 
reflect HUD-approved work and meet the modernization and energy 
conservation standards and that the construction solicitation is 
complete and includes all mandatory items.
    (d) Contract awards. (1) For CIAP only, a PHA shall obtain HUD 
approval of the proposed award of a contract if the contract work is 
inconsistent with the originally approved modernization program or the 
procurement meets the criteria set forth in 24 CFR 85.36(g)(2)(i) 
through (iv). In all other instances, a PHA shall make the award without 
HUD approval after the PHA has certified that:
    (i) The solicitation and award procedures were conducted in 
compliance with State or local laws and Federal requirements;

[[Page 514]]

    (ii) The award does not meet the criteria in 24 CFR 85.36(g)(2)(i) 
through (iv) for prior HUD approval; and
    (iii) The contractor is not on the Lists of Parties Excluded from 
Federal Procurement or Nonprocurement Programs;
    (2) For CGP only, a PHA shall obtain HUD approval of the proposed 
award of a contract if the procurement meets the criteria set forth in 
24 CFR 85.36(g)(2)(i) through (iv).
    (e) Contract modifications. For CIAP only and notwithstanding 24 CFR 
85.36(g), except in an emergency endangering life or property, a PHA 
shall comply with HUD requirements to either:
    (1) Where the proposed contract modification exceeds the HUD-
established threshold, submit the proposed modification for prior HUD 
approval before issuance; or
    (2) Where the proposed contract modification does not exceed the 
HUD-established threshold, certify that the proposed modification is 
within the scope of the contract and that any additional costs are 
within the total HUD-approved CIAP budget amount.
    (f) Construction requirements. Where indicated by poor performance, 
a PHA may be required to submit to HUD periodic progress reports and, 
for prior HUD approval, construction completion documents above a HUD-
specified amount. For CGP only, a PHA is notified of additional 
construction requirements by a notice of deficiency or a corrective 
action order.
    (g) Reward for high performers. For CIAP only, if a PHA is both an 
overall high performer and a modernization high performer under the 
Public Housing Management Assessment Program (PHMAP), HUD will not 
establish thresholds, and the PHA is not required to obtain prior HUD 
approval, under paragraphs (a), (c), and (e) of this section.

[61 FR 8741, Mar. 5, 1996]



Sec. 968.140  On-site inspections.

    It is the responsibility of the PHA, not HUD, to provide, by 
contract or otherwise, adequate and competent supervisory and inspection 
personnel during modernization, whether work is performed by contract or 
force account labor and with or without the services of an architect/
engineer, to ensure work quality and progress.

[58 FR 13938, Mar. 15, 1993. Redesignated at 61 FR 8741, Mar. 5, 1996]



Sec. 968.145  Fiscal closeout.

    (a) Actual modernization cost certificate (AMCC). Upon expenditure 
by the PHA of all funds, or termination by HUD of the activities funded 
in a modernization program, a PHA shall submit the AMCC, in a form 
prescribed by HUD, to HUD for review and approval for audit. After audit 
verification, HUD shall approve the AMCC.
    (b) Audit. The audit shall follow the guidelines prescribed in 24 
CFR part 44, Non-Federal Government Audit Requirements. If the pre-audit 
or post-audit AMCC indicates that there are excess funds, a PHA shall 
immediately remit the excess funds as directed by HUD. If the pre-audit 
or post-audit AMCC discloses unauthorized or ineligible expenditures, a 
PHA shall immediately take such corrective actions as HUD may direct.

[61 FR 8741, Mar. 5, 1996]



 Subpart B_Comprehensive Improvement Assistance Program (For PHAs That 
                  Own or Operate Fewer Than 250 Units)

    Source: 61 FR 8741, Mar. 5, 1996, unless otherwise noted.



Sec. 968.205  Definitions.

    In addition to the definitions in Sec. 968.105, the following 
definitions apply to this subpart:
    Emergency Modernization (CIAP). A type of modernization program for 
a development that is limited to physical work items of an emergency 
nature that poses an immediate threat to the health or safety of 
residents or is related to fire safety, and that must be corrected 
within one year of CIAP funding approval.
    Management capability. A PHA has management capability if it is:
    (1) Not designated as Troubled under part 901 of this chapter, 
Public Housing

[[Page 515]]

Management Assessment Program (PHMAP); or
    (2) Designated as Troubled, but has a reasonable prospect of 
acquiring management capability through CIAP-funded management 
improvements and administrative support. A Troubled PHA is eligible for 
Emergency Modernization only, unless it is making reasonable progress 
toward meeting the performance targets established in its memorandum of 
agreement or equivalent under Sec. 901.140 of this chapter or has 
obtained alternative oversight of its management functions.
    Modernization capability. A PHA has modernization capability if it 
is:
    (1) Not designated as Modernization Troubled under part 901 of this 
chapter, PHMAP; or
    (2) Designated as Modernization Troubled, but has a reasonable 
prospect of acquiring modernization capability through CIAP-funded 
management improvements and administrative support, such as hiring staff 
or contracting for assistance. A Modernization Troubled PHA is eligible 
for Emergency Modernization only, unless it is making reasonable 
progress toward meeting the performance targets established in its 
memorandum of agreement or equivalent under Sec. 901.140 of this 
chapter or has obtained alternative oversight of its modernization 
functions. Where a PHA does not have a funded modernization program in 
progress, the Field Office shall determine whether the PHA has a 
reasonable prospect of acquiring modernization capability through hiring 
staff or contracting for assistance.
    Other Modernization (modernization other than emergency). A type of 
modernization program for a development that includes one or more 
physical work items, where HUD determines that the physical improvements 
are necessary and sufficient to extend substantially the useful life of 
the development, and/or one or more development specific or PHA-wide 
management work items (including planning costs), and/or lead-based 
paint activities.
    Work item. Any separately identifiable unit of work constituting a 
part of a modernization program.

[61 FR 8741, Mar. 5, 1996, as amended at 64 FR 50229, Sept. 15, 1999]



Sec. 968.210  Procedures for obtaining approval of a modernization program.

    (a) HUD notification. After modernization funds for a particular FFY 
become available, HUD will notify PHAs of the time frame for submission 
of the CIAP application and other pertinent information.
    (b) Distribution of funding. HUD will distribute the available 
funding under this subpart to every eligible PHA that responds to the 
notice issued pursuant to paragraph (a) of this section based on two 
equally-weighted factors: a PHA's share of the total number of units 
eligible for CIAP; and a PHA's share of the total number of bedrooms in 
units eligible for CIAP (with studio units counted as one-bedroom 
units). HUD will also provide a vacancy preference, consisting of an 
additional increment of funding, to PHAs that have modernization 
capability and demonstrate that at least 25% of their units are vacant, 
substandard units (where vacancies are not due to insufficient demand). 
A PHA has modernization capability if it has previously received CIAP 
funding and meets the requirements of Modernization capability as 
defined at Sec. 968.205.
    (c) ACC amendment. HUD and the PHA shall enter into an ACC amendment 
in order for the PHA to draw down modernization funds. The ACC amendment 
shall require low-income use of the housing for not less than 20 years 
from the date of the ACC amendment (subject to sale of homeownership 
units in accordance with the terms of the ACC). The PHA Executive 
Director, where authorized by the Board of Commissioners and permitted 
by State law, may sign the ACC amendment on behalf of the PHA. HUD has 
the authority to condition an ACC amendment (e.g., to require a PHA to 
hire a modernization coordinator or contract administrator to administer 
its modernization program).
    (d) Declaration of trust. As HUD may require, the PHA shall execute 
and file for record a Declaration of Trust, as

[[Page 516]]

provided under the ACC, to protect the rights and interests of HUD 
throughout the 20-year period during which the PHA is obligated to 
operate its developments in accordance with the ACC, the Act, and HUD 
regulations and requirements.

[64 FR 33637, June 23, 1999]



Sec. 968.215  Resident and homebuyer participation.

    A PHA shall establish a Partnership Process, as defined in Sec. 
968.105, to develop, implement and monitor the CIAP. Before submission 
of the CIAP application, a PHA shall consult with the residents, the 
resident organization, or the resident management corporation (see part 
964, subpart C of this chapter) (herein referred to as the resident) of 
the development(s) being proposed for modernization, regarding its 
intent to submit an application and to solicit resident comments. A PHA 
shall give residents a reasonable opportunity to present their views on 
the proposed modernization and alternatives to it and shall give full 
and serious consideration to resident recommendations. A PHA shall 
respond in writing to the residents, indicating its acceptance or 
rejection of resident recommendations, consistent with HUD requirements 
and the PHA's own determination of efficiency, economy, and need. After 
HUD approval of the modernization program, a PHA shall inform the 
residents of the approved work items and its progress during 
implementation. Where HUD does not approve the modernization program, a 
PHA shall so inform the residents.



Sec. 968.225  Budget revisions.

    (a) A PHA shall not incur any modernization cost in excess of the 
total HUD-approved CIAP budget. A PHA shall submit a budget revision, in 
a form prescribed by HUD, if the PHA plans to deviate from the 
originally approved modernization program, as it was competitively 
funded, by deleting or substantially revising approved work items or 
adding new work items that are unrelated to the originally approved 
modernization program, or to change the method of accomplishment from 
contract to force account labor, except as provided in paragraph (b)(4) 
of this section.
    (b) In addition to the requirements of paragraph (a) of this 
section, a PHA shall comply with the following requirements:
    (1) A PHA is not required to obtain prior HUD approval if, in order 
to complete the originally approved modernization program, the PHA needs 
to delete or revise approved work items or add new related work items 
consistent with the original modernization program. In such case, a PHA 
shall certify that the revisions are necessary to carry out the approved 
work and do not result in substantial changes to the competitively 
funded modernization program.
    (2) A PHA shall not incur any modernization cost on behalf of any 
development that is not covered by the original CIAP application.
    (3) Where there are funds leftover after completion of the 
originally approved modernization program, a PHA may, without prior HUD 
approval, use the remaining funds to carry out eligible modernization 
activities at developments covered by the original CIAP application.
    (4) If a PHA is both an overall high performer and a modernization 
high performer under the Public Housing Management Assessment Program 
(PHMAP), the PHA is not required to obtain prior HUD approval to change 
the method of accomplishment from contract to force account labor.



Sec. 968.230  Progress reports.

    For each six-month period ending March 31 and September 30, until 
completion of the modernization program or expenditure of all funds, a 
PHA shall submit to HUD a progress report, in a form prescribed by HUD. 
Where HUD determines that a PHA is having implementation problems, HUD 
may require more frequent reporting.



Sec. 968.235  Time extensions.

    A PHA shall not obligate or expend funds after the obligation or 
expenditure deadline date approved by HUD in the original implementation 
schedule without a time extension, as follows:
    (a) Certification. A PHA may extend an obligation or expenditure 
deadline

[[Page 517]]

date no later than 30 calendar days after the existing deadline date, 
without prior HUD approval, for a period commensurate with the delay, 
where the PHA certifies that the delay is due to reasons outside of the 
PHA's control, such as:
    (1) Need to use leftover funds from a completed modernization 
program for additional work;
    (2) Unforeseen delays in contracting or contract administration;
    (3) Litigation; and
    (4) Delay by HUD or other institutions. Delay by the PHA's staff or 
Board of Commissioners or a change in the Executive Director is not 
considered to be outside of the PHA's control.
    (b) Prior HUD approval. Where a PHA is unable to meet an obligation 
or expenditure deadline date and the delay is due to reasons within the 
PHA's control, the PHA may request HUD approval of a time extension no 
later than 30 calendar days after the deadline date, to avoid recapture 
of funds. The request shall include an explanation of the delay, steps 
take to prevent future delay, and the requested extension.



Sec. 968.240  HUD review of PHA performance.

    HUD shall periodically review PHA performance in carrying out its 
approved modernization program to determine compliance with HUD 
requirements, the adequacy of a PHA's inspections as evidenced by the 
quality of work, and the timeliness of the work. HUD's review may be 
conducted either in-office or on-site. Where conducted in-office, a PHA 
shall forward any requested documents to HUD for post-review. Where 
deficiencies are noted, a PHA shall take such corrective actions as HUD 
may direct.



Subpart C_Comprehensive Grant Program (for PHAs That Own or Operate 250 
                      or More Public Housing Units)

    Source: 57 FR 5575, Feb. 14, 1992, unless otherwise noted.



Sec. 968.305  Definitions.

    In addition to the definitions in Sec. 968.105, the following 
definitions apply to this subpart:
    Action plan. A plan of the actions to be funded by a PHA over a 
period of five years (including a PHA's proposed allocation of its 
modernization funds to a reserve established under Sec. 968.112(f)) to 
make the necessary physical and management improvements identified in 
the PHA's comprehensive plan. The plan shall be based upon HUD's and the 
PHA's best estimates of the funding reasonably expected to become 
available under the next five-year period. The action plan is updated 
annually to reflect a rolling five-year base. (See Sec. 968.315(e)(5).)
    Annual Statement. A work statement covering the first year of the 
Five-Year Action Plan and setting forth the major work categories and 
costs by development or PHA-wide for the current FFY grant, as well as a 
summary of costs by development account and implementation schedules for 
obligation and expenditure of the funds.
    Annual Submission. A collective term for all documents which the PHA 
must submit to HUD for review and approval before accessing the current 
FFY grant funds. Such documents include the Annual Statement, Work 
Statements for years two through five of the Five-Year Action Plan, 
local government statement, PHA Board Resolution, materials 
demonstrating the partnership process and any other documents as 
prescribed by HUD.
    Chief executive officer (CEO). The CEO of a unit of general local 
government means the elected official or the legally designated 
official, who has the primary responsibility for the conduct of that 
entity's governmental affairs. Examples of the CEO of a unit of general 
local government are: the elected mayor of a municipality; the elected 
county executive of a county; the chairperson of a county commission or 
board in a county that has no elected county executive; or the official 
designated pursuant to law by the governing body of a unit of general 
local government (e.g., city manager).
    Comprehensive plan. A plan prepared by a PHA and approved by HUD 
setting

[[Page 518]]

forth all of the physical and management improvement needs of the PHA 
and its public housing developments, indicating the relative urgency of 
needs and which includes the PHA's action plan, cost estimates, and 
required local government and PHA certifications. The comprehensive plan 
may be revised, as necessary, but must be revised at least every sixth 
year. (See Sec. 968.315(e).)
    Emergency work. Physical work items of an emergency nature, posing 
an immediate threat to the health or safety of residents, which must be 
completed within one year of CGP funding. Management improvements are 
not eligible as emergency work and, therefore, must be covered by the 
comprehensive plan (including the action plan) before the PHA may carry 
them out.
    Fungibility. Fungibility is a concept which permits a PHA to 
substitute any work item from the latest approved Five-Year Action Plan 
to any previously approved CIAP budget or CGP Annual Statement and to 
move work items among approved budgets without prior HUD approval.
    Improvement plan. A document developed by the PHA and approved by 
HUD specifying the actions to be taken, including timetables, to correct 
deficiencies identified as a result of an assessment, either under PHMAP 
or pursuant to HUD monitoring or audit findings.
    Memorandum of Agreement (MOA). A binding contractual agreement 
between HUD and a troubled PHA, or a mod troubled PHA, which is designed 
to bring about significant, expeditious and long-lasting improvements in 
the PHA's management of its PHA-owned units. A MOA is required for each 
PHA designated as troubled or mod troubled.
    Resident groups. Democratically elected resident groups such as PHA-
wide resident groups, area-wide resident groups, single development 
resident groups, or RMCs.
    Substantial rehabilitation. A modernization program for a 
development which provides for all physical and management improvements 
needed to meet the modernization and energy conservation standards and 
to ensure its long-term physical and social viability.
    Work Statements. Work Statements cover the second through the fifth 
years of the Five-Year Action Plan and set forth the major work 
categories and costs by development or PHA-wide which the PHA intends to 
undertake in each year of years two through five. In preparing these 
Work Statements, the PHA shall assume that the current FFY formula 
amount will be available in each year of years two through five.

[57 FR 5575, Feb. 14, 1992, as amended at 58 FR 13931, Mar. 15, 1993; 59 
FR 44837, Aug. 30, 1994; 61 FR 8744, Mar. 5, 1996]



Sec. 968.310  Determination of formula amount.

    (a) Submission of formula characteristics report--(1) Formula 
characteristics report. In its first year of participation in the CGP, 
each PHA shall verify and provide data to HUD, in a form and at a time 
to be prescribed by HUD, concerning PHA and development characteristics 
so that HUD can develop the PHA's annual funding allocation in 
accordance with Sec. 968.103 (e) and (f). If a PHA fails to submit to 
HUD the formula characteristics report by the prescribed deadline, HUD 
will use the data which it has available concerning PHA and development 
characteristics for purposes of calculating the PHA's formula share. 
After its first year of participation in the CGP, a PHA is not required 
to submit formula characteristics data to HUD, but is required to 
respond to data transmitted by HUD if there have been changes to its 
inventory from that previously reported, or where requested by HUD. On 
an annual basis, HUD will transmit to the PHA, the formula 
characteristics report which reflects the data that will be used to 
determine the PHA's formula share. The PHA will have at least 30 
calendar days to review and advise HUD of errors in this HUD report. 
Necessary adjustments will be made to the PHA's data before the formula 
is run for the current FFY.
    (2) PHA Board Resolution. The PHA must include with its formula 
characteristics report under paragraph (a)(1) of this section, a 
resolution adopted by the PHA Board of Commissioners approving the 
report, and certifying that

[[Page 519]]

the data contained in the formula characteristics report are accurate.
    (b) HUD notification of formula amount; appeal rights--(1) Formula 
amounts notification. After HUD determines a PHA's formula allocation 
under Sec. 968.103 (e) and (f) based upon the PHA, development, and 
community characteristics, it shall notify the PHA of its formula amount 
and provide instructions on the Annual Submission in accordance with 
Sec. Sec. 968.315 and 968.325;
    (2) Appeal based upon unique circumstances. A PHA may appeal in 
writing HUD's determination of its formula amount within 60 calendar 
days of the date of HUD's determination on the basis of ``unique 
circumstances.'' The PHA must indicate what is unique, and specify the 
manner in which it is different from all other PHAs participating in the 
CGP, and provide any necessary supporting documentation. HUD shall 
render a written decision on an PHA's appeal under this paragraph within 
60 calendar days of the date of its receipt of the PHA's request for an 
appeal. HUD shall publish in the Federal Register a description of the 
facts supporting any successful appeals based upon ``unique 
circumstances.'' Any adjustments resulting from successful appeals in a 
particular FFY under this paragraph shall be made from subsequent years' 
allocation of funds under this part;
    (3) Appeal based upon error. A PHA may appeal in writing HUD's 
determination of its formula amount within 60 calendar days of the date 
of HUD's determination on the basis of an error. The PHA may appeal on 
the basis of error the correctness of data in the formula 
characteristics report. The PHA must describe the nature of the error, 
and provide any necessary supporting documentation. HUD shall respond to 
the PHA's request within 60 calendar days of the date of its receipt of 
the PHA's request for an appeal. Any adjustment resulting from 
successful appeals in a particular FFY under this paragraph shall be 
made from subsequent years' allocation of funds under this part;
    (c) Reduced formula allocation for PHAs designated as mod troubled 
under PHMAP--(1) Notification. After a PHA is designated as a mod 
troubled agency under PHMAP (24 CFR part 901), HUD shall inform the PHA 
that its funding may be limited under this subpart because of its 
designation as a mod troubled PHA. HUD shall also provide the PHA with 
information concerning the PHA's funding levels for CGP, CIAP and MROP 
for each of the preceding three FFYs for purposes of determining the 
PHA's reduced formula allocation, in accordance with paragraph 
(c)(2)(ii) of this section. In addition, HUD will provide the PHA with 
information on its full formula allocation under Sec. 968.103 (e) and 
(f), and the amount which represents 25 percent of the difference 
between the average amounts provided to the PHA in each of the preceding 
three FFYs and its full formula allocation.
    (2) Calculation of funding for mod troubled PHAs. HUD shall 
calculate the funding level for mod troubled PHAs in accordance with 
paragraph (c)(1) of this section in the following manner:
    (i) The average of the amount that the mod troubled PHA received for 
modernization activities under this part, and for Major Reconstruction 
of Obsolete Projects (MROP), for each of the preceding three FFYs, which 
average shall be adjusted to take into account changes in the cost of 
rehabilitating property based upon the Means Construction Cost Index; 
plus
    (ii) Twenty five percent of the difference between the amount 
determined under paragraph (c)(1)(i) of this section, and the amount 
that would have been allocated to the PHA for the FFY if it were not 
designated as a mod troubled PHA.
    (3) Right of appeal. The notice under paragraph (c)(1) of this 
section shall also specify that a PHA may petition HUD within 30 
calendar days of its receipt of HUD's notice to increase the amount of 
its fund allocation. HUD shall determine whether to increase the amount 
of assistance to be provided a PHA under this paragraph based upon the 
PHA's demonstrated progress in meeting goals and targets set forth in 
the PHA's Memorandum of Agreement (MOA) under PHMAP, and toward 
achieving satisfactory performance under the mod troubled indicator/
standard under PHMAP. In its appeal request, a PHA must specify how it 
is

[[Page 520]]

achieving or making progress toward achieving the goals and objectives 
set forth in the MOA. The request must be submitted to HUD within 30 
calendar days of the date of HUD's notice under this paragraph. HUD 
shall render a decision in writing on the PHA's request within 60 
calendar days of the date of its receipt of the PHA's appeal and any 
supporting documentation.
    (4) Maximum allowable allocation to mod troubled PHAs. The maximum 
amount that HUD may provide to a PHA under this paragraph is the amount 
that would have been allocated to the PHA for the FFY if it had not been 
designated as a mod troubled PHA under PHMAP. Where the full formula 
allocation is less than the average of funding received by the PHA for 
modernization and MROP for each of the preceding three FFYs, the PHA 
will receive its full formula amount, and not its average funding level 
for the preceding three FFYs, plus 25 percent of the difference between 
that figure and its full formula amount.
    (5) Reallocation of funds withheld from mod troubled PHAs. Any 
amounts which are not provided to a PHA under paragraph (c)(1) of this 
section because the PHA is designated as a mod troubled agency under 
PHMAP, shall be reallocated by HUD to other PHAs under this subpart 
which are not designated as either troubled or mod troubled agencies 
under PHMAP, and to IHAs under 24 CFR part 950 (subpart I) which are not 
determined to be high risk under Sec. 950.135 of this chapter, the ACA, 
and the Field Office Monitoring of IHAs Handbook. Such funds shall be 
reallocated in the next FFY based upon the relative needs of these PHAs 
and IHAs, as determined under the formula.
    (6) Credits for PHAs designated as mod troubled--(i) Accrual of 
credits. A PHA that has received a reduced formula allocation under 
paragraph (c)(1) of this section because it was designated as a mod 
troubled agency under PHMAP may accrue credits under this paragraph, for 
up to three consecutive FFYs, representing the difference between:
    (A) The amount the PHA would have been allocated for the FFY under 
Sec. 968.103(e) and (f) if it were not designated as a mod troubled PHA 
under PHMAP; and
    (B) The reduced funding amount actually provided to the PHA under 
paragraph (c)(2) of this section because it was designated as a mod 
troubled PHA under PHMAP.
    (ii) Failure to remove mod troubled designation. After a three-year 
period during which the mod troubled PHA has accrued credits under 
paragraph (c)(6)(i) of this section, the credits accrued by the PHA 
shall be:
    (A) Decreased by 10 percent of the total accumulated credits if the 
PHA's designation as a mod troubled agency under PHMAP is not removed 
before the end of the first FFY following the three-year accrual period;
    (B) Decreased by an additional 20 percent of the original total 
accumulated credits if the PHA's designation as a mod troubled agency 
under PHMAP is not removed before the end of the second FFY following 
the three-year accrual period;
    (C) Decreased by an additional 30 percent of the original total 
accumulated credits if the PHA's designation as a mod troubled agency 
under PHMAP is not removed before the end of the third FFY following the 
three-year accrual period; and
    (D) Eliminated if the PHA's designation as a mod troubled agency 
under PHMAP is not removed before the end of the fourth FFY following 
the three-year accrual period.
    (iii) Obtaining credits. HUD shall reserve under Sec. 968.103(c) up 
to five percent of the total formula funds available for allocation in 
any FFY for the purpose of providing PHAs that were formerly designated 
as mod troubled PHAs under PHMAP with additional assistance after HUD 
determines that a PHA is no longer a mod troubled agency. HUD shall make 
the determination that a PHA is no longer a mod troubled agency based 
upon its achieving satisfactory performance under the mod indicator/
standard that was initially used to designate the agency as mod troubled 
under PHMAP. The additional assistance shall be provided to the formerly 
mod troubled PHA in the FFY following the year in which the PHA is 
removed from the mod troubled list. Such assistance shall be provided to

[[Page 521]]

the PHA in addition to a PHA's regular formula allocation under Sec. 
968.103(e) and (f), and shall consist of:
    (A) The total amount of credits accumulated by the PHA under 
paragraph (c)(6)(i) of this section; minus
    (B) Any reductions under paragraph (c)(6)(ii) of this section to the 
total accumulated credits, based upon the length of time that the PHA 
has taken to remove its mod troubled designation; and
    (C)(1) Adjusted by HUD to take into account the PHA's ability to 
expeditiously expend the accrued credit amounts. HUD shall consult with 
the PHA to determine the rate at which the PHA shall be provided access 
to its credits under this section. As a general guideline, HUD intends 
to provide a PHA with 10% of its accrued credits in the first year; an 
additional 20% of its accrued credits in the second year; an additional 
30% of its accrued credits in the third year; and the remaining 40% of 
its accrued credits in the fourth year;
    (2) In any FFY where formerly mod troubled PHAs are entitled to 
credits exceeding the five percent reserve, HUD shall apply a pro rata 
reduction for each formerly mod troubled PHA for such FFY. A PHA shall 
remain entitled to receive its outstanding balance of credits, including 
any credits not actually received because of such pro rata reduction, in 
future FFYs, depending upon the availability of funds in the set-aside 
under Sec. 968.103(c).

(Approved by the Office of Management and Budget under control number 
2577-0157)

[57 FR 5575, Feb. 14, 1992, as amended at 59 FR 44839, Aug. 30, 1994. 
Redesignated and amended at 61 FR 8744, Mar. 5, 1996]



Sec. 968.315  Comprehensive Plan (including five-year action plan).

    (a) Submission. As soon as possible after modernization funds first 
become available for allocation under this subpart, HUD shall notify 
PHAs in writing of their formula amount. For planning purposes, PHAs may 
use the amount they received under CGP in the prior year in developing 
their comprehensive plan, or they may wait for the annual HUD 
notification of formula amount under Sec. 968.310(b)(1).
    (b)(1) Resident participation. A PHA is required to develop, 
implement, monitor and annually amend portions of its comprehensive plan 
in consultation with residents of the developments covered by the 
comprehensive plan. In addition, the PHA shall consult with resident 
management corporations (RMCs) to the extent that an RMC manages a 
development covered by the comprehensive plan. The PHA, in partnership 
with the residents, must develop and implement a process for resident 
participation that ensures that residents are involved in a meaningful 
way in all phases of the CGP. Such involvement shall involve 
implementing the Partnership Process as a critical element of the CGP.
    (2) Establishment of Partnership Process. The PHA, in partnership 
with the residents of the developments covered by the plan (and which 
may include resident leaders, resident councils, resident advisory 
councils/boards, and RMCs) must establish a Partnership Process to 
develop and implement the goals, needs, strategies and priorities 
identified in the comprehensive plan. After residents have organized to 
participate in the CGP, they may decide to establish a volunteer 
advisory group of experts in various professions to assist them in the 
CGP Partnership Process. The Partnership Process shall be designed to 
achieve the following:
    (i) To ensure that residents are fully briefed and involved in 
developing the content of, and monitoring the implementation of, the 
comprehensive plan including, but not limited to, the physical and 
management needs assessments, viability analysis, Five-Year Action Plan, 
and Annual Statement. If necessary, the PHA shall develop and implement 
capacity building strategies to ensure meaningful resident participation 
in CGP. Such technical assistance efforts for residents are eligible 
management improvement costs under CGP;
    (ii) To enable residents to participate, on a PHA-wide or area-wide 
basis, in ongoing discussions of the comprehensive plan and strategies 
for its implementation, and in all meetings necessary to ensure 
meaningful participation.

[[Page 522]]

    (3) Public notice. Within a reasonable amount of time before the 
advance meeting for residents under paragraph (b)(4) of this section and 
the public hearing under paragraph (b)(5) of this section, the PHA shall 
provide public notice of the advance meeting and the public hearing in a 
manner determined by the PHA that ensures notice to all duly elected 
resident councils.
    (4) Advance meeting for residents. The PHA shall hold, within a 
reasonable amount of time before the public hearing under paragraph 
(b)(5) of this section, a meeting for residents and duly elected 
resident councils at which the PHA shall explain the components of the 
comprehensive plan. The meeting shall be open to all residents and duly 
elected resident councils.
    (5) Public hearing. The PHA shall hold at least one public hearing, 
and any appropriate number of additional hearings, to present 
information on the comprehensive plan/annual submission and the status 
of prior approval programs. The public hearing shall provide ample 
opportunity for residents, local government officials, and other 
interested parties to express their priorities and concerns. The PHA 
shall give full consideration to the comments and concerns of residents, 
local government officials, and other interested parties.
    (c) Local government participation. A PHA shall consult with and 
provide information to appropriate local government officials with 
respect to the development of the comprehensive plan to ensure that 
there is coordination between the actions taken under the consolidated 
plan (see 24 CFR part 91) for project and neighborhood improvements 
where public housing units are located or proposed for construction and/
or modernization and improvement and to coordinate meeting public and 
human service needs of the public and assisted housing projects and 
their residents. In the case of a PHA with developments in multiple 
jurisdictions, the PHA may meet this requirement by consulting with an 
advisory group representative of all the jurisdictions. At a minimum, 
such consultation must include providing such officials with:
    (1) Advance written notice of the public hearing required under 
paragraph (b)(5) of this section;
    (2) A copy of the summary of total preliminary estimated costs to 
address physical needs by each development and management/operations 
needs PHA-wide and a specific description of the PHA's process for 
maximizing the level of participation by residents and a summary of the 
general issues raised on the plan by residents and others during the 
public comment process and the PHA's response to the general issues. PHA 
records, such as minutes of planning meetings or resident surveys, shall 
be maintained in the PHA's files and made available to residents, 
resident organizations, and other interested parties upon request; and
    (3) An opportunity to express their priorities and concerns to 
ensure due consideration in the PHA's planning process;
    (d) Participation in coordinating entities. To the extent that 
coordinating entities are set up to plan and implement the consolidated 
plans (under 24 CFR part 91), the PHA shall participate in these 
entities to ensure coordination with broader community development 
strategies.
    (e) Contents of comprehensive plan. The comprehensive plan shall 
identify all of the physical and management improvements needed for a 
PHA and all of its developments, and that represent needs eligible for 
funding under Sec. 968.112. The plan also shall include preliminary 
estimates of the total cost of these improvements. The plan shall set 
forth general strategies for addressing the identified needs, and 
highlight any special strategies, such as major redesign or partial 
demolition of a development, that are necessary to ensure the long-term 
physical and social viability of the development. Where long-term 
physical and social viability of the development is dependent upon 
revitalization of the surrounding neighborhood in the provision of or 
coordination of public services, or the consolidation or coordination of 
drug prevention and other human service initiatives, the PHA shall 
identify these needs and strategies. In addition, the PHA shall identify 
the funds or other resources in the consolidated

[[Page 523]]

plan that are to be used to help address these needs and strategies and 
the activities in the comprehensive plan that strengthen the 
consolidated plan. Each comprehensive plan shall contain the following 
elements:
    (1) Executive summary. A PHA shall include as part of its 
comprehensive plan an executive summary to facilitate review and 
comprehension by development residents and by the public. The executive 
summary shall include the following:
    (i) A summary of total preliminary estimated costs to address 
physical needs by each development and PHA-wide physical and management 
needs; and
    (ii) A specific description of the PHA's process for maximizing the 
level of participation by residents during the development, 
implementation and monitoring of the Comprehensive Plan, a summary of 
the general issues raised on the plan by residents and others during the 
public comment process and the PHA's response to the general issues. PHA 
records, such as minutes of planning meetings or resident surveys, shall 
be maintained in the PHA's files and made available to residents, duly 
elected resident councils, and other interested parties, upon request;
    (2) Physical needs assessment--(i) Requirements. The physical needs 
assessment identifies all of the work that a PHA would need to undertake 
to bring each of its developments up to the modernization and energy 
conservation standards, as required by the Act, to comply with the lead-
based paint requirements in part 35, subparts A, B, L, and R of this 
title, and to comply with other program requirements under Sec. 
968.110. The physical needs assessment is completed without regard to 
the availability of funds, and shall include the following:
    (A) A brief summary of the physical improvements necessary to bring 
each such development to a level at least equal to applicable HUD 
standards with respect to modernization standards, energy conservation 
and life-cycle cost effective performance standards, lead-based paint 
testing and abatement standards. This summary must indicate the relative 
urgency of need. If the PHA has no physical improvement needs at a 
particular development at the time it completes its comprehensive plan, 
it must so indicate. Similarly, if the PHA intends to demolish, 
partially demolish, convert, or dispose of a development (or units 
within a development) it must so indicate in the summary of physical 
improvements;
    (B) The replacement needs of equipment systems and structural 
elements that will be required to be met (assuming routine and timely 
maintenance is performed) during the period covered by the action plan;
    (C) A preliminary estimate of the cost to complete the physical 
work;
    (D) Any physical disparities between buildings occupied 
predominantly by one racial or ethnic group and, in such cases, the 
physical improvements required to correct the conditions; and
    (E) In addition, with respect to vacant or non-homebuyer occupied 
Turnkey III units, the estimated number of units that the PHA is 
proposing for substantial rehabilitation and subsequent sale, in 
accordance with Sec. 968.112(d)(3).
    (ii) Source of data. The PHA shall identify in its needs assessment 
the sources from which it derived data to develop the physical needs 
assessment under this paragraph (e)(2) and shall retain such source 
documents in its files;
    (3) Management needs assessment--(i) Requirements. The plan shall 
include a comprehensive assessment of the improvements needed to upgrade 
the management and operation of the PHA and of each viable development 
so decent, safe, and sanitary living conditions will be provided. The 
management needs assessment shall include the following, with the 
relative urgency of need indicated:
    (A) An identification of the most current needs related to the 
following areas (to the extent that any of these needs is addressed in a 
HUD-approved memorandum of agreement or improvement plan, the PHA may 
simply include a cross-reference to these documents):
    (1) The management, financial, and accounting control systems of the 
PHA;
    (2) The adequacy and qualifications of personnel employed by the PHA 
in

[[Page 524]]

its management and operation, for each significant category of 
employment;
    (3) The adequacy and efficacy of:
    (i) Resident programs and services;
    (ii) Resident and development security;
    (iii) Resident selection and eviction;
    (iv) Occupancy;
    (v) Maintenance;
    (vi) Resident management and resident capacity building programs;
    (vii) Resident opportunities for employment and business development 
and other self-sufficiency opportunities for residents; and
    (viii) Homeownership opportunities for residents;
    (B) Any additional deficiencies identified through PHMAP, audits and 
HUD monitoring reviews that are not addressed under paragraph 
(e)(3)(i)(A) of this section. To the extent that any of these is 
addressed in a HUD-approved memorandum of agreement or improvement plan, 
the PHA may include a cross-reference to these documents;
    (C) Any other management and operations needs that the PHA wants to 
address at the PHA-wide or development level; and
    (D) A PHA-wide preliminary cost estimate for addressing all the 
needs identified in the management needs assessment, without regard to 
the availability of funds;
    (ii) Sources of funds. The PHA shall identify in its needs 
assessment the sources from which it derived data to develop the 
management needs assessment under this paragraph (e)(3) and shall retain 
such source documents in its files;
    (4) Demonstration of long-term physical and social viability. (i) 
General. The plan shall include, on a development-by-development basis, 
an analysis of whether completion of the improvements and replacements 
identified under paragraphs (e)(2) and (e)(3) of this section will 
reasonably ensure the long-term physical and social viability, including 
achieving structural/system soundness and full occupancy, of the 
development at a reasonable cost. For cost reasonableness, the PHA shall 
determine whether the unfunded hard costs satisfy the definition of 
``reasonable cost.'' Where the PHA wishes to fund a development, for 
other than emergencies, where hard costs exceed that reasonable cost, 
the PHA shall submit written justification to the Field Office. If the 
Field Office agrees with the PHA's request, the Field Office shall 
forward its recommendation to Headquarters for final decision. Where the 
estimated per unit unfunded hard cost is equal to or less than the per 
unit TDC for the smallest bedroom size at the development, no further 
computation of the TDC limit is required. The PHA shall keep 
documentation in its files to support all cost determinations. The Field 
Office will review cost reasonableness as part of its review of the 
annual submission and the performance and evaluation report. As 
necessary, HUD will review the PHA's documentation in support of its 
cost reasonableness, taking into account broader efforts to revitalize 
the neighborhoods in which the development is located;
    (ii) Determination of non-viability. Where a PHA's analysis of a 
development under paragraph (e) of this section establishes that 
completion of the identified improvements and replacements will not 
result in the long-term physical and social viability of the development 
at a reasonable cost, the PHA shall not expend CGP funds for the 
development, except for emergencies and essential non-routine 
maintenance necessary to maintain habitability until residents can be 
relocated. The PHA shall specify in its comprehensive plan the actions 
it proposes to take with respect to the non-viable development (e.g., 
demolition or disposition under 24 CFR part 970);
    (5) Five-year action plan. (i) General. The comprehensive plan shall 
include a rolling five-year action plan to carry out the improvements 
and replacements (or a portion thereof) identified under paragraphs 
(e)(2) and (e)(3) of this section. In developing its five-year action 
plan, the PHA shall assume that the current year funding or formula 
amount will be available for each year of its five-year action plan, 
whichever the PHA is using for planning purposes, plus the PHA's 
estimate of the funds that will be available from other sources, such as 
state and local governments. All activities specified in a

[[Page 525]]

PHA's five-year action plan are contingent upon the availability of 
funds;
    (ii) Requirements. Under the action plan, a PHA must indicate how it 
intends to use the funds available to it under the CGP to address, over 
a five-year period, the deficiencies (or a portion of the deficiencies) 
identified in its physical and management needs assessments, as follows:
    (A) Physical condition. With respect to the physical condition of a 
PHA's developments, a PHA must indicate in its action plan how it 
intends to address, over a five-year period, the deficiencies (or a 
portion of the deficiencies) identified in its physical needs assessment 
so as to bring each of its developments up to a level at least equal to 
the modernization and energy conservation standards. This includes 
specifying the work to be undertaken by the PHA in major work categories 
(e.g., kitchens, electrical systems, etc.); establishing priorities 
among the major work categories by development and year, based upon the 
relative urgency of need; and estimating the cost of each of the 
identified major work categories. In developing its action plan, a PHA 
shall give priority to the following:
    (1) Activities required to correct emergency conditions;
    (2) Activities required to meet statutory or other legally mandated 
requirements (e.g., compliance with a court-ordered desegregation plan 
or voluntary compliance agreement);
    (3) Activities required to meet the needs identified in the Section 
504 needs assessment within the regulatory timeframe; and
    (4) Activities required to complete lead-based paint testing and 
abatement requirements;
    (B) Management and operations. A PHA must address in its action plan 
the management and operations deficiencies (or a portion of the 
deficiencies) identified in its management needs assessment, as follows:
    (1) With respect to the management and operations needs of the PHA, 
the PHA must identify how it intends to address with CGP funds, if 
necessary, the deficiencies (or a portion thereof) identified in its 
management needs assessment, including work identified through PHMAP, 
audits, HUD monitoring reviews, and self-assessments. The action plan 
must indicate the relative urgency of need;
    (2) A preliminary PHA-wide cost estimate, by major work category.
    (iii) Procedure for maintaining current five-year action plan. The 
PHA shall maintain a current five-year action plan by annually amending 
its five-year action plan, in conjunction with the annual submission;
    (6) Local government statement. The comprehensive plan shall include 
a statement signed by the chief executive officer of the unit of general 
local government (or, in the case of a PHA with developments in multiple 
jurisdictions, from the CEO of each such jurisdiction) certifying to the 
following:
    (i) The PHA developed the comprehensive plan/five-year action plan 
or amendments thereto in consultation with officials of the appropriate 
governing body and with development residents covered by the 
comprehensive plan/five-year action plan, in accordance with the 
requirements of paragraphs (b) and (c) of this section;
    (ii) The comprehensive plan/five-year action plan or amendments 
thereto are consistent with the appropriate governing body's assessment 
of its low income housing needs (as evidenced by its consolidated plan 
under 24 CFR part 91, if applicable), and that the appropriate governing 
body will cooperate in providing resident programs and services; and
    (iii) The PHA's proposed drug elimination activities are coordinated 
with, and supportive of, local drug elimination strategies and 
neighborhood improvement programs, if applicable; and
    (7) PHA resolution. The plan shall include a resolution, in a form 
prescribed by HUD, adopted by the PHA Board of Commissioners, and signed 
by the Board Chairman of the PHA, approving the comprehensive plan or 
any amendments.
    (f) Amendments to the comprehensive plan--(1) Extension of time for 
performance. A PHA shall have the right to amend its comprehensive plan 
(including the action plan) to extend the time for performance whenever 
HUD has not provided the amount of assistance set forth in the 
comprehensive plan or has

[[Page 526]]

not provided the assistance in a timely manner;
    (2) Amendments to needs assessments. The PHA shall amend its plan by 
revising its needs assessments whenever it proposes to carry out 
activities in its five-year action plan or annual statement that are not 
reflected in its current needs assessments (except in the case of 
emergencies). The PHA may propose an amendment to its needs assessments, 
in connection with the submission of its annual submission (see Sec. 
968.325) or at any other time. These amendments shall be reviewed by HUD 
in accordance with Sec. 968.320.
    (3) Six-year revision of comprehensive plan. Every sixth year 
following the initial year of participation, the PHA shall submit to 
HUD, with its annual submission, a complete update of its comprehensive 
plan. A PHA may elect to revise some or all parts of the comprehensive 
plan more frequently.
    (4) Annual revision of five-year action plan. Annually, the PHA 
shall submit to HUD, with its annual submission, an update of its five-
year action plan, eliminating the previous year and adding an additional 
year. The PHA shall identify changes in work categories (other than 
those included in the new fifth year) from the previous year five-year 
action plan when making this annual submission.
    (5) Required submissions. Any amendments to the comprehensive plan 
under this section must be submitted with the PHA resolution under Sec. 
968.315(e)(7).
    (g) Prerequisite for receiving assistance--(1) Prohibition of 
assistance. No financial assistance, except for emergency work to be 
funded under Sec. Sec. 968.103(b) and 968.112(a)(1)(ii), and for 
modernization needs resulting from disasters under Sec. 968.103(b), may 
be made available under this subpart unless HUD has approved a 
comprehensive plan submitted by the PHA that meets the requirements of 
this section. A PHA that has failed to obtain approval of its 
comprehensive plan by the end of the FFY shall have its formula 
allocation for that year (less any formula amounts provided to the PHA 
for emergencies) added to the subsequent year's appropriation of funds 
for grants under this part. HUD shall allocate such funds to PHAs and 
IHAs participating in the CGP in accordance with the formula under Sec. 
968.103(e) and (f) in the subsequent FFY. A PHA that elects in any FFY 
not to participate in the CGP may participate in the CGP in subsequent 
FFYs;
    (2) Requests for emergency assistance. A PHA may receive funds from 
its formula allocation to address emergency modernization needs where 
HUD has not approved a PHA's comprehensive plan. To request such 
assistance, a PHA shall submit to HUD a request for funds in such form 
as HUD may prescribe, including any documentation necessary to support 
its claim that an emergency exists. HUD shall review the request and 
supporting documentation to determine if it meets the definition of 
``emergency work'' as set forth in Sec. 968.305.

(Approved by the Office of Management and Budget under control number 
2577-0157)

[61 FR 8744, Mar. 5, 1996, as amended at 64 FR 50229, Sept. 15, 1999]



Sec. 968.320  HUD review and approval of comprehensive plan (including 
five-year action plan).

    (a) Submission of comprehensive plan. (1) Upon receipt of a 
comprehensive plan from a PHA, HUD shall determine whether:
    (i) The plan contains each of the required components specified at 
Sec. 968.315(e); and
    (ii) Where applicable, the PHA has submitted any additional 
information or assurances required as a result of HUD monitoring, 
findings of inadequate PHA performance, audit findings, or civil rights 
compliance findings;
    (2) Acceptance for review. If the PHA has submitted a comprehensive 
plan (including the action plan) which meets the criteria of paragraph 
(a)(1) of this section, HUD shall accept the comprehensive plan for 
review, within 14 calendar days of its receipt in the field office. The 
PHA shall be notified in writing that the comprehensive plan has been 
accepted by HUD for review, and that the 75-day review period is 
proceeding;
    (3) Time period for review. A comprehensive plan that is accepted by 
HUD for review shall be considered to be approved unless HUD notifies 
the

[[Page 527]]

PHA in writing, postmarked within 75 calendar days of the date of HUD's 
receipt of the comprehensive plan for review, that HUD has disapproved 
the plan. HUD shall not disapprove a comprehensive plan on the basis 
that it cannot complete its review within the 75-day deadline;
    (4) Rejection of comprehensive plan. If a PHA has submitted a 
comprehensive plan (including the action plan), which does not meet the 
requirements of paragraph (a)(1) of this section, HUD shall notify the 
PHA within 14 calendar days of its receipt that HUD has rejected the 
plan for review. In such case, HUD shall indicate the reasons for 
rejection, the modifications required to qualify the comprehensive plan 
for HUD review, and the deadline date for receipt of any modifications.
    (b) HUD approval of comprehensive plan (including action plan). (1) 
A comprehensive plan (including the action plan) that is accepted by HUD 
for review in accordance with paragraph (a) of this section shall be 
considered to be approved, unless HUD notifies the PHA in writing, 
postmarked within 75 days of the date of HUD's receipt of the 
comprehensive plan for review, that HUD has disapproved the plan, 
indicating the reasons for disapproval, and the modifications required 
to make the comprehensive plan approvable. The PHA must re-submit the 
comprehensive plan to HUD, in accordance with the deadline established 
by HUD, which may allow up to 75 calendar days before the end of the FFY 
for HUD review. If the revised plan is disapproved by HUD following its 
resubmission, or if the PHA fails to resubmit by the deadline 
established by HUD, any funds that would have been allocated to the PHA 
shall be added to the subsequent year's appropriation of funds for 
grants under this part. HUD shall allocate such funds to PHAs and IHAs 
participating in the CGP in accordance with the formula under Sec. 
968.103(e) and (f). HUD shall not disapprove a comprehensive plan on the 
basis that the Department cannot complete its review under this section 
within the 75-day deadline;
    (2) HUD shall approve the Comprehensive Plan except where it makes a 
determination in accordance with one or more of the following:
    (i) Comprehensive Plan is incomplete in significant matters;
    (ii) Identified needs are plainly inconsistent with facts and data;
    (A) Identified physical improvements and replacements are 
inadequate;
    (B) Identified management improvements are inadequate;
    (C) Proposed physical and management improvements fail to address 
identified needs;
    (iii) Action plan is plainly inappropriate to meeting identified 
needs;
    (iv) Inadequate demonstration of long-term viability at reasonable 
cost; and
    (v) Contradiction of local government certification or PHA 
resolution.
    (c) Effect of HUD approval of Comprehensive Plan. After HUD approves 
the Comprehensive Plan (including the Five-Year Action Plan), or any 
amendments to the plan, it shall be binding upon HUD and the PHA, until 
such time as the PHA submits, and HUD approves, an amendment to its 
plan. The PHA is expected to undertake the work set forth in the Annual 
Statement. However, the PHA may undertake any of the work identified in 
any of the other four years of the latest approved Five-Year Action 
Plan, current approved Annual Statement or previously approved CIAP 
budgets, without further HUD approval. Actual uses of the funds are to 
be reflected in the PHA annual Performance and Evaluation Report for 
each grant. See Sec. 968.330. The PHA is encouraged to inform the 
residents of significant changes (such as changes in scope of work or 
whenever it moves items within the approved Five-Year Action Plan). 
Documentation of that information shall be retained in PHA files. If HUD 
determines as a result of an audit or monitoring findings that a PHA has 
provided false or substantially inaccurate data in its Comprehensive 
Plan/Annual Submission or has circumvented the intent of the program, 
HUD may condition the receipt of assistance, in accordance with Sec. 
968.335. Moreover, in accordance with 18 U.S.C. 1001, any individual or 
entity who knowingly and willingly makes or uses a document or writing 
containing any false, fictitious or fraudulent statement or entry, in 
any matter within the jurisdiction of any

[[Page 528]]

department or agency of the United States, shall be fined not more than 
$10,000 or imprisoned for not more than five years, or both.

(Approved by the Office of Management and Budget under control number 
2577-0157)

[57 FR 5575, Feb. 14, 1992, as amended at 59 FR 44841, Aug. 30, 1994. 
Redesignated and amended at 61 FR 8747, Mar. 5, 1996]



Sec. 968.325  Annual submission of activities and expenditures.

    (a) General. The Annual Submission is a collective term for all 
documents which the PHA must submit to HUD for review and approval 
before accessing the current FFY grant funds. Such documents include the 
Annual Statement, Work Statements for years two through five of the 
Five-Year Action Plan, local government statement, PHA Board Resolution, 
materials demonstrating the partnership process and any other documents 
as prescribed by HUD. For planning purposes, a PHA may use either the 
amount of funding received in the current year or the actual formula 
amount provided in HUD's notification under Sec. 968.310(b)(1) in 
developing the Five-Year Action Plan for presentation at the resident 
meetings and public hearing. Work Statements cover the second through 
the fifth years of the Five-Year Action Plan and set forth the major 
work categories and costs by development or PHA-wide which the PHA 
intends to undertake in each year of years two through five. In 
preparing these Work Statements, the PHA shall assume that the current 
FFY formula amount will be available in each year of years two through 
five, as discussed in Sec. 968.315(d)(5)(i). The Work Statements for 
all five years will be at the same level of detail so that the PHA may 
interchange work items. A PHA may budget up to 8% of its annual grant in 
a contingency account for cost overruns.
    (b) Submission. After receiving HUD notification of the formula 
amount and estimating how much funding will be available from other 
sources, such as State and local governments, and determining its 
activities and costs based on the current FFY formula amount, the PHA 
shall submit its Annual Submission.
    (c) Acceptance for review. (1) Upon receipt of an Annual Submission 
from a PHA, HUD shall determine whether:
    (i) The Annual Submission contains each of the required components; 
and
    (ii) The PHA has submitted any additional information or assurances 
required as a result of HUD monitoring, findings of inadequate PHA 
performance, audit findings, and civil rights compliance findings.
    (2) If the PHA has submitted a complete Annual Submission and all 
required information and assurances, HUD will accept the submission for 
review, as of the date of receipt. If the PHA has not submitted all 
required material, HUD will promptly notify the PHA that it has 
disapproved the submission, indicating the reasons for disapproval, the 
modifications required to qualify the Annual Submission for HUD review, 
and the date by which such modifications must be received by HUD.
    (d) Resident and local government participation. A PHA is required 
to develop its Annual Submission, including any proposed amendments to 
its Comprehensive Plan as provided in Sec. 968.315 (b) and (c), in 
consultation with officials of the appropriate governing body (or, in 
the case of a PHA with developments in multiple jurisdictions, in 
consultation with the CEO of each such jurisdiction or with an advisory 
group representative of all jurisdictions) and with residents and duly 
elected resident councils of the developments covered by the 
Comprehensive Plan, as follows:
    (1) Public notice. Within a reasonable amount of time before the 
advance meeting for residents under paragraph (d)(2) of this section, 
and the public hearing under paragraph (d)(3) of this section, the PHA 
shall annually provide public notice of the advance meeting and the 
public hearing in a manner determined by the PHA and which ensures 
notice to all duly elected resident councils;
    (2) Advance Meeting with residents. The PHA shall at least annually 
hold a meeting open to all residents and duly elected resident councils. 
The advance meeting shall be held within a reasonable amount of time 
before the public hearing under paragraph (d)(3) of this

[[Page 529]]

section. The PHA will provide residents with information concerning the 
contents of the PHA's Five-Year Action Plan (and any proposed amendments 
to the PHA's Comprehensive Plan to be submitted with the Annual 
Submission) so that residents can comment adequately at the public 
hearing on the contents of the Five-Year Action Plan and any proposed 
amendments to the Comprehensive Plan.
    (3) Public hearing. The PHA shall annually hold at least one public 
hearing, and any appropriate number of additional hearings, to present 
information on the Annual Submission and the status of prior approved 
programs. The public hearing shall provide ample opportunity for 
residents of the developments covered by the Comprehensive Plan, 
officials of the appropriate governing body, and other interested 
parties, to express their priorities and concerns. The PHA shall give 
full consideration to the comments and concerns of residents, local 
government officials, and other interested parties in developing its 
Five-Year Action Plan, or any amendments to its Comprehensive Plan.
    (4) Expedited scheduling. PHAs are encouraged to hold the meeting 
with residents and duly elected resident councils under paragraph (d)(2) 
of this section, and the public hearing under paragraph (d)(3) of this 
section between July 1 (i.e., after the end of the program year--June 
30) and September 30, using the formula amount for the current FFY. If a 
PHA elects to use such expedited scheduling, it must explain at the 
meeting with residents and duly elected resident councils and at the 
public hearing that the current FFY amount is not the actual grant 
amount for the subsequent year, but is rather the amount used for 
planning purposes. It must also explain that the Five-Year Action Plan 
will be adjusted when HUD provides notification of the actual formula 
amount, and explain which major work categories at which developments 
may be added or deleted to adjust for the actual formula amount and that 
any added work categories/developments will come from the Comprehensive 
Plan.
    (e) Contents of Annual Submission. The Annual Statement for each 
year must include, for each development or on a PHA-wide basis for 
management improvements or certain physical improvements for which work 
is to be funded out of that year's grant:
    (1) A list of development accounts with an identification of major 
work categories;
    (2) The cost for each major work category, as well as a summary of 
cost by development account;
    (3) The PHA-wide or development-specific management improvements to 
be undertaken during the year;
    (4) For each development and for any management improvements not 
covered by a HUD-approved memorandum of agreement or management 
improvement plan, a schedule for the use of current year funds, 
including target dates for the obligation and expenditure of the funds 
(see Sec. 968.125);
    (5) A summary description of the actions to be taken with non-CGP 
funds to meet physical and management improvement needs which have been 
identified by a PHA in its needs assessments;
    (6) Any documentation that HUD needs to assist it in carrying out 
its responsibilities under the National Environmental Policy Act and 
other related authorities in accordance with Sec. 968.110(c) and (d);
    (7) Other information, as specified by HUD and as approved by OMB 
under the Paperwork Reduction Act; and
    (8) A PHA resolution approving the Annual Submission or any 
amendments thereto, as set forth in Sec. 968.315(e)(7).
    (f) Additional submissions with Annual Submission. A PHA shall 
submit with the Annual Submission any amendments to the Comprehensive 
Plan, as set forth in Sec. 968.315(f), and such additional information 
as may be prescribed by HUD. HUD shall review any proposed amendments to 
the Comprehensive Plan in accordance with review standards under Sec. 
968.320(b).
    (g) HUD review and approval of Annual Submission--(1) General. An 
Annual Submission accepted in accordance with paragraph (a) of this 
section shall be considered to be approved, unless HUD notifies the PHA 
in writing, postmarked within 75 calendar days of the date that HUD 
receives the Annual

[[Page 530]]

Submission for review under paragraph (c) of this section, that HUD has 
disapproved the Annual Submission, indicating the reasons for 
disapproval, the modifications required to make the Annual Submission 
approvable, and the date by which such modifications must be received by 
HUD. HUD may request additional information (e.g., for eligibility 
determinations) to facilitate review and approval of the Annual 
Submission during the 75-day review period. HUD shall not disapprove an 
Annual Submission on the basis that the Department cannot complete its 
review under this section within the 75-day deadline;
    (2) Bases for disapproval for Annual Submission. HUD shall approve 
the Annual Submission, except where:
    (i) Plainly inconsistent with Comprehensive Plan. HUD determines 
that the activities and expenditures proposed in the Annual Submission 
are plainly inconsistent with the PHA's approved Comprehensive Plan;
    (ii) Contradiction of PHA resolution. HUD has evidence which tends 
to challenge, in a substantial manner, the certifications contained in 
the board resolution, as required by Sec. 968.315(e)(7).
    (h) Amendments to Annual Statement. The PHA shall advise HUD of all 
changes to the PHA's approved Annual Statement in its Performance and 
Evaluation Report submitted under Sec. 968.330. The PHA shall submit to 
HUD for prior approval any additional work categories (except for 
emergency work) which are not within the PHA's approved Five-Year Action 
Plan.
    (i) Failure to obligate formula funds and extension of time for 
performance--(1) Failure to obligate formula funds. If the PHA fails to 
obligate formula funds within the approved or extended time period, the 
PHA may be subject to an alternative management strategy which may 
involve third-party oversight or administration of the modernization 
function. HUD would only require such action after a corrective action 
order had been issued under Sec. 968.335 and the PHA failed to comply 
with the order. HUD could then require an alternative management 
strategy in a corrective action order. A PHA may appeal in writing the 
corrective action order requiring an alternative management strategy 
within 30 calendar days of that order. HUD Headquarters shall render a 
written decision on a PHA's appeal within 30 calendar days of the date 
of its receipt of the PHA's appeal.
    (2) Extension of time for performance. A PHA may extend the target 
dates for fund obligation and expenditure in the approved Annual 
Statement whenever any delay outside the PHA's control occurs, as 
specified by HUD, and the extension is made in a timely manner. Such 
revision is subject to HUD review under Sec. 968.345(a)(2) as to the 
PHA's continuing capacity. HUD shall not review as to a PHA's continuing 
capacity any revisions to a PHA's Comprehensive Plan and related 
statements where the basis for the revision is that HUD has not provided 
the amount of assistance set forth in the Annual Submission, or has not 
provided such assistance in a timely manner.
    (j) ACC Amendment. After HUD approval of each year's Annual 
Submission, HUD and the PHA shall enter into an ACC amendment in order 
for the PHA to draw down modernization funds. The ACC amendment shall 
require low-income use of housing for not less than 20 years from the 
date of the ACC amendment (subject to sale of homeownership units in 
accordance with the terms of the ACC).
    (k) Declaration of trust. As HUD may require, the PHA shall execute 
and file for record a Declaration of Trust as provided under the ACC to 
protect the rights and interests of HUD throughout the 20-year period 
during which the PHA is obligated to operate its developments in 
accordance with the ACC, the Act, and HUD regulations and requirements.

(Approved by the Office of Management and Budget under control number 
2577-0157)

[57 FR 5575, Feb. 14, 1992, as amended at 59 FR 44841, Aug. 30, 1994. 
Redesignated and amended at 61 FR 8748, Mar. 5, 1996]



Sec. 968.330  PHA performance and evaluation report.

    For any FFY in which a PHA has received assistance under this 
subpart, the PHA shall submit a Performance and Evaluation Report, in a 
form and

[[Page 531]]

at a time to be prescribed by HUD, describing its use of assistance in 
accordance with the approved Annual Statement. The PHA shall make 
reasonable efforts to notify residents and officials of the appropriate 
governing body of the availability of the draft report, make copies 
available to residents in the development office, and provide residents 
with at least 30 calendar days in which to comment on the report.

(Approved by the Office of Management and Budget under control number 
2577-0157)

[57 FR 5575, Feb. 14, 1992, as amended at 59 FR 44843, Aug. 30, 1994. 
Redesignated and amended at 61 FR 8748, Mar. 5, 1996]



Sec. 968.335  HUD review of PHA performance.

    (a) HUD determination. At least annually, HUD shall carry out such 
reviews of the performance of each PHA as may be necessary or 
appropriate to make the determinations required by this paragraph, 
taking into consideration all available evidence.
    (1) Conformity with comprehensive plan. HUD will determine whether 
the PHA has carried out its activities under this subpart in a timely 
manner and in accordance with its comprehensive plan.
    (2) Continuing capacity. HUD will determine whether the PHA has a 
continuing capacity to carry out its comprehensive plan in a timely 
manner. After the first full operational year of CGP, CIAP experience 
will not be taken into consideration except where the PHA has not yet 
had comparable experience under the CGP.
    (3) Reasonable progress. HUD shall determine whether the PHA has 
satisfied, or has made reasonable progress towards satisfying, the 
following performance standards:
    (i) Conformity with its comprehensive plan, including its annual 
statement and latest HUD-approved five-year action plan, and other 
statutory and regulatory requirements;
    (ii) Continuing capacity to carry out its comprehensive plan in a 
timely manner and expend the annual grant funds; and
    (iii) Reasonable progress toward bringing all of its developments to 
the modernization and energy conservation standards and toward 
implementing the work specified in the annual statement or five-year 
action plan designed to address management deficiencies.
    (b) Notice of deficiency. Based on HUD reviews of PHA performance 
and findings of any of the deficiencies in paragraph (d) of this 
section, HUD may issue to the PHA a notice of deficiency stating the 
specific program requirements which the PHA has violated and requesting 
the PHA to take any of the actions in paragraph (e) of this section.
    (c) Corrective action order. (1) Based on HUD reviews of PHA 
performance and findings of any of the deficiencies in paragraph (d) of 
this section, HUD may issue to the PHA a corrective action order, 
whether or not a notice of deficiency has previously been issued in 
regard to the specific deficiency on which the corrective action order 
is based. HUD may order corrective action at any time by notifying the 
PHA of the specific program requirements which the PHA has violated, and 
specifying that any of the corrective actions listed in paragraph (e) of 
this section must be taken. HUD shall design corrective action to 
prevent a continuation of the deficiency, mitigate any adverse effects 
of the deficiency to the extent possible, or prevent a recurrence of the 
same or similar deficiencies;
    (2) Before ordering corrective action, HUD will notify the PHA and 
give it an opportunity to consult with HUD regarding the proposed 
action;
    (3) Any corrective action ordered by HUD shall become a condition of 
the grant agreement;
    (4) If HUD orders corrective action by a PHA in accordance with this 
section, the PHA's Board of Commissioners must notify affected residents 
of HUD's determination, the bases for the determination, the 
conditioning requirements imposed under this paragraph, and the 
consequences to the PHA if it fails to comply with HUD's requirements.
    (d) Basis for corrective action. HUD may order a PHA to take 
corrective action only if HUD determines:
    (1) The PHA has not submitted a performance and evaluation report, 
in accordance with Sec. 968.330;
    (2) The PHA has not carried out its activities under the CGP program 
in a timely manner and in accordance with

[[Page 532]]

its comprehensive plan or HUD requirements, as determined in paragraph 
(a)(1) of this section;
    (3) The PHA does not have a continuing capacity to carry out its 
comprehensive plan in a timely manner or in accordance with its 
comprehensive plan or HUD requirements, as determined in paragraph 
(a)(2) of this section;
    (4) The PHA has not satisfied, or has not made reasonable progress 
towards satisfying, the performance standards specified in paragraph 
(a)(3) of this section;
    (5) An audit conducted in accordance with 24 CFR part 44, or 
pursuant to other HUD reviews (including monitoring findings) reveals 
deficiencies that HUD reasonably believes require corrective action; or
    (6) The PHA has failed to repay HUD for amounts awarded under the 
CGP program that were improperly expended.
    (e) Types of corrective action. HUD may direct a PHA to take one or 
more of the following corrective actions:
    (1) Submit additional information:
    (i) Concerning the PHA's administrative, planning, budgeting, 
accounting, management, and evaluation functions, to determine the cause 
for a PHA not meeting the standards in paragraph (a)(1), (a)(2), or 
(a)(3) of this section;
    (ii) Explaining any steps the PHA is taking to correct the 
deficiencies;
    (iii) Documenting that PHA activities were not inconsistent with the 
PHA's annual statement or other applicable laws, regulations, or program 
requirements; and
    (iv) Demonstrating that the PHA has a continuing capacity to carry 
out the comprehensive plan in a timely manner;
    (2) Submit detailed schedules for completing the work identified in 
its Annual Statements and report periodically on its progress on meeting 
the schedules;
    (3) Notwithstanding 24 CFR 85.36(g), submit to HUD the following 
documents for prior approval, which may include, but are not limited to:
    (i) Proposed agreement with the architect/engineer (prior to 
execution);
    (ii) Complete construction and bid documents (prior to soliciting 
bids);
    (iii) Proposed award of contracts, including construction and 
equipment contracts and management contracts; or
    (iv) Proposed contract modifications prior to issuance, including 
modifications to construction and equipment contracts, and management 
contracts;
    (4) Submit additional material in support of one or more of the 
statements, resolutions, and certifications submitted as part of the 
PHA's Comprehensive Plan, Five-Year Action Plan, or Performance and 
Evaluation Report;
    (5) Not incur financial obligations, or to suspend payments for one 
or more activities;
    (6) Reimburse, from non-HUD sources, one or more program accounts 
for any amounts improperly expended;
    (7) Submit to an alternative management strategy which may involve 
third-party oversight or administration of the modernization function; 
and
    (8) Take such other corrective actions HUD determines appropriate to 
correct PHA deficiencies.
    (f) Failure to take corrective action. In cases where HUD has 
ordered corrective action and the PHA has failed to take the required 
actions within a reasonable time, as specified by HUD, HUD may take one 
or more of the following steps;
    (1) Withhold some or all of the PHA's grant;
    (2) Declare a breach of the ACC grant amendment with respect to some 
or all of the PHA's functions; or
    (3) Any other sanction authorized by law or regulation.
    (g) Reallocation of funds that have been withheld. Where HUD has 
withheld for a prescribed period of time some or all of a PHA's annual 
grant, HUD may reallocate such amounts to other PHAs/IHAs under the CGP 
program, subject to approval in appropriations acts. The reallocation 
shall be made to IHAs which HUD has determined to be administratively 
capable under Sec. 950.135, and to PHAs under the CGP program which are 
not designated as either troubled or mod troubled under the PHMAP at 24 
CFR part 901, based upon the relative needs of these IHAs and PHAs, as 
determined under the formula at Sec. 968.103(e) and (f).

[[Page 533]]

    (h) Right to appeal. Before withholding some or all of the PHA's 
annual grant, declaring a breach of the ACC grant amendment, or 
reallocating funds that have been withheld, HUD will notify the PHA and 
give it an opportunity, within a prescribed period of time, to present 
to the Assistant Secretary for Public and Indian Housing any arguments 
or additional facts and data concerning the proposed action.
    (i) Notification of residents. The PHA's Board of Commissioners must 
notify affected residents of HUD's final determination to withhold 
funds, declare a breach of the ACC grant amendment, or reallocate funds, 
as well as the basis for, and the consequences resulting from, such a 
determination.
    (j) Recapture. In addition, HUD may recapture for good cause any 
grant amounts previously provided to an PHA, based upon a determination 
that the PHA has failed to comply with the requirements of the CGP 
program. Before recapturing any grant amounts, HUD will notify the PHA 
and give it an opportunity to appeal in accordance with paragraph (h) of 
this section. Any reallocation of recaptured amounts will be reallocated 
in accordance with paragraph (g) of this section. The PHA's board of 
Commissioners must notify affected residents of HUD's final 
determination to recapture any funds.
    (k) Cumulative remedies. The authority to condition, withhold, 
reallocate or recapture a PHA's grant, as provided in this section, is 
in addition to the authority contained in Sec. 968.310(c) to reduce a 
PHA's formula allocation based upon its designation as a mod troubled 
PHA.

(Approved by the Office of Management and Budget under control number 
2577-0157)

[57 FR 5575, Feb. 14, 1992, as amended at 59 FR 44843, Aug. 30, 1994. 
Redesignated and amended at 61 FR 8748, Mar. 5, 1996; 62 FR 27126, May 
16, 1997]



                   Subpart D_Vacancy Reduction Program

    Source: 59 FR 30478, June 13, 1994, unless otherwise noted.



Sec. 968.416  Fund requisitions.

    To request funds against the total approved vacancy reduction 
program budget, a PHA must submit a request to HUD in accordance with 
HUD requirements.



Sec. 968.419  Grantee's oversight responsibilities.

    Each grantee shall provide, by contract or otherwise, adequate and 
competent supervisory and inspection personnel to assure work quality 
and progress during modernization, whether work is performed by contract 
or force account labor and with or without the services of an architect/
engineer.



Sec. 968.422  Progress reports and completion schedule.

    (a) Reports required. Until completion of the activities funded 
under the vacancy reduction program, the grantee shall submit to HUD, in 
a form and at a time prescribed by HUD, the following:
    (1) A report on modernization fund expenditures;
    (2) A narrative report that includes an accounting of the grantee's 
progress against the milestones established in its vacancy reduction 
plan. The report shall include the number of both funded and regular 
turn-over units that have been made ready for occupancy; and
    (3) Any additional information as HUD may require.
    (b) Completion schedule. HUD expects that most work items funded 
under this program will be completed within one year. Work items must be 
completed within two years from the date of funding, or by some other 
time as may be specified in the Notice of Funding Availability, unless 
prior approval is obtained from HUD.

(Approved by the Office of Management and Budget under control number 
2577-0181)



Sec. 968.425  HUD review of grantee performance.

    (a) Performance reviews. HUD shall carry out such reviews of the 
performance of each funded PHA as may be necessary or appropriate to 
determine

[[Page 534]]

compliance with the PHA's vacancy reduction plan and related HUD 
requirements. In these reviews HUD will determine whether the PHA has:
    (1) Carried out its vacancy reduction activities in a timely manner 
and in accordance with its vacancy reduction plan;
    (2) Completed, or made reasonable progress toward completing, the 
physical items funded under the vacancy reduction plan, and whether the 
work items being carried out conform with the modernization and energy 
standards in Sec. 968.115 of this chapter;
    (3) Implemented, or made reasonable progress toward implementing, 
the management improvements funded under the vacancy reduction program; 
and
    (4) Made reasonable progress in meeting the goals established in its 
vacancy reduction plan.
    (b) Notice of deficiency. If HUD finds any deficiency in a review of 
a grantee's performance under this part, HUD may issue to the grantee a 
notice of deficiency stating the specific program requirements that the 
grantee has violated and requesting the grantee to take corrective 
action.
    (c) Corrective action order. (1) Issuance. If HUD finds any of the 
deficiencies listed in paragraph (c)(3) of this section in its review of 
the grantee's performance, HUD may issue to the grantee a corrective 
action order, whether or not a notice of deficiency has previously been 
issued on the specific deficiency. The corrective action order shall 
notify the grantee of the specific program requirements that the grantee 
has violated and shall specify the corrective action.
    (2) Consultation with grantee. Before ordering corrective action, 
HUD will give the grantee an opportunity to consult with HUD regarding 
the proposed action.
    (3) Bases for corrective action. HUD may order a grantee to take 
corrective action only if HUD determines:
    (i) The grantee has not submitted a performance report as required 
by HUD;
    (ii) The grantee has not carried out activities under its vacancy 
reduction program in a timely manner and in accordance with HUD 
requirements;
    (iii) The grantee does not have continuing capacity to carry out 
activities in its vacancy reduction plan; or
    (iv) An audit conducted in accordance with 24 CFR part 44, or 
pursuant to other HUD reviews, reveals deficiencies that HUD reasonably 
believes require corrective action.
    (d) Nature of corrective action. (1) HUD shall design corrective 
action to prevent a continuation or recurrence of the same or a similar 
deficiency or to mitigate to the greatest extent feasible any adverse 
effects of the deficiency.
    (2) HUD may order a grantee to take the corrective action that HUD 
determines appropriate for carrying out the elements of the vacancy 
reduction plan. Corrective action may include, but is not limited to, 
suspension of grantee's authority to incur costs against the vacancy 
reduction funding and reimbursement, from sources other than HUD funds, 
of any amount spent improperly.
    (e) Failure to take corrective action. In cases where HUD has 
ordered corrective action and the grantee has failed to take the 
required action within a reasonable time, as specified by HUD, HUD may 
take one or more of the following steps:
    (1) Withhold vacancy reduction funds from the grantee;
    (2) Declare a breach of the ACC by the grantee; and
    (3) Any other sanctions authorized by law or regulation.



Sec. 968.428  Program closeout.

    (a) Requirements for grantees. Upon completion of the activities 
funded in accordance with this part, the grantee shall submit to HUD, 
and in a form prescribed by HUD, the actual modernization cost 
certificate for HUD's review, audit verification, and approval. The 
grantee shall immediately remit any excess funds provided by HUD. If the 
audited modernization cost certificate discloses unauthorized 
expenditures, the grantee shall take such corrective actions as HUD may 
direct.
    (b) Audit. The audit shall follow the guidelines prescribed in 24 
CFR part 44, Non-Federal Government Audit Requirements.

(Approved by the Office of Management and Budget under control number 
2577-0181)

[[Page 535]]



Sec. 968.435  Other program requirements.

    In addition to the program requirements applicable to this subpart 
under Sec. 968.110, each PHA participating in the vacancy reduction 
program under this subpart shall:
    (a) Certify that any modernization, reconstruction, or 
rehabilitation activities that are funded under this subpart will be 
undertaken in accordance with modernization standards, as set forth in 
HUD Handbook 7485.2, as revised;
    (b) Certify that activities undertaken within vacant units will 
bring the affected units into compliance with the Housing Quality 
Standards, as set forth in Sec. 982.401 of this title, except that 
Sec. 982.401(j) of this title shall not apply; the applicable lead-
based paint requirements in part 35 subparts A, B, L and R, of this 
title shall apply.
    (c) Provide for resident involvement, in a manner to be determined 
by the Secretary, in the process of applying for any funding available 
under this part.

[59 FR 30478, June 13, 1994, as amended at 64 FR 50229, Sept. 15, 1999]



PART 969_PHA-OWNED PROJECTS_CONTINUED OPERATION AS LOW-INCOME HOUSING 
AFTER COMPLETION OF DEBT SERVICE--Table of Contents




Sec.
969.101 Purpose.
969.102 Applicability.
969.103 Definitions.
969.104 Continuing eligibility for operating subsidy.
969.105 Extension of ACC upon payment of operating subsidy.
969.106 ACC extension in absence of current operating subsidy.
969.107 HUD approval of demolition or disposition before ACC expiration.

    Authority: United States Housing Act of 1937 (42 U.S.C. 1437, et 
seq.); sec. 7(d), Department of Housing and Urban Development Act (42 
U.S.C. 3535(d)).

    Source: 45 FR 52372, Aug. 7, 1980, unless otherwise noted. 
Redesignated at 49 FR 6714, Feb. 23, 1984.



Sec. 969.101  Purpose.

    This part provides a basis for maintaining the low-income nature of 
a public housing project after the completion of debt service on the 
project, specifying methods for extending the effective period of those 
provisions of the Annual Contributions Contract (ACC) which relate to 
project operation. Such an extension provides a contractual basis for 
the continued operation of the project under the Low-Income Public 
Housing Program, including continued eligibility for Operating Subsidy.



Sec. 969.102  Applicability.

    This part applies to any low-income public housing project that is 
owned by a Public Housing Agency (PHA), including any Turnkey III 
housing, and is subject to an ACC under section 5 of the United States 
Housing Act of 1937 (Act). This part does not apply to the Section 8 and 
Section 23 Housing Assistance Payments Programs, the Section 10(c) and 
Section 23 Leased Housing Programs, Lanham Act and Public Works projects 
that remain under administration contracts, or Indian Housing projects.

[56 FR 922, Jan. 9, 1991]



Sec. 969.103  Definitions.

    (a) ``ACC expiration date'' means the last day of the term during 
which a particular public housing project is subject to all or any of 
the provisions of the ACC. The ACC term for a particular project expires 
at the latest of:
    (1) The end of the ``Debt Service Completion Date,'' which is the 
last day of a one-year period beginning with, and inclusive of, the last 
debt service Annual Contribution Date for the project, as determined 
under the ACC (e.g., if the last debt service Annual Contribution Date 
is June 15, 1983, the one-year period continues through the end of the 
day on June 14, 1984, which is the Debt Service Completion Date); or
    (2) The end of the date of full repayment of any indebtedness of the 
PHA to the Federal government in connection with the project; or
    (3) The end of the last date of an extension of the term of the ACC 
provisions related to project operation, as effected under Sec. 969.105 
or Sec. 969.106.

[[Page 536]]

    (b) ``Operating subsidy'' means additional annual contributions for 
operations under section 9 of the Act.



Sec. 969.104  Continuing eligibility for operating subsidy.

    Until and after the Debt Service Completion Date for any project, 
HUD shall pay Operating Subsidy with respect to such project only in 
accordance with an ACC amendment providing for extension of the term of 
the ACC provisions related to project operation, pursuant to Sec. 
969.105 or Sec. 969.106. The ACC amendment shall be in the form 
prescribed by HUD and shall specify the particular provisions of the ACC 
which relate to continued project operation and, therefore, remain in 
effect for the extended ACC term. These provisions shall include a 
requirement that the PHA execute and file for public record an 
appropriate document evidencing the PHA's covenant not to convey, 
encumber or make any other disposition of the project before the end of 
the project's ACC Expiration Date, without HUD approval.



Sec. 969.105  Extension of ACC upon payment of operating subsidy.

    (a) ACC amendment. As a condition for the first HUD approval for 
payment of Operating Subsidy with respect to the projects under a 
particular ACC for a PHA fiscal year beginning after the effective date 
of this part, the PHA and HUD shall enter into an amendment to the ACC 
for all projects under the ACC. This ACC amendment shall provide that 
the ACC provisions related to project operation shall continue in effect 
with respect to each project under the ACC for a period of 10 years 
after the end of the last PHA fiscal year for which Operating Subsidy is 
paid with respect to the project.
    (b) Consolidated ACC. Where a single ACC covers more than one 
project (Consolidated ACC), each annual Operating Subsidy payable under 
that ACC is a lump-sum amount, which is not divided into discrete 
amounts for the individual projects which are subject to the 
Consolidated ACC (see 24 CFR part 990). Accordingly, if a PHA, before 
submitting a request for Operating Subsidy pursuant to paragraph (a) of 
this section, determines that any project(s) under the Consolidated ACC 
will not require Operating Subsidy and should not be subject to the 
provisions of paragraph (a), of this section the PHA shall accompany its 
request with a resolution certifying that no Operating Subsidy shall be 
utilized with respect to such project(s) after the effective date of 
this rule and that all financial records and accounts shall be kept 
separately for such project(s). In such case, the removal of the 
project(s) from the request for Operating Subsidy shall be reflected by 
the exclusion of that number of unit months available for the project(s) 
when making the calculations, under 24 CFR part 990, for determination 
of the total amount of Operating Subsidy payable under the Consolidated 
ACC. In any event, no Operating Subsidy payable under a Consolidated ACC 
or otherwise shall be used to pay, directly or indirectly, any costs 
attributable to a project which is ineligible or otherwise excluded from 
Operating Subsidy under Sec. 969.104. Even if no Operating Subsidy is 
received with respect to a project, the PHA remains obligated to 
maintain and operate the project in accordance with the provisions of 
the ACC related to project operation so long as those ACC provisions 
remain in effect.



Sec. 969.106  ACC extension in absence of current operating subsidy.

    Where Operating Subsidy under an ACC is not approved for payment 
during a time period which results in extension of the term of the ACC 
provisions related to project operation, with respect to a particular 
project, pursuant to Sec. 969.105, the PHA shall, at least one year 
before the anticipated ACC Expiration Date for the proj ect, notify HUD 
as to whether or not the PHA desires to maintain a basis for receiving 
Operating Subsidy with respect to the project after the anticipated ACC 
Expiration Date. This notification shall be submitted to the appropriate 
HUD Field Office in the form of a resolution of the PHA's Board of 
Commissioners. If the PHA does not desire to maintain a basis for 
Operating Subsidy payments with respect to the project after the 
anticipated ACC Expiration Date, the

[[Page 537]]

resolution shall certify that no Operating Subsidy shall be utilized 
with respect to the project after the effective date of this rule and 
that all financial records and accounts for such a project shall be kept 
separately. If the PHA does desire to maintain a basis for such 
Operating Subsidy payments, the resolution shall include the PHA's 
request for extension of the term of the ACC provisions related to 
project operation, for a period of not less than one nor more than 10 
years. Upon HUD's receipt of the request, HUD and the PHA shall enter 
into an ACC amendment effecting the extension for the period requested 
by the PHA, unless HUD finds that continued operation of the project 
cannot be justified under the standards set forth in 24 CFR part 970 
(HUD's regulation on demolition or disposition of public housing).



Sec. 969.107  HUD approval of demolition or disposition before ACC 
expiration.

    This part is not intended to preclude or restrict the demolition or 
disposition of a project pursuant to HUD approval in accordance with 24 
CFR part 970. Subject to the requirements of 24 CFR part 970, HUD may 
authorize a PHA to demolish or dispose of public housing at any time 
before the ACC Expiration Date.



PART 970_PUBLIC HOUSING PROGRAM_DEMOLITION OR DISPOSITION OF PUBLIC 
HOUSING PROJECTS--Table of Contents




Sec.
970.1 Purpose.
970.2 Applicability.
970.3 Definitions.
970.4 General requirements for HUD approval of applications for 
          demolition or disposition.
970.5 Displacement and relocation.
970.6 Specific criteria for HUD approval of demolition requests.
970.7 Specific criteria for HUD approval of disposition requests.
970.8 PHA application for HUD approval.
970.9 Disposition of property; use of proceeds.
970.10 Costs of demolition and relocation of displaced tenants.
970.11 Replacement Housing Plan.
970.12 Required and permitted actions prior to approval.
970.13 Resident organization opportunity to purchase.
970.14 Reports and records.

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

    Source: 50 FR 50894, Dec. 13, 1985, unless otherwise noted.



Sec. 970.1  Purpose.

    This part sets forth requirements for HUD approval of a public 
housing agency's application for demolition or disposition (in whole or 
in part) of public housing projects assisted under Title I of the U.S. 
Housing Act of 1937 (the ``Act''). The rules and procedures contained in 
24 CFR part 85 are inapplicable.

[53 FR 8067, Mar. 11, 1988, as amended at 56 FR 923, Jan. 9, 1991]



Sec. 970.2  Applicability.

    (a) This part applies to public housing projects that are owned by 
public housing agencies (PHAs) and that are subject to Annual 
Contributions Contracts (ACCs) under the Act. It also applies to Section 
23 bond-financed projects that have received modernization (i.e., 
Comprehensive Improvement Assistance Program (CIAP) or Comprehensive 
Grant funds (CGP)). This part does not apply to the following:
    (1) PHA-owned Section 8 housing, or housing leased under section 
10(c) or section 23 of the Act, except for section 23 bond-financed 
projects that have received modernization funding under the CIAP or the 
Comprehensive Grant Programs;
    (2) Demolition or disposition before the End of the Initial 
Operating Period (EIOP), as determined under the ACC, of property 
acquired incident to the development of a public housing project; 
(however, this exception shall not apply to dwelling units);
    (3) The conveyance of public housing for the purpose of providing 
homeownership opportunities for lower income families under section 21 
of the Act, the Turnkey III/IV or Mutual Help Homeownership Opportunity 
Programs, or other homeownership programs established under sections 
5(h) or 6(c)(4)(D) of the Act and in existence before February 5, 1988, 
the date of enactment of the 1987 Act. (Where a plan

[[Page 538]]

submitted by the PHA for homeownership includes a component of 
demolition, the plan must meet the requirements of section 18 and this 
part.);
    (4) The leasing of dwelling or nondwelling space incident to the 
normal operation of the project for public housing purposes, as 
permitted by the ACC;
    (5) The reconfiguration of the interior space of buildings (e.g., 
moving or removing interior walls to change the design, sizes, or number 
of units) without ``demolition'', as defined in Sec. 970.3. (This 
includes the conversion of bedroom size, occupancy type, changing the 
status of unit from dwelling to nondwelling.);
    (6) Easements, rights-of-way and transfers of utility systems 
incident to the normal operation of the development for public housing 
purposes, as permitted by the ACC;
    (7) A whole or partial taking by a public or quasi-public entity 
through the exercise of its power of eminent domain; however, HUD 
requirements with respect to the replacement housing requirement for 
one-for-one dwelling units shall be followed (see HUD Handbook 7486.1, 
Demolition, Disposition and Conversion);
    (8) Disposition of a public housing project in accordance with an 
approved homeownership program under title III of the United States 
Housing Act of 1937 (42 U.S.C. 1437p) (Hope 1); 1
---------------------------------------------------------------------------

    \1\ In keeping with section 412(b) of the National Affordable 
Housing Act (Pub.L. 101-625), the provisions of this part do not apply 
to the disposition of a public housing project in accordance with an 
approved homeownership program under title III of the United States 
Housing Act of 1937, as added by section 411 of that legislation, (HOPE 
1 for Public and Indian Housing Homeownership). In the case of a HOPE 1 
proposal from a PHA involving partial or total demolition of units, this 
part does apply. HOPE 3 proposals involving public housing units 
approved prior to the 1992 Act are likewise covered by the requirements 
of section 18. [The 1992 Act took scattered-site single family public 
housing from under the requirements of HOPE 3 and moved it to HOPE 1.]
---------------------------------------------------------------------------

    (9) Demolition after conveyance of a public housing project to a 
non-PHA entity in accordance with an approved homeownership program 
under title III of the United States Housing Act of 1937 (42 U.S.C. 
1437p) (HOPE 1);
    (10) Units leased for non-dwelling purposes for one year or less;
    (11) A public housing development that is conveyed by a PHA to an 
owner entity pursuant to an approved proposal under 24 CFR part 941, 
subpart F and prior to the determination of the Actual Development Cost 
to enable an owner entity to develop the project using the mixed-finance 
development method; and
    (12) Public housing units that are developed pursuant to the mixed-
finance development method at 24 CFR part 941, subpart F, and that are 
reconveyed by the owner entity to the PHA.
    (b) Demolition or disposition that was approved by HUD before 
February 5, 1988, but not carried out by that date, may be carried out 
according to the terms of such approval, without reference to subsequent 
amendments to this part and without obtaining any further HUD approval.

[60 FR 3716, Jan. 18, 1995; as amended at 61 FR 19719, May 2, 1996]



Sec. 970.3  Definitions.

    Act means the United States Housing Act of 1937.
    Chief Executive Officer of a unit of general local government means 
the elected official or the legally designated official, who has the 
primary responsibility for the conduct of that entity's governmental 
affairs. Examples of the ``chief executive officer of a unit of general 
local government'' are: the elected mayor of a municipality; the elected 
county executive of a county; the chairperson of a county commission or 
board in a county that has no elected county executive; and the official 
designated pursuant to law by the governing body of a unit of general 
local government.
    Demolition means the razing, in whole or in part, of one or more 
permanent buildings of a public housing project.
    Disposition means the conveyance or other transfer by the PHA, by 
sale or other transaction, of any interest in the real estate of a 
public housing

[[Page 539]]

project, subject to the exceptions stated in Sec. 970.2.

[50 FR 50894, Dec. 13, 1985, as amended at 60 FR 3716, Jan. 18, 1995]



Sec. 970.4  General requirements for HUD approval of applications for 
demolition or disposition.

    HUD will not approve an application for demolition or disposition 
unless:
    (a) The application has been developed in consultation with tenants 
of the project involved, any tenant organizations for the project, and 
any PHA-wide tenant organizations that will be affected by the 
demolition or disposition;
    (b) Environmental review. Activities under this part are subject to 
HUD environmental regulations in part 58 of this title. However, HUD may 
make a finding in accordance with Sec. 58.11(d) and may itself perform 
the environmental review under the provisions of part 50 of this title 
if a PHA objects in writing to the responsible entity's performing the 
review under part 58.
    (c) [Reserved]
    (d) The public housing agency has developed a replacement housing 
plan, in accordance with Sec. 970.11, and has obtained a commitment for 
the funds necessary to carry out the plan over the approved schedule of 
the plan. To the extent such funding is not provided from other sources 
(e.g., State or local programs or proceeds of disposition), HUD approval 
of the application for demolition or disposition is conditioned on HUD's 
agreement to commit the necessary funds (subject to availability of 
future appropriations).
    (e) The PHA has complied with the offering to resident 
organizations, as required under Sec. 970.13.
    (f) The PHA has prepared a certification regarding relocation of 
residents, in accordance with Sec. 970.5(h)(1). If relocation is 
required, the PHA must submit a relocation plan in accordance with Sec. 
970.5.
    (g) The PHA has made the appropriate certifications regarding site 
and neighborhood standards, in accordance with Sec. 970.11(h) (2) and 
(4).

[50 FR 50894, Dec. 13, 1985, as amended at 53 FR 30987, Aug. 17, 1988; 
60 FR 3717, Jan. 18, 1995; 68 FR 56131, Sept. 29, 2003]



Sec. 970.5  Displacement and relocation.

    (a) Relocation of displaced tenants on a nondiscriminatory basis. 
Tenants who are to be displaced as a result of demolition or disposition 
must be offered opportunities to relocate to other comparable/suitable 
(see HUD Handbook 1378, Tenant Assistance, Relocation and Real Property 
Acquisition) decent, safe, sanitary, and affordable housing (at rents no 
higher than permitted under the Act,) which is, to the maximum extent 
practicable, housing of their choice, on a nondiscriminatory basis, 
without regard to race, color, religion (creed), national origin, 
handicap, age, familial status, or sex, in compliance with applicable 
Federal and State laws.
    (b) Relocation resources. Relocation may be to other publicly 
assisted housing. Housing assisted under Section 8 of the Act, including 
housing available for lease under the Section 8 Housing Voucher Program, 
may also be used for relocation, provided the PHA ensures that displaced 
tenants are provided referrals to comparable/suitable relocation 
dwelling units where the family's share of the rent to owner following 
relocation will not exceed the total tenant payment, as calculated in 
accordance with Sec. 813.107 of this title. If the PHA provides 
referrals to suitable/comparable relocation housing (comparable housing 
if the displacement is subject to the URA) and a tenant with a rental 
voucher elects to lease a housing unit where the family's share of rent 
to owner exceeds the amount calculated in accordance with Sec. 813.107 
of this title, the tenant will be responsible for the difference between 
the voucher payment standard and the rent to owner. If there are no 
units with rents at or below the voucher payment standard to which the 
PHA may refer families, then the PHA cannot use vouchers as a relocation 
housing source.
    (c) Applicability of URA rules. (1) The displacement of any person 
(household, business or nonprofit organization) as a direct result of 
acquisition, rehabilitation, or demolition for a Federal or federally 
assisted project (defined in paragraph (j) of this section) is subject 
to the Uniform Relocation Assistance and Real Property Acquisition 
Policies Act

[[Page 540]]

of 1970, as amended, (URA) (42 U.S.C. 4601-4655) and implementing 
regulations at 49 CFR part 24. Therefore, if the PHA demolishes the 
property, or disposes of it to a Federal agency or to a person or entity 
that is acquiring the property for a federally assisted project, the 
demolition or acquisition is subject to the URA, and any person 
displaced (as described in paragraph (i) of this section) as a result of 
such action is eligible for relocation assistance at the levels 
described in, and in accordance with the requirements of 49 CFR part 24.
    (2) As described in Sec. 970.11, public housing units that are 
demolished must be replaced. Any person displaced (see paragraph (i) of 
this section) as a direct result of acquisition, demolition or 
rehabilitation for a project receiving Federal financial assistance 
(e.g., ACC) that provides the required replacement housing, must be 
provided relocation assistance at the levels described in, and in 
accordance with the requirements of 49 CFR part 24.
    (d) Applicability of antidisplacement plan. If CDBG funds (part 570 
of this title), or HOME funds (part 91 of this title) are used to pay 
any part of the cost of the demolition or the cost of a project (defined 
in paragraph (j) of this section) for which the property is acquired, 
the transaction is subject to the Residential Antidisplacement and 
Relocation Assistance Plan, as described in the cited regulations.
    (e) Relocation assistance for other displaced persons. Whenever the 
displacement of a residential tenant (family, individual or other 
household) occurs in connection with the disposition of the real 
property, but the conveyance is not for a Federal or federally assisted 
project (and is, therefore, not covered by the URA), the displaced 
tenant shall be eligible for the following relocation assistance:
    (1) Advance written notice of the expected displacement. The notice 
shall be provided as soon as feasible, describe the assistance to be 
provided 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 
and referrals to suitable, decent, safe, and sanitary replacement 
housing. Minority persons also shall be given, if possible, referrals to 
suitable decent, safe and sanitary replacement dwellings that are not 
located in an area of minority concentration;
    (3) Payment for actual reasonable moving expenses, as determined by 
the PHA;
    (4) The opportunity to relocate to a suitable, decent, safe and 
sanitary dwelling unit at a rent that does not exceed that permitted 
under section 3(a) of the 1937 Act. All or a portion of the assistance 
may be provided under section 8 of the 1937 Act; and
    (5) Such other Federal, State or local assistance as may be 
available.
    (f) Temporary relocation. 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, any increase in monthly rent/
utility costs, and the cost of reinstalling telephone and cable TV 
service.
    (2) Appropriate advisory services, including reasonable advance 
written notice of:
    (i) The date and approximate duration of the temporary relocation;
    (ii) The suitable, decent, safe and sanitary housing to be made 
available for the temporary period;
    (iii) The terms and conditions under which the tenant may lease and 
occupy a suitable, decent, safe and sanitary dwelling in the building/
complex following completion of the repairs; and
    (iv) The provision for reimbursement of out-of-pocket expenses (see 
paragraph (f)(1) of this section).
    (g) Appeals. A person who disagrees with the PHA's determination 
concerning whether the person qualifies as a ``displaced person'' or the 
amount of the relocation assistance for which the person is eligible, 
may file a written appeal of that determination with the PHA. A person 
who is dissatisfied with the PHA's determination on his or her appeal 
may submit a written request

[[Page 541]]

for review of the PHA's determination to the HUD Field Office.
    (h) Responsibility of PHA. (1) The PHA shall certify that it will 
comply with the URA, implementing regulations at 49 CFR part 24, and the 
requirements of this section, and shall ensure such compliance, 
notwithstanding any third party's contractual obligation to the PHA to 
comply with these provisions.
    (2) The cost of required relocation assistance is an eligible 
project cost in the same manner and to the same extent as other project 
costs. (See definition of ``project'' in paragraph (j) of this section.) 
Such costs may also be paid for with funds available from other sources.
    (3) The PHA shall maintain records in detail sufficient to 
demonstrate such compliance. The PHA shall maintain data on the race, 
ethnic, gender, and handicap status of displaced persons.
    (i) Definition of displaced person. (1) General definition. For 
purposes of this section, the term ``displaced person'' means any person 
(household, business, nonprofit organization, or farm) that moves from 
real property, or moves personal property from real property, 
permanently, as a direct result of acquisition, rehabilitation, or 
demolition for a Federal or federally assisted project.
    (2) Persons who qualify. The term ``displaced person'' includes, but 
may not be limited to:
    (i) A person who moves permanently from the real property after the 
PHA, or the person acquiring the property, issues a vacate notice to the 
person, or refuses to renew an expiring lease in order to evade the 
responsibility to provide relocation assistance, if the move occurs on 
or after the date of HUD approval of the demolition or disposition;
    (ii) Any person who moves permanently, including a person who moves 
before the date of HUD approval of the demolition or disposition, if HUD 
or the PHA determines that the displacement resulted from the demolition 
or disposition of the property and is subject to the provisions of this 
section; or
    (iii) A tenant-occupant of a dwelling who moves permanently from the 
building/complex on or after the date HUD approves the demolition or 
disposition, if the move occurs before the tenant is provided written 
notice offering him or her the opportunity to lease and occupy a 
suitable, decent, safe, and sanitary dwelling in the same building/
complex, under reasonable terms and conditions, upon completion of the 
project. Such reasonable terms and conditions shall include a monthly 
rent and estimated average monthly utility costs that do not exceed that 
permitted under section 3(a) of the 1937 Act.
    (iv) A tenant-occupant of a dwelling who is required to relocate 
temporarily and does not return to the building/complex, if either:
    (A) The tenant is not offered payment for all reasonable out-of-
pocket expenses incurred in connection with such temporary relocation 
(including the cost of moving to and from the temporarily occupied unit, 
any increase in rent/utility costs, and the cost of reinstalling 
telephone and cable TV service).
    (B) Other conditions of the temporary relocation are not reasonable.
    (v) A tenant-occupant of a dwelling who moves from the building/
complex permanently after he or she has been required to move to another 
unit in the same building/complex if either:
    (A) The tenant is not offered reimbursement for all reasonable out-
of-pocket expenses incurred in connection with the move; or
    (B) Other conditions of the move are not reasonable.
    (3) Persons not eligible. Notwithstanding the provisions of 
paragraphs (i)(1) and (i)(2) of this section, a person does not qualify 
as a ``displaced person'' (and is not eligible for relocation assistance 
under this section), if:
    (i) The person has been evicted for serious or repeated violation of 
the terms and conditions of the lease or occupancy agreement, violation 
of applicable Federal, State or local law, or other good cause, and the 
PHA determines that the eviction was not undertaken for the purpose of 
evading the obligation to provide relocation assistance;
    (ii) The person moved into the property after the submission of the 
application for the demolition or disposition and, before commencing 
occupancy, received written notice of the project, its possible impact 
on the person (e.g., the

[[Page 542]]

person may be displaced, temporarily relocated, or suffer a rent 
increase) and the fact that he or she would not qualify as a ``displaced 
person'' (or for assistance under this section) as a result of the 
project;
    (iii) The person is ineligible under 49 CFR 24.2(g)(2); or
    (iv) HUD determines that the person was not displaced as a direct 
result of an action covered by this section.
    (j) Definition of project. For purposes of this section, the term 
``project'' means one or more activities (e.g., real property 
acquisition, demolition or construction) paid for in whole or in part 
with Federal financial assistance. Two or more activities that are 
integrally related, each essential to the other(s), are considered one 
project, whether or not all of the component activities are federally 
assisted.
    (k) Definition of initiation of negotiations. For purposes of 
providing the appropriate notices and determining the formula for 
computing a replacement housing payment under the URA to a tenant 
displaced from a dwelling as a direct result of demolition or private 
owner acquisition, the term ``initiation of negotiations'' means HUD 
approval of the demolition or disposition under this part.

[60 FR 3717, Jan. 18, 1995]



Sec. 970.6  Specific criteria for HUD approval of demolition requests.

    In addition to other applicable requirements of this part, HUD will 
not approve an application for demolition unless HUD determines that one 
of the following criteria is met:
    (a) In the case of demolition of all or a portion of a project, the 
project, or portion of the project, is obsolete as to physical 
condition, location, or other factors, making it unusable for housing 
purposes and no reasonable program of modifications, is feasible to 
return the project or portion of the project to useful life. The 
Department generally shall not consider a program of modifications to be 
reasonable if the costs of such program exceed 90 percent of total 
development cost (TDC). Major problems indicative of obsolescence are--
    (1) As to physical condition: Structural deficiencies (e.g. 
settlement of earth below the building caused by inadequate structural 
fills, faulty structural design, or settlement of floors), substantial 
deterioration (e.g., severe termite damage or damage caused by extreme 
weather conditions), or other design or site problems (e.g., severe 
erosion or flooding);
    (2) As to location: physical deterioration of the neighborhood; 
change from residential to industrial or commercial development; or 
environmental conditions as determined by HUD environmental review in 
accord with part 50 of this title, which jeopardize the suitability of 
the site or a portion of the site and its housing structures for 
residential use;
    (3) Other factors which have seriously affected the marketability, 
usefulness, or management of the property.
    (b) In the case of demolition of only a portion of a project, the 
demolition will help to assure the useful life of the remaining portion 
of the project (e.g., to reduce project density to permit better access 
by emergency, fire, or rescue services).

[60 FR 3719, Jan. 18, 1995]



Sec. 970.7  Specific criteria for HUD approval of disposition requests.

    (a) In addition to other applicable requirements of this part, HUD 
will not approve a request for disposition unless HUD determines that 
retention is not in the best interests of the tenants and the PHA 
because at least one of the following criteria is met:
    (1) Developmental changes is the area surrounding the project (e.g., 
density, or industrial or commercial development) adversely affect the 
health or safety of the tenants or the feasible operation of the project 
by the PHA.
    (2) Disposition will allow the acquisition, development, or 
rehabilitation of other properties that will be more efficiently or 
effectively operated as lower income housing projects, and that will 
preserve the total amount of lower income housing stock available to the 
community. A PHA must be able to demonstrate to the satisfaction of HUD 
that the additional units are being provided in connection with the 
disposition of the property.

[[Page 543]]

    (3) There are other factors justifying disposition that HUD 
determines are consistent with the best interests of the tenants and the 
PHA and that are not inconsistent with other provisions of the Act. As 
an example, if the property meets any of the criteria for demolition 
under Sec. 970.6, it may be disposed of under this criterion (Sec. 
970.7(a)(3)), subject to conditions that HUD may impose (e.g., 
demolition to follow disposition in order to assure abatement of a 
threat to safety or health).
    (b) In the case of disposition of property other than dwelling 
units, (1) the property is determined by HUD to be excess to the needs 
of the project (after EIOP), or (2) the disposition of the property is 
incidental to, or does not interfere with, continued operation of the 
remaining portion of the project.

[50 FR 50894, Dec. 13, 1985, as amended at 53 FR 30988, Aug. 17, 1988; 
60 FR 3719, Jan. 18, 1995]



Sec. 970.8  PHA application for HUD approval.

    Written approval by HUD shall be required before the PHA may 
undertake any transaction involving demolition or disposition. To 
request approval, the PHA shall submit an application to the appropriate 
HUD Field Office which includes the following:
    (a) A description of the property involved;
    (b) A description of, as well as a timetable for, the specific 
action proposed (including, in the case of disposition, the specific 
method proposed);
    (c) A statement justifying the proposed demolition or disposition 
under one or more of the applicable criteria of Sec. 970.6 or Sec. 
970.7;
    (d) If applicable, a plan for the relocation of tenants who would be 
displaced by the proposed demolition or disposition (see Sec. 970.5). 
The relocation plan must at least indicate:
    (1) The number of tenants to be displaced;
    (2) What counseling and advisory services the PHA plans to provide;
    (3) What housing resources are expected to be available to provide 
housing for displaced tenants;
    (4) An estimate of the costs for counseling and advisory services 
and tenant moving expenses, and the expected source for payment of these 
costs (see Sec. Sec. 970.9); and
    (5) The minimum official notice that the PHA will give tenants 
before they are required to move;
    (e) A description of the PHA's consultations with tenants and any 
tenant organizations (as required under Sec. 970.4(a)), with copies of 
any written comments which may have been submitted to the PHA and the 
PHA's evaluation of the comments;
    (f) A replacement housing plan, as required under Sec. 970.11, and 
approved by the unit of general local government which approval shall be 
provided by the chief executive officer of the jurisdiction in which the 
project is located (e.g., the mayor or the county executive), indicating 
approval of the replacement plan.
    (g) Evidence of compliance with the offering to resident 
organizations, as required under Sec. 970.13.
    (h) A certification regarding relocation of residents, in accordance 
with Sec. 970.5(h)(1).
    (i) Appropriate certifications regarding site and neighborhood 
assessment, in accordance with Sec. Sec. 970.11(h) (2), (3), and (4).
    (j) Appropriate certification regarding compliance with 
environmental authorities, where required in accordance with Sec. 
970.4(c).
    (k) The estimated balance of project debt, under the ACC, for 
development and modernization;
    (l) In the case of disposition, an estimate of the fair market value 
of the property, established on the basis of one independent appraisal 
unless, as determined by HUD, (1) more than one appraisal is warranted, 
or (2) another method of valuation is clearly sufficient and the expense 
of an independent appraisal is unjustified because of the limited nature 
of the property interest involved or other available data;
    (m) In the case of disposition, estimates of the gross and net 
proceeds to be realized, with an itemization of estimated costs to be 
paid out of gross proceeds and the proposed use of any net proceeds in 
accordance with Sec. 970.9;
    (n) A copy of a resolution by the PHA's Board of Commissioners 
approving the application;

[[Page 544]]

    (o) If determined to be necessary by HUD, an opinion by the PHA's 
legal counsel that the proposed action is consistent with applicable 
requirements of Federal, State, and local laws; and
    (p) Any additional information necessary to support the application 
and assist HUD in making determinations under this part.

(Approved by the Office of Management and Budget under control number 
2577-0075)

[50 FR 50894, Dec. 13, 1985, as amended at 60 FR 3719, Jan. 18, 1995]



Sec. 970.9  Disposition of property; use of proceeds.

    (a) Where HUD approves the disposition of real property of a 
project, in whole or in part, the PHA shall dispose of it promptly by 
public solicitation of bids for not less than fair market value, unless 
HUD authorizes negotiated sale for reasons found to be in the best 
interests of the PHA or the Federal Government, or sale for less than 
fair market value (where permitted by State law), based on commensurate 
public benefits to the community, the PHA or the Federal Government 
justifying such an exception. Reasonable costs of disposition, and of 
relocation of displaced tenants allowable under Sec. 970.5, may be paid 
by the PHA out of the gross proceeds, as approved by HUD.
    (b) Net proceeds, including any interest earned on the proceeds, 
(after payment of HUD-approved costs of disposition and relocation under 
paragraph (a) of this section) shall be used, subject to HUD approval, 
as follows:
    (1) For the retirement of outstanding obligations, if any, issued to 
finance original development or modernization of the project; and
    (2) Thereafter, to the extent that any net proceeds remain, for the 
provision of housing assistance for low-income families, through such 
measures as modernization of low-income housing or the acquisition, 
development or rehabilitation of other properties to operate as low-
income housing.
    (c) In the case of scattered-site housing of a public housing 
agency, the net proceeds of a disposition shall be used for the 
retirement of outstanding obligations issued to finance original 
development or modernization of the project, in an amount that bears the 
same ratio to the total of such costs and obligations as the number of 
units disposed of bears to the total number of units of the project at 
the time of disposition. For example, in cases where debt has not been 
forgiven, if a development project of ten units that cost $100,000 has 
one unit disposed of for $10,000, then there would be no net proceeds 
after paying off the proportional cost ($100,000 divided by 10=$10,000/
unit) of the project. If, however, the unit was disposed of and net 
proceeds were $12,000, there would be $2,000 available that the PHA 
would use for the provision of housing assistance for lower income 
families. Where debt has been forgiven, all the net proceeds may be used 
by the PHA for the provision of low income housing assistance.

[50 FR 50894, Dec. 13, 1985, as amended at 53 FR 30988, Aug. 17, 1988; 
60 FR 3719, Jan. 18, 1995]



Sec. 970.10  Costs of demolition and relocation of displaced tenants.

    Where HUD has approved demolition of a project, or a portion of a 
project, and the proposed action is part of a modernization program 
under the Comprehensive Improvement Assistance Program (24 CFR part 
968), the costs of demolition and of relocation of displaced tenants may 
be included in the modernization budget.



Sec. 970.11  Replacement housing plan.

    (a) One-for-one replacement. HUD may not approve an application or 
furnish assistance under this part unless the PHA submitting the 
application for demolition or disposition also submits a plan for the 
provision of an additional decent, safe, sanitary, and affordable rental 
dwelling unit (at rents no higher than permitted under the Act) for each 
public housing dwelling unit to be demolished or disposed of under the 
application, except as provided in paragraph (j) of this section. A 
replacement housing plan may provide for the location of the replacement 
housing outside the political boundaries of the locality of the PHA, 
provided all relevant program requirements are satisfied including the 
approval of the replacement housing plan

[[Page 545]]

by the unit of general local government in which the project being 
demolished or disposed is located. In order to assure that all program 
requirements are satisfied, the PHA must enter into any necessary 
agreements, including where applicable, the execution of a Cooperation 
Agreement between the PHA and the locality in which the replacement 
housing will be located, prior to submission of the replacement housing 
plan to HUD for approval. In addition, the PHA must ensure that such 
agreements provide that the families selected for occupancy in the 
replacement housing will be families who would have been eligible for 
occupancy in the replacement housing if it had been replaced in the same 
locality as the project being demolished or disposed. The plan must 
include any one or combination of the following:
    (1) The acquisition or development of additional public housing 
dwelling units;
    (2) The use of 15-year project-based assistance under section 8, to 
the extent available, or if such assistance is not available, in the 
case of an application proposing demolition or disposition of 200 or 
more dwelling units in a development, the use of available project-based 
assistance under section 8 having a term of not less than 5 years;
    (3) The use of not less than 15-year project-based assistance under 
other Federal programs, to the extent available, or if such assistance 
is not available, in the case of an application proposing the demolition 
or disposition of 200 or more dwelling units in a development, the use 
of available project-based assistance under other Federal programs 
having a term of not less than 5 years. (NOTE: In the case of 15-year 
project based assistance under other Federal programs, the Department 
has determined that low-income housing credits under Section 42 of the 
Internal Revenue Service Code is a Federal program providing 15-year 
project-based assistance and, therefore, qualifies as a source of 
replacement housing. Any replacement housing plan proposing the use of 
these credits must assure that the low-income housing units in the low-
income housing credit project which are designated as replacement 
housing will be reserved for low-income families for the requisite 
period. Units which at the time of allocation of the credit are also 
receiving Federal assistance under Section 8 (except tenant-based 
assistance) or Section 23 of the Act, or Section 236, 221(d)(3) BMIR or 
Section 221(d)(5) of the National Housing Act (12 U.S.C. 1701 et seq.), 
or Section 101 of the Housing and Urban Development Act of 1965 (12 
U.S.C. 1701s), or other similar Federal program, are not eligible as 
replacement housing under paragraph (a)(3) of this section.);
    (4) The acquisition or development of dwelling units assisted under 
a State or local government program that provides for project-based 
rental assistance comparable in terms of eligibility, contribution to 
rent, and length of assistance contract (not less than 15 years) to 
assistance under section (8)(b)(1) of the Act; or
    (5)(i) The use of 15-year tenant-based assistance under section 8 of 
the Act, (excluding rental vouchers under section 8(o)), under the 
conditions described in paragraph (b) of this section, to the extent 
available, or if such assistance is not available, in the case of an 
application proposing the demolition or disposition of 200 or more 
dwelling units in a development, the use of tenant-based assistance 
under section 8 (excluding rental vouchers under section 8(o)) having a 
term of not less than 5 years.
    (ii) However, in the case of an application proposing demolition or 
disposition of 200 or more units, not less than 50 percent of the 
dwelling units for replacement housing shall be provided through the 
acquisition or development of additional public housing dwelling units 
or through project-based assistance, and not more than 50 percent of the 
additional dwelling units shall be provided through tenant-based 
assistance under section 8 (excluding vouchers) having a term of not 
less than 5 years. The requirements of Sec. 970.11(b) do not apply to 
applications for demolition or disposition of 200 or more units that 
propose the use of tenant-based assistance under section 8 having a term 
of not less than 5 years for the replacement of not more than

[[Page 546]]

50 percent of the units to be demolished or disposed of.
    (b) Conditions for use of tenant-based assistance. Fifteen-year 
tenant-based assistance under section 8 may be approved under the 
replacement plan only if provisions listed in paragraphs (b)(1) through 
(3) of this section are met.
    (1) There is a finding by HUD that replacement with project-based 
assistance (including public housing, as well as other types of project-
based assistance under paragraph (a) of this section) is not feasible 
under the feasibility standards established for project-based 
assistance; that the supply of private rental housing actually available 
to those who would receive tenant-based assistance under the plan is 
sufficient for the total number of rental certificates and rental 
vouchers available in the community after implementation of the plan; 
and that this available housing supply is likely to remain available for 
the full 15-year term of the assistance;
    (2) HUD's findings under paragraph (b)(1) of this section are based 
on objective information, which must include rates of participation by 
landlords in the Section 8 program; size, condition, and rent levels of 
available rental housing as compared to Section 8 standards; the supply 
of vacant existing housing meeting the Section 8 housing quality 
standards with rents at or below the fair market rent or the likelihood 
of adjusting the fair market rent; the number of eligible families 
waiting for public housing or housing assistance under Section 8; the 
extent of discrimination practiced against the types of individuals or 
families to be served by the assistance; an assessment of compliance 
with civil rights laws and related program requirements; and such 
additional data as HUD may determine to be relevant in particular 
circumstances; and
    (3) To justify a finding under paragraph (b)(1) of this section, the 
PHA must provide sufficient information to support both parts of the 
finding--why project-based assistance is infeasible and how the 
conditions for tenant-based assistance will be met, based on the 
pertinent data from the local housing market, as prescribed in paragraph 
(b)(2) of this section. The determination as to the lack of feasibility 
of project-based assistance must be based on the standards for 
feasibility stated in the respective regulations which govern each type 
of eligible project-based program identified in paragraph (a) of this 
section, including public housing under paragraph (a)(1) of this section 
as well as the other types of eligible Federal, State and local programs 
of project-based assistance under paragraphs (a)(2) through (4) of this 
section. A finding of lack of feasibility may thus be made only if the 
applicable feasibility standards cannot be met under any of those 
project-based programs, or any combination of them. For example, with 
regard to additional public housing development, feasibility would be 
determined by reference to part 941 of this chapter and any other 
applicable regulations and requirements, to include consideration of 
such factors as local needs for new construction or rehabilitation, 
availability of suitable properties for acquisition or sites for 
construction, and HUD determinations under cost containment policies. 
With regard to Section 8 programs involving rehabilitation, an example 
of a major feasibility factor would be the prospects for participation 
of private owners willing to meet the rehabilitation requirements.
    (c) Approval of unit of general local government. The plan must be 
approved by the unit of general local government in which the project 
proposed for demolition or disposition is located, which approval shall 
be provided by the chief executive officer (e.g., the mayor or the 
county executive).
    (d) Schedule for replacement housing plan. (1) The plan must include 
a schedule for carrying out all its terms within a period consistent 
with the size of the proposed demolition or disposition, except that the 
schedule for completing the plan shall in no event exceed 6 years from 
the date specified to begin plan implementation, which is the date of 
HUD approval of the demolition or disposition application.
    (2) Where demolition or disposition will occur in phases, the 
schedule shall provide for completing the plan within six years from the 
date of the HUD approval letter for a specific demolition

[[Page 547]]

or disposition action requested. ``Completion'' does not mean that the 
replacement housing must be built or rehabilitated within the six years. 
For replacement units developed under the public housing development 
program, the completion of the plan would be units that have reached the 
stage of notice to proceed for conventional units and contract of sale 
for Turnkey units.
    (e) Housing the same number of individuals and families. The plan 
must include a method which ensures that at least the same total number 
of individuals and families will be provided housing, allowing for 
replacement with units of different sizes to accommodate changes in 
local priority needs, as determined by the PHA and reviewed and approved 
by HUD as a part of the demolition or disposition application.
    (f) Relocation plan. Where existing occupants will be displaced, the 
plan must include a relocation plan in accordance with Sec. Sec. 970.5 
and 970.8(d).
    (g) Assurances regarding relocation. The plan must prevent the 
taking of any action to demolish or dispose of any unit until the tenant 
of the unit is relocated in accordance with Sec. 970.5. This does not 
preclude actions permitted under Sec. 970.12, actions required under 
this part for development and submission of the PHA's application for 
HUD approval of demolition or disposition, or actions required to carry 
out a relocation plan which has been approved by HUD in accordance with 
Sec. Sec. 970.5 and 970.8(d).
    (h) Site and neighborhood standards assessment. With respect to 
replacement housing, PHAs must comply with site and neighborhood 
standards, as follows:
    (1) If units under the Public Housing Development Program or the 
Section 8 project-based assistance program have been requested as 
replacement housing in the PHA's application, except when the PHA plans 
to build back on the same site, the site and neighborhood standards 
applicable for those programs will apply and be assessed at the 
appropriate time as required by that program rule or handbook and not at 
the time of the demolition or disposition application. The PHA must 
certify to HUD at the time of application for demolition or disposition, 
that once the site is identified, the PHA will comply with the site and 
neighborhood standards applicable for those programs.
    (2) If units under the Public Housing Development Program or the 
Section 8 project-based assistance program have been requested as 
replacement housing in the PHA's application and the PHA plans to build 
back on the same site, the PHA shall comply with the site and 
neighborhood standards applicable for those programs when the demolition 
or disposition application is submitted to HUD. A complete site and 
neighborhood standards review shall be done by HUD subsequent to the 
submission of the demolition or disposition application but prior to 
approval.
    (3)(i) If the replacement housing units are to be provided under a 
State or local program, and the site is known (including building back 
on the same site), the PHA is required to comply with site and 
neighborhood standards comparable to part 882 of this title when the 
demolition or disposition application is submitted to HUD. A complete 
site and neighborhood standards review shall be done by HUD subsequent 
to the submission of the demolition or disposition application but prior 
to approval.
    (ii) However, if the site is not known, the PHA shall include in the 
application for demolition or disposition a certification that it will 
comply with site and neighborhood standards comparable to part 882 of 
this title once the site is known.
    (iii) In the case of replacement housing funded by State or local 
government funds, the PHAs must demonstrate in the application that it 
has a commitment for funding the replacement housing.
    (4)(i) If the replacement housing units are to be provided out of 
the proceeds of the disposition of public housing property, and the site 
is known (including building back on the same site), the PHA is required 
to comply with site and neighborhood standards comparable to part 941 of 
this chapter (or under part 882 of this title in the case of use of 
Section 8 assistance)

[[Page 548]]

when the demolition or disposition application is submitted to HUD. A 
complete site and neighborhood standards review shall be done by HUD 
subsequent to the submission of the demolition or disposition 
application but prior to approval.
    (ii) However, if the site is not known, the PHA shall include in the 
application for demolition or disposition a certification that it will 
comply with site and neighborhood standards comparable to part 941 of 
this chapter or under part 882 of this title once the site is known.
    (i) Assurances regarding accessibility. The plan must contain 
assurances that any replacement units acquired, newly constructed or 
rehabilitated will meet the applicable accessibility requirements set 
forth in Sec. 8.25 of this title.
    (j) Exception for replacement housing in cases of demolition. In any 
5-year period, a public housing agency may demolish not more than the 
lesser of 5 dwelling units or 5 percent of the total dwelling units 
owned and operated by the public housing agency, without providing an 
additional dwelling unit for each public housing unit to be demolished, 
but only if the space occupied by the demolished unit is used for 
meeting the service or other needs of public housing residents. If the 
PHA elects to use this exception, it shall meet all other requirements 
of this part except Sec. 970.11.

(Approved by the Office of Management and Budget under control number 
2577-0075)

[60 FR 3719, Jan. 18, 1995]



Sec. 970.12  Required and permitted actions prior to approval.

    A PHA may not take any action to demolish or dispose of a public 
housing project or a portion of a public housing project without 
obtaining HUD approval under this part. Until such time as HUD approval 
may be obtained, the PHA shall continue to meet its ACC obligations to 
maintain and operate the property as housing for low-income families. 
This does not, however, mean that HUD approval under this part is 
required for planning activities, analysis, or consultations, such as 
project viability studies, comprehensive modernization planning or 
comprehensive occupancy planning.

[53 FR 30987, Aug. 17, 1988]



Sec. 970.13  Resident organization opportunity to purchase.

    (a) Applicability. (1) This section applies to applications for 
demolition or disposition of a development which involve dwelling units, 
nondwelling spaces (e.g. administration and community buildings, 
maintenance facilities), and excess land.
    (2) The requirements of this section do not apply to the following 
cases which it has been determined do not present appropriate 
opportunities for resident purchase:
    (i) The PHA has determined that the property proposed for demolition 
is an imminent threat to the health and safety of residents;
    (ii) The local government has condemned the property proposed for 
demolition;
    (iii) A local government agency has determined and notified the PHA 
that units must be demolished to allow access to fire and emergency 
equipment;
    (iv) The PHA has determined that the demolition of selected portions 
of the development in order to reduce density is essential to ensure the 
long term viability of the development or the PHA (but in no case should 
this be used cumulatively to avoid Section 412 requirements);
    (v) A public body has requested to acquire vacant land that is less 
than 2 acres in order to build or expand its services (e.g., a local 
government wishes to use the land to build or establish a police 
substation); or
    (vi) PHA seeks disposition outside the public housing program to 
privately finance or otherwise develop a facility to benefit low-income 
families (e.g., day care center, administrative building, other types of 
low-income housing).
    (3) In the situations listed in paragraph (a) of this section, the 
PHA may proceed to submit its request to demolish or dispose of the 
property, or the portion of the property, to HUD, in accordance with 
Section 18 of the United States Housing Act of 1937 and 24 CFR

[[Page 549]]

part 970 without affording an opportunity for purchase by a resident 
organization. However, resident consultation would be required in 
accordance with Sec. 970.4(a). The PHA must submit written 
documentation, on official stationery, with date and signatures to 
justify paragraphs (a)(2)(i), (ii), (iii), (iv), and (v) of this 
section. Examples of such documentation include:
    (i) A certification from a local agency, such as the fire or health 
department, that a condition exists in the development that is an 
imminent threat to residents; or
    (ii) A copy of the condemnation order from the local health 
department. If, however, at some future date, the PHA proposes to sell 
the remaining property described in paragraphs (a)(2)(i) through (iii) 
of this section, the PHA will be required to comply with this section.
    (b) Opportunity for residents to organize. Where the affected 
development does not have an existing resident council, resident 
management corporation or resident cooperative at the time of the PHA 
proposal to demolish or dispose of the development or a portion of the 
development, the PHA shall make a reasonable effort to inform residents 
of the development of the opportunity to organize and purchase the 
property proposed for demolition or disposition. Examples of 
``reasonable effort'' at a minimum include one of the following 
activities: convening a meeting, sending letters to all residents, 
publishing an announcement in the resident newsletter, where available, 
or hiring a consultant to provide technical assistance to the residents. 
The Department will not approve any application that cannot demonstrate 
that the PHA has allowed at least 45 days for the residents to organize 
a resident organization. The PHA should initiate its efforts to inform 
the residents of their right to organize as an integral part of the 
resident consultation requirement under Sec. 970.4(a).
    (c) Established Organizations. Where there are duly formed resident 
councils, resident management corporation, or resident cooperative at 
the affected development, the PHA shall follow the procedures beginning 
in paragraph (d) of this section. Where the affected development is 
fully or partially occupied, the residents must be given the opportunity 
to form under the procedures in paragraph (b) of this section.
    (d) Offer of sale to resident organizations. (1) The PHA shall make 
the formal offer for sale which must include, at a minimum, the 
information listed in this paragraph (d). All contacted organizations 
shall have 30 days to express an interest in the offer. The PHA must 
offer to sell the property proposed for demolition or disposition to the 
resident management corporation, the resident council or resident 
cooperative of the affected development under at least as favorable 
terms and conditions as the PHA would offer it for sale to another 
purchaser:
    (i) An identification of the development, or portion of the 
development, in the proposed demolition or disposition, including the 
development number and location, the number of units and bedroom 
configuration, the amount of space and use for non-dwelling space, the 
current physical condition (e.g., fire damaged, friable asbestos, lead-
based paint evaluation results), and occupancy status (e.g., percent 
occupancy).
    (ii) In the case of disposition, a copy of the appraisal of the 
property and any terms of sale.
    (iii) A PHA disclosure and description of plans proposed for reuse 
of land, if any, after the proposed demolition or disposition.
    (iv) An identification of available resources (including its own and 
HUD's) to provide technical assistance to the resident management 
corporation, resident council or resident cooperative of the affected 
development to enable the organization to better understand its 
opportunity to purchase the development, the development's value and 
potential use.
    (v) Any and all terms of sale that the PHA requires for the Section 
18 action. (If the resident management corporation, resident council or 
resident cooperative of the affected development submits a proposal that 
is other than the terms of sale (e.g., purchase at less than fair market 
value with demonstrated commensurate public benefit or for the purposes 
of homeownership),

[[Page 550]]

the PHA may consider accepting the offer).
    (vi) A date by which the resident management corporation, resident 
council or resident cooperative of the affected development must respond 
to the HA's offer to sell the property proposed for demolition or 
disposition, which shall be no less than 30 days from the date of the 
official offering of the PHA. The response from the resident management 
corporation, resident council or resident cooperative of the affected 
development shall be in the form of a letter expressing its interest in 
accepting the PHAs written offer.
    (vii) A statement that the resident council, resident management 
corporation, and resident cooperative of the affected development will 
be given 60 days to develop and submit a proposal to the PHA to purchase 
the property and to obtain a firm financial commitment. It shall explain 
that the PHA shall approve the proposal from the resident council, 
resident management corporation or resident cooperative of the affected 
development, if it meets the terms of sale. However, the statement shall 
indicate that the PHA can consider accepting an offer from the resident 
council, resident management corporation or resident cooperative of the 
affected development that is other than the terms of sale; e.g., 
purchase at less than fair market value with demonstrated commensurate 
public benefit or for the purposes of homeownership. The statement shall 
explain that if the PHA receives more than one proposal from a resident 
council, resident management corporation or resident cooperative at the 
affected development, the PHA shall select the proposal that meets the 
terms of sale. In the event that two proposals from the affected 
development meet the terms of sale, the PHA shall chose the best 
proposal.
    (2) After the 30 day time frame for the resident council, resident 
management corporation, or resident cooperative of the affected 
development to respond to the notification letter has expired, the PHA 
is to prepare letters to those organizations that responded 
affirmatively inviting them to submit a formal proposal to purchase the 
property. The organization has 60 days from the date of its affirmative 
response to prepare and submit a proposal to the PHA that provides all 
the information requested in paragraph (g) of this section and meets the 
terms of sale.
    (e) PHA Review of Proposals. The PHA has up to 60 days from the date 
of receipt of the proposal(s) to review them and determine whether they 
meet the terms of sale set forth in its offer. If the resident 
management corporation, resident council or resident cooperative of the 
affected development submits a proposal that is other than the terms of 
sale (e.g., purchase at less than the fair market value with 
demonstrated commensurate public benefit or for the purposes of 
homeownership), the PHA may consider accepting the offer. If the terms 
of sale are met, within 14 days of the PHA's final decision, the PHA 
shall notify the resident management corporation, resident council or 
resident cooperative of the affected development of that fact and that 
the proposal has been accepted or rejected.
    (f) Appeals. The resident management corporation, resident council 
or resident cooperative of the affected development has the right to 
appeal the PHA's decision to the HUD field office. A letter requesting 
an appeal has to be made within 30 days of the decision by the PHA. The 
request should include copies of the proposal and any related 
correspondence. The field office will render a final decision within 30 
days. A letter communicating the decision is to be prepared and sent to 
the PHA and the resident management corporation, resident council or 
resident cooperative of the affected development.
    (g) Contents of Proposal. (1) The proposal from the resident 
management corporation, resident council or resident cooperative of the 
affected development shall at a minimum include the following:
    (i) The length of time the organization has been in existence;
    (ii) A description of current or past activities which demonstrate 
the organization's organizational and management capability or the 
planned acquisition of such capability through a partner or other 
outside entities;
    (iii) A statement of financial capability;

[[Page 551]]

    (iv) A description of involvement of any non-resident organization 
(non-profit, for profit, governmental or other entities), if any, the 
proposed division of responsibilities between these two, and the non-
resident organization's financial capabilities;
    (v) A plan for financing the purchase of the property and a firm 
commitment for funding resources necessary to purchase the property and 
pay for any necessary repairs;
    (vi) A plan for the use of the property;
    (vii) The proposed purchase price in relation to the appraised 
value;
    (viii) Justification for purchase at less than the fair market value 
in accordance with Sec. 970.9, if appropriate;
    (ix) Estimated time schedule for completing the transaction;
    (x) The response to the PHA's terms of sale;
    (xi) A resolution from the resident organization approving the 
proposal; and
    (xii) A proposed date of settlement, generally not to exceed six 
months from the date of PHA approval of the proposal, or such period as 
the PHA may determine to be reasonable.
    (2) If the proposal is to purchase the property for homeownership 
under 5(h) or HOPE 1, then the requirements of Section 18 of the United 
States Housing Act of 1937 and 24 CFR part 970 do not apply, but the 
applicable requirements shall be those under the HOPE 1 guidelines, as 
set forth at 57 FR 1522, or the section 5(h) regulation, as set forth in 
parts 905 and 906 of this chapter. In order for a PHA to consider a 
proposal to purchase under section 412, using homeownership 
opportunities under section 5(h) or HOPE 1, the resident council, 
resident management corporation or resident cooperative of the affected 
development shall meet the provisions of this rule, including paragraphs 
(g)(1)(i) through (g)(1)(xii) of this section.
    (3) If the proposal is to purchase the property for other than the 
aforementioned homeownership programs or for uses other than 
homeownership, then the proposal must meet all the disposition 
requirements of Section 18 of the United States Housing Act of 1937 and 
24 CFR part 970.
    (h) PHA obligations. (1) Prepare and disperse the formal offer of 
sale to the resident council, resident management corporation and 
resident cooperative of the affected development.
    (2) Evaluate proposals received and make the selection based on the 
considerations set forth in paragraph (b) of this section. Issuance of 
letters of acceptance and rejection.
    (3) Prepare certifications, where appropriate, as discussed in 
paragraph (i)(3) of this section.
    (4) The PHA shall comply with its obligations under Sec. 970.4(a) 
regarding tenant consultation and provide evidence to HUD that it has 
met those obligations. The PHA shall not act in an arbitrary manner and 
shall give full and fair consideration to any qualified resident 
management corporation, resident council or resident cooperative of the 
affected development and accept the proposal if it meets the terms of 
sale.
    (i) PHA application submission requirements for proposed demolition 
or disposition. (1) If the proposal from the resident organization is 
rejected by the PHA, and either there is no appeal by the organization 
or the appeal has been denied, the PHA shall submit its demolition or 
disposition application to HUD in accordance with Section 18 of the 
United States Housing Act of 1937 and part 970 of this chapter. The 
demolition or disposition application must include complete 
documentation that the requirements of this section have been met. PHAs 
must submit written documentation that the resident council, resident 
management corporation and tenant cooperative of the affected 
development have been apprised of their opportunity to purchase under 
this section. This documentation shall include:
    (i) A copy of the signed and dated PHA notification letter(s) to 
each organization informing them of the PHA's intention to submit an 
application for demolition or disposition, the right to purchase; and
    (ii) The responses from each organization.
    (2) If the PHA accepts the proposal of the resident organization, 
the PHA shall submit a disposition application in accordance with 
Section 18 of the United States Housing Act of 1937 and

[[Page 552]]

part 970 of this chapter, with appropriate justification for a 
negotiated sale and for sale at less than fair market value, if 
applicable.
    (3) HUD will not process an application for demolition or 
disposition unless the PHA provides the Department with one of the 
following:
    (i) Where no resident management corporation, resident council or 
resident cooperative exists in the affected development and the 
residents of the affected development have not formed a new organization 
in accordance with paragraph (b) of this section, a certification from 
either the executive director or the board of commissioners stating that 
no such organization(s) exists and documentation that a reasonable 
effort to inform residents of their opportunity to organize has been 
made; or
    (ii) Where a resident management corporation, resident council or 
resident cooperative exists in the affected development one of the 
following, either paragraph (i)(3)(ii)(A) or paragraph (i)(3)(ii)(B) of 
this section:
    (A) A board resolution or its equivalent from each resident council, 
resident management corporation or resident cooperative stating that 
such organization has received the PHA letter, and that it understands 
the offer and waives its opportunity to purchase the project, or portion 
of the project, covered by the demolition or disposition application. 
The response should clearly state that the resolution was adopted by the 
entire organization at a formal meeting; or
    (B) A certification from the executive director or board of 
commissioners of the PHA that the thirty (30) day timeframe has expired 
and no response was received to its offer.

(Approved by the Office of Management and Budget under control number 
2577-0075)

[60 FR 3721, Jan. 18, 1995, as amended at 64 FR 50229, Sept. 15, 1999]



Sec. 970.14  Reports and records.

    (a) After HUD approval of demolition or disposition of all or part 
of a project, the PHA shall keep the appropriate HUD Field Office 
informed of significant actions in carrying out the demolition or 
disposition, including any significant delays or other problems. When 
demolition or disposition is completed, the PHA shall submit to the 
Field Office a report confirming such action, certifying compliance with 
all applicable requirements of Federal law and regulations and, in the 
case of disposition, accounting for the proceeds and costs of 
disposition.
    (b) The PHA shall be responsible for keeping records of its HUD-
approved demolition or disposition sufficient for audit by HUD to 
determine the PHA's compliance applicable requirements of Federal law 
and this part.

(Approved by the Office of Management and Budget under control number 
2577-0075)

[50 FR 50894, Dec. 13, 1985. Redesignated at 53 FR 30987, Aug. 17, 1988. 
Redesignated at 60 FR 3721, Jan. 18, 1995]



PART 971_ASSESSMENT OF THE REASONABLE REVITALIZATION POTENTIAL OF CERTAIN 
PUBLIC HOUSING REQUIRED BY LAW--Table of Contents




Sec.
971.1 Purpose.
971.3 Standards for identifying developments.
971.5 Long-term viability.
971.7 Plan for removal of units from public housing inventories.
971.9 Tenant and local government consultation.
971.11 Hope VI developments.
971.13 HUD enforcement authority.

Appendix to Part 971--Methodology of Comparing Cost of Public Housing 
          With Cost of Tenant-Based Assistance

    Authority: Pub. L. 104-134; 42 U.S.C. 3535(d).

    Source: 62 FR 49576, Sept. 22, 1997, unless otherwise noted.



Sec. 971.1  Purpose.

    Section 202 of the Omnibus Consolidated Rescissions and 
Appropriations Act of 1996 (Pub.L. 104-134, approved April 26, 1996) 
(``OCRA'') requires PHAs to identify certain distressed public housing 
developments that cost more than Section 8 rental assistance and cannot 
be reasonably revitalized. Households in occupancy that will be affected 
by the activities will be offered tenant-based or project-based 
assistance (that can include other public housing units) and will be 
relocated, to

[[Page 553]]

other decent, safe, sanitary, and affordable housing which is, to the 
maximum extent practicable, housing of their choice. After residents are 
relocated, the distressed developments (or affected buildings) for which 
no reasonable means of revitalization exists will be removed from the 
public housing inventory.



Sec. 971.3  Standards for identifying developments.

    (a) PHAs shall use the following standards for identifying 
developments or portions thereof which are subject to section 202's 
requirement that PHAs develop and carry out plans for the removal over 
time from the public housing inventory. These standards track section 
202(a) of OCRA. The development, or portions thereof, must:
    (1) Be on the same or contiguous sites. (OCRA Sec. 202(a)(1)). This 
standard and the standard set forth in paragraph (a)(2) of this section 
refer to the actual number and location of units, irrespective of HUD 
development project numbers.
    (2) Total more than 300 dwelling units. (OCRA Sec. 202(a)(2)).
    (3) Have a vacancy rate of at least ten percent for dwelling units 
not in funded, on-schedule modernization. (OCRA Sec. 202(a)(3)). For 
this determination, PHAs and HUD shall use the data the PHA relied upon 
for its last Public Housing Management Assessment Program (PHMAP) 
certification, as reported on the Form HUD-51234 (Report on Occupancy), 
or more recent data which demonstrates improvement in occupancy rates. 
Units in the following categories shall not be included in this 
calculation:
    (i) Vacant units in an approved demolition or disposition program;
    (ii) Vacant units in which resident property has been abandoned, but 
only if State law requires the property to be left in the unit for some 
period of time, and only for the period stated in the law;
    (iii) Vacant units that have sustained casualty damage, but only 
until the insurance claim is adjusted; and
    (iv) Units that are occupied by employees of the PHA and units that 
are utilized for resident services.
    (4) Have an estimated cost of continued operation and modernization 
of the developments as public housing in excess of the cost of providing 
tenant-based assistance under section 8 of the United States Housing Act 
of 1937 for all families in occupancy, based on appropriate indicators 
of cost (such as the percentage of total development cost required for 
modernization). (OCRA Sec. 202(a)(5)).
    (i) For purposes of this determination, the costs used for public 
housing shall be those necessary to produce a revitalized development as 
described in the paragraph (a)(5) of this section.
    (ii) These costs, including estimated operating costs, modernization 
costs and accrual needs must be used to develop a per unit monthly cost 
of continuing the development as public housing.
    (iii) That per unit monthly cost of public housing must be compared 
to the per unit monthly Section 8 cost.
    (iv) Both the method to be used and an example are included in the 
Appendix to this part.
    (5) Be identified as distressed housing that the PHA cannot assure 
the long-term viability as public housing through reasonable 
revitalization, density reduction, or achievement of a broader range of 
household income. (OCRA Sec. 202(a)(4)). [See Sec. 971.5.]
    (b) Properties meeting the standards set forth in paragraphs (a)(1) 
through (3) of this section will be assumed to be ``distressed'' unless 
the PHA can show that the property fails the standard set forth in 
paragraph (a)(3) of this section for reasons that are temporary in 
duration and are unlikely to recur.
    (c) Where the PHA will demolish all of the units in a development, 
or the portion thereof, that is subject to section 202, section 202 
requirements will be satisfied once the demolition occurs and its 
standards will not be applied further to the use of the site.
    (d) PHAs will meet the test for assuring long-term viability of 
identified housing only if it is probable that, after reasonable 
investment, for at least twenty years (or at least 30 years for 
rehabilitation equivalent to new construction) the development can 
sustain structural/system soundness and full occupancy; will not be 
excessively

[[Page 554]]

densely configured relative to standards for similar (typically family) 
housing in the community; will not constitute an excessive concentration 
of very low-income families; and has no other site impairments which 
clearly should disqualify the site from continuation as public housing.



Sec. 971.5  Long-term viability.

    (a) Reasonable investment. (1) Proposed revitalization costs for 
viability must be reasonable. Such costs must not exceed, and ordinarily 
would be substantially less than, 90 percent of HUD's total development 
cost limit for the units proposed to be revitalized (100 percent of the 
total development cost limit for any ``infill'' new construction subject 
to this regulation). The revitalization cost estimate used in the PHA's 
most recent comprehensive plan for modernization is to be used for this 
purpose, unless a PHA demonstrates or HUD determines that another cost 
estimate is clearly more realistic to ensure viability and to sustain 
the operating costs that are described in paragraph (a)(2) of this 
section.
    (2) The overall projected cost of the revitalized development must 
not exceed the Section 8 cost under the method contained in the Appendix 
to this part, even if the cost of revitalization is a lower percentage 
of the TDC than the limits stated in paragraph (a)(1) of this section.
    (3) The source of funding for such a revitalization program must be 
identified and already available. In addition to other resources already 
available to the PHA, a PHA may assume that future formula funds 
provided through the Comprehensive Grant Program are available for this 
purpose, provided that they are sufficient to permit completion of the 
revitalization within the statutory five year time frame. (Comprehensive 
plans must be amended accordingly.)
    (b) Density. Density reduction measures would have to result in a 
public housing community with a density approaching that which prevails 
in the community for similar types of housing (typically family), or a 
lower density. If the development's density already meets this 
description, further reduction in density is not a requirement.
    (c) Income mix. (1) Measures generally will be required to broaden 
the range of resident incomes to include over time a significant mix of 
households with at least one full-time worker (for example, at least 20 
percent with an income at least 30 percent of median area income). 
Measures to achieve a broader range of household incomes must be 
realistic in view of the site's location. Evidence of such realism 
typically would include some mix of incomes of other households located 
in the same census tract or neighborhood, or unique advantages of the 
public housing site.
    (2) For purposes of judging appropriateness of density reduction and 
broader range of income measures, overall size of the public housing 
site and its number of dwelling units will be considered. The concerns 
these measures would address generally are greater as the site's size 
and number of dwelling units increase.



Sec. 971.7  Plan for removal of units from public housing inventories.

    (a) Time frames. Section 202 is a continuing requirement, and the 
Secretary will establish time frames for submission of necessary 
information annually through publication of a Federal Register notice.
    (b) Plan for removal. With respect to any development that meets all 
of the standards listed, the PHA shall develop a plan for removal of the 
affected public housing units from the inventory. The plan should 
consider relocation alternatives for households in occupancy, including 
other public housing and Section 8 tenant-based assistance, and shall 
provide for relocation from the units as soon as possible. For planning 
purposes, PHAs shall assume that HUD will be able to provide in a timely 
fashion any necessary Section 8 rental assistance. The plan shall 
include:
    (1) A listing of the public housing units to be removed from the 
inventory;
    (2) The number of households to be relocated, by bedroom size;
    (3) Identification and obligation status of any previously approved 
CIAP,

[[Page 555]]

modernization, or major reconstruction funds for the distressed 
development and PHA recommendations concerning transfer of these funds 
to Section 8 or alternative public housing uses;
    (4) The relocation resources that will be necessary, including a 
request for any necessary Section 8 and a description of actual or 
potential public or other assisted housing vacancies that can be used as 
relocation housing;
    (5) A schedule for relocation and removal of units from the public 
housing inventory;
    (6) Provision for notifying families residing in the development, in 
a timely fashion, that the development shall be removed from the public 
housing inventory; informing such families that they will receive 
tenant-based or project-based assistance; providing any necessary 
counselling with respect to the relocation, including a request for any 
necessary counseling funds; and assuring that such families are 
relocated as necessary to other decent, safe, sanitary and affordable 
housing which is, to the maximum extent possible, housing of their 
choice;
    (7) The displacement and relocation provisions set forth in 24 CFR 
970.5.
    (8) A record indicating compliance with the statute's requirements 
for consultation with applicable public housing tenants of the affected 
development and the unit of local government where the public housing is 
located, as set forth in Sec. 971.9.
    (c) Section 18 of the United States Housing Act of 1937 shall not 
apply to demolition of developments removed from PHA inventories under 
this section, but shall apply to any proposed dispositions of such 
developments or their sites. HUD's review of any such disposition 
application will take into account that the development has been 
required to be removed from the PHA's inventory.
    (d) For purposes of determining operating subsidy eligibility under 
the Performance Funding System (PFS), the submitted plan will be 
considered the equivalent of a formal request to remove dwelling units 
from the PHA's inventory and ACC and approval (or acceptance). The PHA 
will receive written notification that the plan has been approved (or 
accepted). Units that are vacant or vacated on or after the written 
notification date will be treated as approved for deprogramming under 
Sec. 990.108(b)(1) of this chapter and also will be provided the phase-
down of subsidy pursuant to Sec. 990.114 of this chapter.

(Approved by the Office of Management and Budget under control number 
2577-0210)



Sec. 971.9  Tenant and local government consultation.

    (a) PHAs are required to proceed in consultation with affected 
public housing residents. PHAs must provide copies of their submissions 
complying with Sec. Sec. 971.3(a) (1) through (3) to the appropriate 
tenant councils and resident groups before or immediately after these 
submissions are provided to HUD.
    (b) PHAs must:
    (1) Hold a meeting with the residents of the affected sites and 
explain the requirements of section 202 of OCRA;
    (2) Provide an outline of the submission(s) complying with Sec. 
971.3(a) (4) and (5) to affected residents; and
    (3) Provide a reasonable comment period for residents and must 
provide a summary of the resident comments to HUD.
    (c) PHAs must prepare conversion plans in consultation with affected 
tenants and must:
    (1) Hold a meeting with affected residents and provide draft copies 
of the plan; and
    (2) Provide a reasonable comment period for residents and must 
provide a summary of the resident comments to HUD.
    (d) The conversion plan must be approved by the local officials as 
not inconsistent with the Consolidated Plan.



Sec. 971.11  HOPE VI developments.

    Developments with HOPE VI implementation grants that have approved 
HOPE VI revitalization plans will be treated as having shown the ability 
to achieve long-term viability with reasonable revitalization plans. 
Future HUD actions to approve or deny proposed HOPE VI implementation 
grant revitalization plans will be taken with consideration of the 
standards for section 202. Developments with HOPE VI planning or 
implementation grants,

[[Page 556]]

but without approved HOPE VI revitalization plans, are fully subject to 
section 202 standards and requirements.



Sec. 971.13  HUD enforcement authority.

    Section 202 provides HUD authority to ensure that certain distressed 
developments are properly identified and removed from PHA inventories. 
Specifically, HUD may:
    (a) Direct a PHA to cease additional spending in connection with a 
development which meets or is likely to meet the statutory criteria, 
except as necessary to ensure decent, safe and sanitary housing until an 
appropriate course of action is approved;
    (b) Identify developments which fall within the statutory criteria 
where a PHA has failed to do so properly;
    (c) Take appropriate actions to ensure the removal of developments 
from the inventory where the PHA has failed to adequately develop or 
implement a plan to do so; and
    (d) Authorize or direct the transfer of capital funds committed to 
or on behalf of the development (including comprehensive improvement 
assistance, comprehensive grant amounts attributable to the 
development's share of funds under the formula, and major reconstruction 
of obsolete projects funds) to tenant-based assistance or appropriate 
site revitalization for the agency.

 Appendix to Part 971--Methodology of Comparing Cost of Public Housing 
                  With Cost of Tenant-Based Assistance

                            I. Public Housing

    The costs used for public housing shall be those necessary to 
produce a revitalized development as described in the next paragraph. 
These costs, including estimated operating costs, modernization costs 
and costs to address accrual needs must be used to develop a per unit 
monthly cost of continuing the development as public housing. That per 
unit monthly cost of public housing must be compared to the per unit 
monthly Section 8 cost. The estimated cost of the continued operation 
and modernization as public housing shall be calculated as the sum of 
total operating, modernization, and accrual costs, expressed on a 
monthly per occupied unit basis. The costs shall be expressed in current 
dollar terms for the period for which the most recent Section 8 costs 
are available.

                           A. Operating Costs

    1. The proposed revitalization plan must indicate how unusually high 
current operating expenses (e.g, security, supportive services, 
maintenance, utilities) will be reduced as a result of post-
revitalization changes in occupancy, density and building configuration, 
income mix and management. The plan must make a realistic projection of 
overall operating costs per occupied unit in the revitalized 
development, by relating those operating costs to the expected occupancy 
rate, tenant composition, physical configuration and management 
structure of the revitalized development. The projected costs should 
also address the comparable costs of buildings or developments whose 
siting, configuration, and tenant mix is similar to that of the 
revitalized public housing development.
    2. The development's operating cost (including all overhead costs 
pro-rated to the development--including a Payment in Lieu of Taxes 
(PILOT) or some other comparable payment, and including utilities and 
utility allowances) shall be expressed as total operating costs per 
month, divided by the number of units occupied by households. For 
example, if a development will have 1,000 units occupied by households 
and will have $300,000 monthly in non-utility costs (including pro-rated 
overhead costs and appropriate P.I.L.O.T.) and $100,000 monthly in 
utility costs paid by the authority and $50,000 monthly in utility 
allowances that are deducted from tenant rental payments to the 
authority because tenants paid some utility bills directly to the 
utility company, then the development's monthly operating cost per 
occupied unit is $450--the sum of $300 per unit in non-utility costs, 
$100 per unit in direct utility costs, and $50 per unit in utility 
allowance costs.
    3. In justifying the operating cost estimates as realistic, the plan 
should link the cost estimates to its assumptions about the level and 
rate of occupancy, the per-unit funding of modernization, any physical 
reconfiguration that will result from modernization, any planned changes 
in the surrounding neighborhood and security costs. The plan should also 
show whether developments or buildings in viable condition in similar 
neighborhoods have achieved the income mix and occupancy rate projected 
for the revitalized development. The plan should also show how the 
operating costs of the similar developments or buildings compare to the 
operating costs projected for the development.
    4. In addition to presenting evidence that the operating costs of 
the revitalized development are plausible, when the per-unit operating 
cost of the renovated development is

[[Page 557]]

more than ten percent lower than the current per-unit operating cost of 
the development, then the plan should detail how the revitalized 
development will achieve its reduction in costs. To determine the extent 
to which projected operating costs are lower than current operating 
costs, the current per-unit operating costs of the development will be 
estimated as follows:
    a. If the development has reliable operating costs and if the 
overall vacancy rate is less than twenty percent, then these costs will 
be divided by the sum of all occupied units and vacant units fully 
funded under PFS plus fifty percent of all units not fully funded under 
PFS. For instance, if the total monthly operating costs of the current 
development are $6.6 million and it has 1,000 occupied units and 200 
vacant units not fully funded under PFS (or a 17 percent overall vacancy 
rate), then the $6.6 million is divided by 1100--1000 plus 50 percent of 
200--to give a per unit figure of $600 per unit month. By this example, 
the current costs of $600 per occupied unit are at least ten percent 
higher than the projected costs per occupied unit of $450 for the 
revitalized development, and the reduction in costs would have to be 
detailed.
    b.If the development currently lacks reliable cost data or has a 
vacancy rate of twenty percent or higher, then its current per unit 
costs will be estimated as follows. First, the per unit cost of the 
entire authority will be computed, with total costs divided by the sum 
of all occupied units and vacant units fully funded under PFS plus fifty 
percent of all vacant units not fully funded under PFS. Second, this 
amount will be multiplied by the ratio of the bedroom adjustment factor 
of the development to the bedroom adjustment factor of the Housing 
Authority. The bedroom adjustment factor, which is based on national 
rent averages for units grouped by the number of bedrooms and which has 
been used by HUD to adjust for costs of units when the number of 
bedrooms vary, assigns to each unit the following factors:.70 for 0-
bedroom units, .85 for 1-bedroom units, 1.0 for 2-bedroom units, 1.25 
for 3-bedroom units, 1.40 for 4-bedroom units, 1.61 for 5-bedroom units, 
and 1.82 for 6 or more bedroom units. The bedroom adjustment factor is 
the unit-weighted average of the distribution. For instance, if the 
development with one thousand occupied units had in occupancy 500 two-
bedroom units and 500 three-bedroom units, then its bedroom adjustment 
factor would be 1.125--500 times 1.0 plus 500 times 1.25, the sum 
divided by 1,000. Where necessary, HUD field offices will arrange for 
assistance in the calculation of the bedroom adjustment factors of the 
Housing Authority and its affected developments.
    c. As an example of estimating development operating costs from PHA 
operating costs, suppose that the Housing Authority had a total monthly 
operating cost per unit of $500 and a bedroom adjustment factor of .90, 
and suppose that the development had a bedroom adjustment factor of 
1.125. Then, the development's estimated current monthly operating cost 
per occupied unit would be $625--or $500 times 1.25 (the ratio of 1.125 
to .90).

                            B. Modernization

    The cost of modernization is the initial revitalization cost to meet 
viability standards, that cost amortized over twenty years (which is 
equivalent to fifteen years at a three percent annual real capital cost 
for the initial outlay). Expressed in monthly terms, the modernization 
cost is divided by 180 (or 15 years times 12 months). Thus, if the 
initial modernization outlay to meet viability standards is $60 million 
for 1,000 units, then the per-unit outlay is $60,000 and the amortized 
modernization cost is $333 per unit per month (or $60,000 divided by 
180). However, when revitalization would be equivalent to new 
construction and the PHA thus is permitted to amortize the proposed cost 
over thirty years (which is equivalent to twenty-two and one-half years 
at a three percent annual real capital cost to the initial outlay), the 
modernization cost will be divided by 270, the product of 22.5 and 12, 
to give a cost per unit month of $222.

                               C. Accrual

    The monthly per occupied unit cost of accrual (i.e., replacement 
needs) will be estimated by using the latest published HUD unit total 
development cost limits for the area and applying them to the 
development's structure type and bedroom distribution after 
modernization, then subtracting from that figure half the per-unit cost 
of modernization, then multiplying that figure by .02 ( representing a 
fifty year replacement cycle), and dividing this product by 12 to get a 
monthly cost. For example, if the development will remain a walkup 
structure containing five hundred two-bedroom occupied and five hundred 
three-bedroom occupied units, if HUD's Total Development Cost limit for 
the area is $70,000 for two-bedroom walkup structures and $92,000 for 
three-bedroom walkup structures, and if the per unit cost of 
modernization is $60,000, then the estimated monthly cost of accrual per 
occupied unit is $85. This is the result of multiplying the value of 
$51,000--the cost guideline value of $81,000 minus half the 
modernization value of $60,000--by .02 and then dividing by 12.

                             D. Overall Cost

    The overall current cost for continuing the development as public 
housing is the sum of its monthly post-revitalization operating cost 
estimates, its monthly modernization cost per occupied unit, and its 
estimated

[[Page 558]]

monthly accrual cost per occupied unit. For example, if the operating 
cost per occupied unit month is $450 and the amortized modernization 
cost is $333 and the accrual cost is $85, the overall monthly cost per 
occupied unit is $868.

                       II. Tenant-Based Assistance

    The estimated cost of providing tenant-based assistance under 
Section 8 for all households in occupancy shall be calculated as the 
unit-weighted averaging of the monthly Fair Market Rents for units of 
the applicable bedroom size; plus the administrative fee applicable to 
newly funded Section 8 rental assistance during the year used for 
calculating public housing operating costs (e.g., the administrative fee 
for units funded from 10/1/95 through 9/30/96 is based on column C of 
the January 24, 1995 Federal Register, at 60 FR 4764, and the 
administrative fee for units funded from 10/1/96 through 9/30/97 is 
based on column B of the March 12, 1997 Federal Register, at 62 FR 
11526); plus the amortized cost of demolishing the occupied public 
housing units, where the cost per unit is not to exceed ten percent of 
the TDC prior to amortization. For example, if the development has five 
hundred occupied two-bedroom units and five hundred occupied three-
bedroom units and if the Fair Market Rent in the area is $600 for two 
bedroom units and is $800 for three bedroom units and if the 
administrative fee comes to $46 per unit, and if the cost of demolishing 
1000 occupied units is $5 million, then the per unit monthly cost of 
tenant based assistance is $774 ($700 for the unit-weighted average of 
Fair Market Rents, or 500 times $600 plus 500 times $800 with the sum 
divided by 1,000; plus $46 for the administrative fee; plus $28 for the 
amortized cost of demolition and tenant relocation (including any 
necessary counseling), or $5000 per unit divided by 180 in this 
example). This Section 8 cost would then be compared to the cost of 
revitalized public housing development--in the example of this section, 
the revitalized public housing cost of $868 monthly per occupied unit 
would exceed the Section 8 cost of $774 monthly per occupied unit by 12 
percent. The PHA would have to prepare a conversion plan for the 
property.

      III. Detailing the Section-8 Cost Comparison: A Summary Table

    The Section 8 cost comparison methods are summarized, using the 
example provided in this section III.
    A. Key Data, Development: The revitalized development has 1000 
occupied units. All of the units are in walkup buildings. The 1000 
occupied units will consist of 500 two-bedroom units and 500 three-
bedroom units. The total current operating costs attributable to the 
development are $300,000

per month in non-utility costs, $100,000 in utility costs paid by the 
PHA, and $50,000 in utility allowance expenses for utilities paid 
directly by the tenants to the utility company. Also, the modernization 
cost for revitalization is $60,000,000, or $60,000 per occupied unit. 
This will provide standards for viability but not standards for new 
construction. The cost of demolition and relocation of the 1000 occupied 
    units is $5 million, or $5000 per unit, based on recent experience.B.
 Key Data, Area: The unit total development cost limit is $70,000 for 
two-bedroom walkups and $92,000 for three-bedroom walkups. The two-
bedroom Fair Market Rent is $600 and the three-bedroom Fair Market Rent 
is $800. The applicable monthly administrative fee amount, in column B 
of the March 12, 1997 Federal Register Notice, at 62 FR 11526, is $46.
    C. Preliminary Computation of the Per-Unit Average Total Development 
Cost of the Development: This results from applying the location's unit 
total development cost by structure type and number of bedrooms to the 
occupied units of the development. In this example, five hundred units 
are valued at $70,000 and five hundred units are valued at $92,000 and 
the unit-weighted average is $81,000.
    D. Current Per Unit Monthly Occupied Costs of Public Housing:
    1. Operating Cost--$450 (total monthly costs divided by occupied 
units: in this example, the sum of $300,000 and $100,000 and $50,000--
divided by 1,000 units).
    2. Amortized Modernization Cost--$333 ($60,000 per unit divided by 
180 for standards less than those of new construction).
    3. Estimated Accrual Cost--$85 (the per-unit average total 
development cost minus half of the modernization cost per unit, times 
.02 divided by 12 months: in this example, $51,000 times .02 and then 
divided by 12).
    4. Total per unit public housing costs--$868.
    E. Current per unit monthly occupied costs of section 8:
    1. Unit-weighted Fair Market Rents--$700 (the unit-weighted average 
of the Fair Market Rents of occupied bedrooms: in this example, 500 
times $600 plus 500 times $800, divided by 1000).
    2. Administrative Fee--$46.
    3. Amortized Demolition and Relocation Cost--$28 ($5000 per unit 
divided by 180).
    4. Total per unit section 8 costs--$774.
    F. Result: In this example, because revitalized public housing costs 
exceed current Section 8 costs, a conversion plan for the property would 
be required.

[[Page 559]]



PART 972_CONVERSION OF PUBLIC HOUSING TO TENANT-BASED ASSISTANCE--Table of Contents




      Subpart A_Required Conversion of Public Housing Developments

                  Purpose; Definition of ``Conversion''

Sec.
972.100 Purpose.
972.103 Definition of ``conversion.''

                       Required Conversion Process

972.106 Procedure for required conversion of public housing developments 
          to tenant-based assistance.
972.109 Conversion of developments.
972.112 Relationship between required conversion and demolition/
          disposition requirements.
972.115 Relationship between required conversions and HOPE VI 
          developments.
972.118 Applicability of Uniform Relocation Act.

         Identifying Developments Subject To Required Conversion

972.121 Developments subject to this subpart.
972.124 Standards for identifying public housing developments subject to 
          required conversion.
972.127 Standards for determining whether a property is viable in the 
          long term.

                            Conversion Plans

972.130 Conversion plan components.
972.133 Public and resident consultation process for developing a 
          conversion plan.
972.136 Timing of submission of conversion plans to HUD.

            HUD Actions With Respect To Required Conversions

972.139 HUD actions with respect to required conversions.

      Subpart B_Voluntary Conversion of Public Housing Developments

                    Purpose; Definition of Conversion

972.200 Purpose.
972.203 Definition of ``conversion.''

                      Required Initial Assessments

972.206 Required initial assessments.

                     Voluntary Conversion Procedure

972.209 Procedure for voluntary conversion of public housing 
          developments to tenant-based assistance.
972.212 Timing of voluntary conversion.
972.215 Applicability of Uniform Relocation Act.

                         Conversion Assessments

972.218 Conversion assessment components.
972.221 Timing of submission of conversion assessments to HUD.
972.224 Necessary conditions for HUD approval of conversion.

                            Conversion Plans

972.227 Public and resident consultation process for developing a 
          conversion plan.
972.230 Conversion plan components.
972.233 Timing of submission of conversion plans to HUD.
972.236 HUD process for approving a conversion plan.
972.239 HUD actions with respect to a conversion plan.

    Authority: 42 U.S.C. 1437t, 1437z-5, and 3535(d).

    Source: 66 FR 33618, June 22, 2001, unless otherwise noted.



      Subpart A_Required Conversion of Public Housing Developments

    Source: 68 FR 54608, Sept. 17, 2003, unless otherwise noted.

                    Purpose; Definition of Conversion



Sec. 972.100  Purpose.

    The purpose of this subpart is to implement section 33 of the United 
States Housing Act of 1937 (42 U.S.C. 1437z-5), which requires PHAs to 
annually review their public housing inventory and identify 
developments, or parts of developments, which must be removed from its 
stock of public housing operated under an Annual Contributions Contract 
(ACC) with HUD.
    This subpart provides the procedures a PHA must follow to develop 
and carry out a conversion plan to remove the units from the public 
housing inventory, including how to provide for the transition for 
residents of these developments to other affordable housing.



Sec. 972.103  Definition of ``conversion.''

    For purposes of this subpart, the term ``conversion'' means the 
removal of public housing units from the inventory of a PHA, and the 
provision of tenant-based or project-based assistance for the residents 
of the public housing units that are being removed. The term 
``conversion,'' as used in this subpart, does not necessarily mean the

[[Page 560]]

physical removal of the public housing development.

                       Required Conversion Process



Sec. 972.106  Procedure for required conversion of public housing 
developments to tenant-based assistance.

    (a) A PHA must annually review its public housing inventory and 
identify developments, or parts of developments, which must be converted 
to tenant-based assistance, in accordance with Sec. Sec. 972.121-
972.127.
    (b) With respect to any public housing development that is 
identified under paragraph (a) of this section, the PHA generally must 
develop a 5-year plan for removal of the affected public housing units 
from the inventory, in accordance with Sec. Sec. 972.130-972.136.
    (c) The PHA may proceed to convert the development if HUD approves 
the conversion plan.



Sec. 972.109  Conversion of developments.

    (a)(1) The PHA may proceed to convert the development covered by a 
conversion plan after receiving written approval from HUD. This approval 
will be separate from the approval that the PHA receives for its Annual 
Plan.
    (2) HUD anticipates that its review of a conversion plan will 
ordinarily occur within 90 days following submission of a complete plan 
by the PHA. A longer process may be required where HUD's initial review 
of the plan raises questions that require further discussion with the 
PHA. In any event, HUD will provide all PHAs with a preliminary response 
within 90 days following submission of a conversion plan.
    (b) The PHA may not demolish or dispose of units or property until 
completion of the required environmental review under part 58 of this 
title (if a responsible entity has assumed environmental responsibility 
for the project) or part 50 of this title (if HUD is performing the 
environmental review). Further, HUD will not approve a conversion plan 
until completion of the required environmental review. However, before 
completion of the environmental review, HUD may approve the targeted 
units for removal from the PHA's inventory and may authorize the PHA to 
undertake other activities proposed in its conversion plan that do not 
require environmental review (such as certain activities related to the 
relocation of residents), as long as the buildings in question are 
adequately secured and maintained.
    (c) For purposes of determining operating subsidy eligibility, HUD 
will consider the conversion plan the PHA submits to be the equivalent 
of a formal request to remove dwelling units from the PHA's inventory 
and ACC. HUD will notify the PHA in writing whether it has approved the 
conversion plan. Units that are vacant or vacated on or after the 
written notification date will be treated as approved for deprogramming 
under Sec. 990.108(b)(1) of this title and also will be provided any 
phase-down of subsidy to which the PHA is entitled pursuant to Sec. 
990.114 of this title.
    (d) The PHA may apply for tenant-based assistance in accordance with 
Section 8 program requirements, and HUD will give the PHA a priority for 
receiving tenant-based assistance to replace the public housing units. 
It is HUD's policy to provide funds for one-for-one replacement housing 
with either public housing or tenant-based assistance, if funds are 
available. HUD may require that funding for the initial year be provided 
from the public housing Capital Fund, Operating Fund, or both.



Sec. 972.112  Relationship between required conversion and 
demolition/disposition requirements.

    (a) Section 18 of the United States Housing Act of 1937 does not 
apply to demolition of developments removed from the inventory of the 
PHA under this subpart. Demolition of these developments is therefore 
not subject to section 18(g), which provides an exclusion from the 
applicability of the Uniform Relocation Assistance and Real Property 
Acquisition Policies Act of 1970 (42 U.S.C. 4601) (URA). Accordingly, 
the URA will apply to the displacement of tenants as the direct result 
of the demolition of a development carried out pursuant to this subpart, 
in accordance with Sec. 972.118. With respect to any such demolition, 
the PHA must comply with the requirements for environmental review found 
at part 58 of this title.

[[Page 561]]

    (b) Section 18 of the United States Housing Act of 1937 does apply 
to any disposition of developments removed from the inventory of the PHA 
under this subpart. Therefore, to dispose of property, the PHA must 
submit a disposition application under section 18. HUD's review of any 
such disposition application will take into account that the development 
has been required to be converted.



Sec. 972.115  Relationship between required conversions and HOPE VI 
developments.

    HUD actions to approve or deny proposed HOPE VI revitalization plans 
must be consistent with the requirements of this subpart. Developments 
with HOPE VI revitalization grants, but without approved HOPE VI 
revitalization plans, are fully subject to required conversion standards 
under this subpart.



Sec. 972.118  Applicability of Uniform Relocation Act.

    To the extent that tenants are displaced as a direct result of the 
demolition, acquisition, or rehabilitation of federally-assisted 
property converted pursuant to this subpart, the requirements of the 
Uniform Relocation Assistance and Real Property Acquisition Policies Act 
of 1970 (42 U.S.C. 4601) (URA), and the implementing regulations issued 
by the Department of Transportation at 49 CFR part 24, apply.

         Identifying Developments Subject To Required Conversion



Sec. 972.121  Developments subject to this subpart.

    (a) This subpart is applicable to any development not identified 
before October 21, 1998, for conversion, or for assessment of whether 
such conversion is required, in accordance with section 202 of the 
Omnibus Consolidated Rescissions and Appropriations Act of 1996 (Pub. L. 
104-134, approved April 26, 1996, 110 Stat. 1321-279--1321-281). 
Developments identified before October 21, 1998, continue to be subject 
to the requirements of section 202 and part 971 of this chapter until 
these requirements are satisfied. Thereafter, the provisions of this 
subpart apply to any remaining public housing on the sites of those 
developments.
    (b) The developments to which this subpart is applicable are subject 
to the requirements of section 33 of the United States Housing Act of 
1937 (42 U.S.C. 1437z-5).
    (c) The provisions of this subpart cease to apply when the units in 
a development that are subject to the requirements of this subpart have 
been demolished.



Sec. 972.124  Standards for identifying public housing developments 
subject to required conversion.

    The development, or portions thereof, must be converted if it is a 
general occupancy development of 250 or more dwelling units and it meets 
the following criteria:
    (a) The development is on the same or contiguous sites. This refers 
to the actual number and location of units, irrespective of HUD 
development project numbers.
    (b) The development has a vacancy rate of at least a specified 
percent for dwelling units not in funded, on-schedule modernization, for 
each of the last three years, and the vacancy rate has not significantly 
decreased in those three years. (1) For a conversion analysis performed 
on or before March 16, 2009, the specified vacancy rate is 15 percent. 
For a conversion analysis performed after that date, the specified 
vacancy rate is 12 percent.
    (2) For the determination of vacancy rates, the PHA must use the 
data it relied upon for the PHA's latest Public Housing Assessment 
System (PHAS) certification, as reported on the Form HUD-51234 (report 
on Occupancy). Units in the following categories must not be included in 
this calculation:
    (i) Vacant units in an approved demolition or disposition program;
    (ii) Vacant units in which resident property has been abandoned, but 
only if state law requires the property to be left in the unit for some 
period of time, and only for the period of time stated in the law;
    (iii) Vacant units that have sustained casualty damage, but only 
until the insurance claim is adjusted;

[[Page 562]]

    (iv) Units that are occupied by employees of the PHA and units that 
are used for resident services; and
    (v) Units that HUD determines, in its sole discretion, are 
intentionally vacant and do not indicate continued distress.
    (c) The development either is distressed housing for which the PHA 
cannot assure the long-term viability as public housing, or more 
expensive for the PHA to operate as public housing than providing 
tenant-based assistance. (1) The development is distressed housing for 
which the PHA cannot assure the long-term viability as public housing 
through reasonable revitalization, density reduction, or achievement of 
a broader range of household income. (See Sec. 972.127)
    (i) Properties meeting the standards set forth in paragraphs (a) and 
(b) of this section will be assumed to be ``distressed,'' unless HUD 
determines that the reasons a property meets such standards are 
temporary in duration and are unlikely to recur.
    (ii) A development satisfies the long-term viability test only if it 
is probable that, after reasonable investment, for at least 20 years (or 
at least 30 years for rehabilitation equivalent to new construction) the 
development can sustain structural/system soundness and full occupancy; 
will not be excessively densely configured relative to other similar 
rental (typically family) housing in the community; can achieve a 
broader range of family income; and has no other site impairments that 
clearly should disqualify the site from continuation as public housing.
    (2) The development is more expensive for the PHA to operate as 
public housing than to provide tenant-based assistance if it has an 
estimated cost, during the remaining useful life of the project, of 
continued operation and modernization of the development as public 
housing in excess of the cost of providing tenant-based assistance under 
section 8 of the United States Housing Act of 1937 for all families in 
occupancy, based on appropriate indicators of cost (such as the 
percentage of total development cost required for modernization).
    (i) For purposes of this determination, the costs used for public 
housing must be those necessary to produce a revitalized development as 
described in paragraph (c)(1) of this section.
    (ii) These costs, including estimated operating costs, modernization 
costs, and accrual needs must be used to develop a per unit monthly cost 
of continuing the development as public housing.
    (iii) That per unit monthly cost of public housing must be compared 
to the per unit monthly Section 8 cost.
    (iv) The cost methodology necessary to conduct the cost comparisons 
for required conversions has not yet been finalized. PHAs are not 
required to undertake conversions under this subpart until six months 
after the effective date of the cost methodology, which will be 
announced in the Federal Register. Once effective, the cost methodology 
will be codified as an appendix to this part.



Sec. 972.127  Standards for determining whether a property is viable in 
the long term.

    In order for a property to meet the standard of long-term viability, 
as discussed in Sec. 972.124, the following criteria must be met:
    (a) The investment to be made in the development is reasonable. (1) 
Proposed revitalization costs for viability must be reasonable. Such 
costs must not exceed, and ordinarily would be substantially less than, 
90 percent of HUD's total development cost (TDC) limit for the units 
proposed to be revitalized (100 percent of the total development cost 
limit for any ``infill'' new construction subject to this regulation). 
The revitalization cost estimate used in the PHA's most recent Annual 
Plan or 5-Year Plan is to be used for this purpose, unless the PHA 
demonstrates, or HUD determines, that another cost estimate is clearly 
more realistic to ensure viability and to sustain the operating costs 
that are described in paragraph (a)(2) of this section.
    (2) The overall projected cost of the revitalized development must 
not exceed the Section 8 cost under the method contained in the Appendix 
to this part, even if the cost of revitalization is a lower percentage 
of the TDC than the limits stated in paragraph (a)(1) of this section.

[[Page 563]]

    (3) The source of funding for such a revitalization program must be 
identified and available. In addition to other resources already 
available to the PHA, it may assume that future formula funds provided 
through the Capital Fund over five years are available for this purpose.
    (b) Appropriate density is achieved. The resulting public housing 
development must have a density which is comparable to that which 
prevails in or is appropriate for assisted rental housing or for other 
similar types of housing in the community (typically family).
    (c) A greater income mix can be achieved. (1) Measures generally 
will be required to broaden the range of resident incomes over time to 
include a significant mix of households with at least one full-time 
worker. Measures to achieve a broader range of household incomes must be 
realistic in view of the site's location. Appropriate evidence typically 
would include census or other recent statistical evidence demonstrating 
some mix of incomes of other households located in the same census tract 
or neighborhood, or unique advantages of the public housing site.
    (2) For purposes of judging appropriateness of density reduction and 
broader range of income measures, overall size of the public housing 
site and its number of dwelling units will be considered. The concerns 
these measures would address generally are greater as the site's size 
and number of dwelling units increase.

                            Conversion Plans



Sec. 972.130  Conversion plan components.

    (a) With respect to any development that is identified under 
Sec. Sec. 972.121 through 972.127, the PHA generally must develop a 5-
year plan for removal of the affected public housing units from the 
inventory. The plan must consider relocation alternatives for households 
in occupancy, including other public housing and Section 8 tenant-based 
assistance, and must provide for relocation from the units as soon as 
possible. For planning purposes, the PHA must assume that HUD will be 
able to provide in a timely fashion any necessary Section 8 rental 
assistance. The plan must include:
    (1) A listing of the public housing units to be removed from the 
inventory;
    (2) Identification and obligation status of any previously approved 
modernization, reconstruction, or other capital funds for the distressed 
development and the PHA's recommendations concerning transfer of these 
funds to Section 8 or alternative public housing uses;
    (3) A record indicating compliance with the statute's requirements 
for consultation with applicable public housing tenants of the affected 
development and the unit of local government where the public housing is 
located, as set forth in Sec. 972.133;
    (4) A description of the plans for demolition or disposition of the 
public housing units; and
    (5) A relocation plan, in accordance with paragraph (b) of this 
section.
    (b) Relocation plan. The relocation plan must incorporate all of the 
information identified in paragraphs (b)(1) through (b)(4) of this 
section. In addition, if the required conversion is subject to the URA, 
the relocation plan must also contain the information identified in 
paragraph (b)(5) of this section. The relocation plan must incorporate 
the following:
    (1) The number of households to be relocated, by bedroom size, and 
by the number of accessible units.
    (2) The relocation resources that will be necessary, including a 
request for any necessary Section 8 funding and a description of actual 
or potential public or other assisted housing vacancies that can be used 
as relocation housing and budget for carrying out relocation activities.
    (3) A schedule for relocation and removal of units from the public 
housing inventory (including the schedule for providing actual and 
reasonable relocation expenses, as determined by the PHA, for families 
displaced by the conversion).
    (4) Provide for issuance of a written notice to families residing in 
the development in accordance with the following requirements:
    (i) Timing of notice. If the required conversion is not subject to 
the URA,

[[Page 564]]

the notice shall be provided to families at least 90 days before 
displacement. If the required conversion is subject to the URA the 
written notice shall be provided to families no later than the date the 
conversion plan is submitted to HUD. For purposes of a required 
conversion subject to the URA, this written notice shall constitute the 
General Information Notice (GIN) required by the URA.
    (ii) Contents of notice. The written notice shall include all of the 
following:
    (A) The development must be removed from the public housing 
inventory and that the family may be displaced as a result of the 
conversion;
    (B) The family will be offered comparable housing, which may include 
tenant-based or project-based assistance, or occupancy in a unit 
operated or assisted by the PHA (if tenant-based assistance is used, the 
comparable housing requirement is fulfilled only upon the relocation of 
the family into such housing);
    (C) Any necessary counseling with respect to the relocation will be 
provided, including any appropriate mobility counseling (the PHA may 
finance the mobility counseling using Operating Fund, Capital Fund, or 
Section 8 administrative fee funding);
    (D) Such families will be relocated to other decent, safe, sanitary, 
and affordable housing that is, to the maximum extent possible, housing 
of their choice;
    (E) If the development is used as housing after conversion, the PHA 
must ensure that each resident may choose to remain in the housing, 
using tenant-based assistance towards rent; and
    (F) Where section 8 voucher assistance is being used for relocation, 
the family will be provided with the vouchers at least 90 days before 
displacement.
    (5) If the required conversion is subject to the URA, the written 
notice described in paragraph (b)(4) must also provide that:
    (i) The family will not be required to move without at least 90-days 
advance written notice of the earliest date by which the family may be 
required to move, and that the family will not be required to move 
permanently until the family is offered comparable housing, as provided 
in paragraph (b)(4)(ii)(B) of this section;
    (ii) Any person who is an alien not lawfully present in the United 
States is ineligible for relocation payments or assistance under the 
URA, unless such ineligibility would result in exceptional and extremely 
unusual hardship to a qualifying spouse, parent, or child, as provided 
in the URA regulations at 49 CFR 24.208;
    (iii) The family has a right to appeal the PHA's determination as to 
the family's application for relocation assistance for which the family 
may be eligible under this subpart and URA;
    (iv) Families residing in the development will be provided with the 
URA Notice of Relocation Eligibility or Notice of Non-displacement (as 
applicable) as of the date HUD approves the conversion plan (for 
purposes of this subpart, the date of HUD's approval of the conversion 
plan shall be the ``date of initiation of negotiations'' as that term is 
used in URA and the implementing regulations at 49 CFR part 24); and
    (v) Any family that moves into the development after submission of 
the conversion plan to HUD will also be eligible for relocation 
assistance, unless the PHA issues a written move-in notice to the family 
prior to leasing and occupancy of the unit advising the family of the 
development's possible conversion, the impact of the conversion on the 
family, and that the family will not be eligible for relocation 
assistance.
    (c) The conversion plan may not be more than a 5-year plan, unless 
the PHA applies for and receives approval from HUD for a longer period 
of time. HUD may allow the PHA up to 10 years to remove the units from 
the inventory, in exceptional circumstances where HUD determines that 
this is clearly the most cost effective and beneficial means of 
providing housing assistance over that same period. For example, HUD may 
allow a longer period of time to remove the units from the public 
housing inventory, where more than one development is being converted, 
and a larger number of families require relocation than can easily be 
absorbed into the rental market at one

[[Page 565]]

time, provided the housing has a remaining useful life of longer than 
five years and the longer time frame will assist in relocation.



Sec. 972.133  Public and resident consultation process for developing 
a conversion plan.

    (a) The PHA must consult with appropriate public officials and with 
the appropriate public housing residents in developing the conversion 
plan.
    (b) The PHA may satisfy the requirement for consultation with public 
officials by obtaining a certification from the appropriate government 
official that the conversion plan is consistent with the applicable 
Consolidated Plan. This may be the same certification as is required for 
the PHA Annual Plan that includes the conversion plan, so long as the 
certification specifically addresses the conversion plan.
    (c) To satisfy the requirement for consultation with the appropriate 
public housing residents, in addition to the public participation 
requirements for the PHA Annual Plan, the PHA must:
    (1) Hold at least one meeting with the residents of the affected 
sites (including the duly elected Resident Council, if any, that covers 
the development in question) at which the PHA must:
    (i) Explain the requirements of this section, especially as they 
apply to the residents of the affected developments; and
    (ii) Provide draft copies of the conversion plan to the residents;
    (2) Provide a reasonable comment period for residents; and
    (3) Summarize the resident comments for HUD, in the conversion plan, 
and consider these comments in developing the final conversion plan.



Sec. 972.136  Timing of submission of conversion plans to HUD.

    The requirements of this section are on-going requirements. If the 
PHA must submit a plan for conversion, it must submit the conversion 
plan as part of the PHA's Annual Plan, beginning with PHA fiscal years 
that commence six months after the effective date of HUD's final rule 
establishing the cost methodology for required conversions.

            HUD Actions With Respect to Required Conversions



Sec. 972.139  HUD actions with respect to required conversions.

    (a) HUD will take appropriate steps to ensure that distressed 
developments subject to this subpart are properly identified and 
converted. If a PHA fails to properly identify a development for 
required conversion, or does not submit a conversion plan for a 
development in the PHA Annual Plan following the Annual Plan in which 
the development was identified as subject to required conversion, HUD 
will take the actions described in paragraph (b) of this section, and 
may also take any or all of the actions described in paragraph (c) of 
this section.
    (b) If a PHA fails to take the conversion activities described in 
paragraph (a) of this section, HUD will:
    (1) Disqualify the PHA from HUD funding competitions; and
    (2) Direct the PHA to cease additional spending in connection with a 
development that meets, or is likely to meet the statutory criteria, 
except to the extent that failure to expend such amounts would endanger 
health or safety.
    (c) If a PHA fails to take the conversion activities described in 
paragraph (a) of this section, HUD may also take any or all of the 
following actions:
    (1) Identify developments that fall within the statutory criteria 
where the PHA has failed to do so properly;
    (2) Take appropriate actions to ensure the conversion of 
developments where the PHA has failed to adequately develop or implement 
a conversion plan;
    (3) Require the PHA to revise the conversion plan, or prohibit 
conversion, where HUD has determined that the PHA has erroneously 
identified a development as being subject to the requirements of this 
section;
    (4) Authorize or direct the transfer of capital or operating funds 
committed to or on behalf of the development (including comprehensive 
improvement assistance, comprehensive grant or Capital Fund amounts 
attributable to the development's share of funds under the formula, and 
major reconstruction of obsolete projects funds) to tenant-

[[Page 566]]

based assistance or appropriate site revitalization for the agency; and
    (5) Any other action that HUD determines appropriate and has the 
authority to undertake.



      Subpart B_Voluntary Conversion of Public Housing Developments

    Source: 68 FR 54619, Sept. 17, 2003, unless otherwise noted.

                    Purpose; Definition of Conversion



Sec. 972.200  Purpose.

    This subpart implements section 22 of the United States Housing Act 
of 1937 (42 U.S.C. 1437t). The purposes of this subpart are to:
    (a) Require PHAs to perform an assessment which considers 
developments for which conversion of public housing may be appropriate; 
and
    (b) Provide a basis for a PHA to take action for conversion on a 
voluntary basis.



Sec. 972.203  Definition of ``conversion.''

    For purposes of this subpart, the term ``conversion'' means the 
removal of public housing units from the inventory of a Public Housing 
Agency (PHA), and the provision of tenant-based, or project-based 
assistance for the residents of the public housing that is being 
removed. The term ``conversion,'' as used in this subpart, does not 
necessarily mean the physical removal of the public housing development 
from the site.

                      Required Initial Assessments



Sec. 972.206  Required initial assessments.

    (a) General. A PHA must conduct a required initial assessment (which 
consists of the certification described in paragraph (b) of this 
section), in accordance with this section, once for each of its 
developments, unless:
    (1) The development is subject to required conversion under 24 CFR 
part 971;
    (2) The development is the subject of an application for demolition 
or disposition that has not been disapproved by HUD;
    (3) A HOPE VI revitalization grant has been awarded for the 
development; or
    (4) The development is designated for occupancy by the elderly and/
or persons with disabilities (i.e., is not a general occupancy 
development).
    (b) Certification procedure. For each development, the PHA shall 
certify that it has:
    (1) Reviewed the development's operation as public housing;
    (2) Considered the implications of converting the public housing to 
tenant-based assistance; and
    (3) Concluded that conversion of the development may be:
    (i) Appropriate because removal of the development would meet the 
necessary conditions for voluntary conversion described in Sec. 
972.224; or
    (ii) Inappropriate because removal of the development would not meet 
the necessary conditions for voluntary conversion described Sec. 
972.224.
    (c) Documentation. A PHA must maintain documentation of the 
reasoning with respect to each required initial assessment.
    (d) Timing of submission. Consistent with statutory submission 
requirements, the results of each required initial assessment 
(consisting of the certification described in paragraph (b) of this 
section) must be submitted to HUD as part of the next PHA Annual Plan 
after its completion.

                     Voluntary Conversion Procedure



Sec. 972.209  Procedure for voluntary conversion of public housing 
developments to tenant-based assistance.

    A PHA that wishes to convert a public housing development to tenant-
based assistance must comply with the following process:
    (a) The PHA must perform a conversion assessment, in accordance with 
Sec. Sec. 972.218-972.224 and submit it to HUD as part of the next PHA 
Annual Plan submission.
    (b) The PHA must prepare a conversion plan, in accordance with Sec. 
972.227-972.233, and submit it to HUD, as part of its PHA Annual Plan, 
within one year after submitting the conversion assessment. The PHA may 
submit the conversion plan in the same Annual Plan as the conversion 
assessment.

[[Page 567]]

    (c) The PHA may proceed to convert the development if HUD approves 
the conversion plan.



Sec. 972.212  Timing of voluntary conversion.

    (a) A PHA may proceed to convert a development covered by a 
conversion plan only after receiving written approval of the conversion 
plan from HUD. This approval will be separate from the approval that the 
PHA receives for its PHA Annual Plan. A PHA may apply for tenant-based 
assistance in accordance with Section 8 program requirements and will be 
given priority for receiving tenant-based assistance to replace the 
public housing units.
    (b) A PHA may not demolish or dispose of units or property until 
completion of the required environmental review under part 58 of this 
title (if a Responsible Entity has assumed environmental responsibility 
for the project) or part 50 of this title (if HUD is performing the 
environmental review). Further, HUD will not approve a conversion plan 
until completion of the required environmental review. However, before 
completion of the environmental review, HUD may approve the targeted 
units for deprogramming and may authorize the PHA to undertake other 
activities proposed in the conversion plan that do not require 
environmental review (such as certain activities related to the 
relocation of residents), as long as the buildings in question are 
adequately secured and maintained.
    (c) For purposes of determining operating subsidy eligibility, the 
submitted conversion plan will be considered the equivalent of a formal 
request to remove dwelling units from the PHA's inventory and Annual 
Contributions Contract (ACC). Units that are vacant or are vacated on or 
after the written notification date will be treated as approved for 
deprogramming under Sec. 990.108(b)(1) of this title, and will also be 
provided the phase down of subsidy pursuant to Sec. 990.114 of this 
title.
    (d) HUD may require that funding for the initial year of tenant-
based assistance be provided from the public housing Capital Fund, 
Operating Fund, or both.



Sec. 972.215  Applicability of the Uniform Relocation Act.

    To the extent that tenants are displaced as a direct result of the 
demolition, acquisition, or rehabilitation of federally-assisted 
property converted under this subpart, the requirements of the Uniform 
Relocation Assistance and Real Property Acquisition Policies Act of 1970 
(42 U.S.C. 4601) (URA), and the implementing regulations issued by the 
Department of Transportation at 49 CFR part 24, apply.

                         Conversion Assessments



Sec. 972.218  Conversion assessment components.

    The conversion assessment contains five elements, as described 
below:
    (a) Cost analysis. A PHA must conduct a cost analysis comparing the 
cost of providing Section 8 tenant-based assistance with the cost of 
continuing to operate the development as public housing for the 
remainder of its useful life. The cost methodology necessary to conduct 
the cost comparisons for voluntary conversions has not yet been 
finalized. PHAs may not undertake conversions under this subpart until 
the effective date of the cost methodology, which will be announced in 
the Federal Register. Once effective, the cost methodology will be 
codified as an appendix to this part.
    (b) Analysis of the market value. (1) A PHA must have an independent 
appraisal conducted to compare the market value of the development 
before and after rehabilitation. In both cases, the market value must be 
based on the use of the development as public housing.
    (2) In addition, the appraisal must compare:
    (i) The market value of the development before rehabilitation, based 
on the use of the development as public housing, with the market value 
of the development after conversion; with
    (ii) The market value of the development after rehabilitation, based 
on the use of the development as public housing, with the market value 
of the development after conversion.
    (3) A copy of the appraisal findings and the analysis of market 
value of the

[[Page 568]]

development in the conversion assessment must be provided in the 
conversion assessment.
    (c) Analysis of rental market conditions. (1) A PHA must conduct an 
analysis of the likely success of using tenant-based assistance for the 
residents of the public housing development. This analysis must include 
an assessment of the availability of decent, safe, and sanitary dwelling 
units rented at or below the applicable Section 8 payment standard 
established for the jurisdiction or designated part of the FMR area in 
which the development is located.
    (2) In conducting this assessment, a PHA must take into account:
    (i) Its overall use of rental certificates or vouchers under lease 
and the success rates of using Section 8 tenant-based assistance in the 
community for the appropriate bedroom sizes, including recent success 
rates for units renting at or below the established payment standard; 
and
    (ii) Any particular characteristics of the specific residents of the 
public housing which may affect their ability to be housed (such as 
large household size or the presence of an elderly or disabled family 
member).
    (d) Impact analysis. A PHA must describe the likely impact of 
conversion of the public housing development on the neighborhood in 
which the public housing is located. This must include:
    (1) The impact on the availability of affordable housing in the 
neighborhood;
    (2) The impact on the concentration of poverty in the neighborhood; 
and
    (3) Other substantial impacts on the neighborhood.
    (e) Conversion implementation. If a PHA intends to convert the 
development (or a portion of it) to tenant-based assistance, the 
conversion assessment must include a description of any actions the PHA 
plans to take in converting the development. This must include a general 
description of the planned future uses of the development, and the means 
and timetable for accomplishing such uses.



Sec. 972.221  Timing of submission of conversion assessments to HUD.

    (a) Submission with PHA Plan. A PHA that wishes to convert a public 
housing development to tenant-based assistance must submit a conversion 
assessment to HUD with its next PHA Annual Plan.
    (b) Updated conversion assessment. Where a PHA proposes to convert a 
development to tenant-based assistance, it must submit an updated 
conversion assessment if the conversion assessment otherwise would be 
more than one year older than the conversion plan to be submitted to 
HUD. To update a conversion assessment, a PHA must ensure that the 
analysis of rental market conditions is based on the most recently 
available data, and must include any data that have changed since the 
initial conversion assessment. A PHA may submit the initial cost 
analysis and comparison of the market value of the public housing before 
and after rehabilitation and/or conversion if there is no reason to 
believe that such information has changed significantly.



Sec. 972.224  Necessary conditions for HUD approval of conversion.

    (a) Conditions. In order to convert a public housing development, 
the PHA must conduct a conversion assessment that demonstrates that the 
conversion of the development:
    (1) Will not be more expensive than continuing to operate the 
development (or portion of it) as public housing;
    (2) Will principally benefit the residents of the public housing 
development (or portion thereof) to be converted, the PHA, and the 
community; and
    (3) Will not adversely affect the availability of affordable housing 
in the community.
    (b) Evidence. (1) Relative expense. The relative expense of 
continuing operation as public housing or conversion to tenant-based 
assistance may be demonstrated by the cost analysis and market value 
analysis.
    (2) Benefit to residents, PHA, and the community. (i) The benefit to 
residents, the PHA, and the community may be demonstrated in the rental 
market analysis, the analysis of the impact on

[[Page 569]]

the neighborhood, the market value analysis, and the proposed future use 
of the development. In determining whether a conversion will principally 
benefit residents, the PHA, and the community, HUD will consider whether 
the conversion will conflict with any litigation settlement agreements, 
voluntary compliance agreements, or other remedial agreements signed by 
the PHA with HUD.
    (ii) In making the determination of whether a conversion would 
principally benefit residents, the PHA, and the community, the PHA must 
consider such factors as the availability of landlords providing tenant-
based assistance, as well as access to schools, jobs, and 
transportation.
    (iii) To determine the benefit to residents, the PHA must hold at 
least one public meeting with residents of the affected site (including 
the duly elected Resident Council, if any, that covers the development 
in question). At the meeting, the PHA must:
    (A) Explain the requirements of section 22 of the United States 
Housing Act of 1937 and these regulations, especially as they apply to 
residents of affected developments;
    (B) Provide draft copies of the conversion assessment to the 
residents; and
    (C) Provide the residents with a reasonable period of time to submit 
comments on the draft conversion assessment.
    (iv) The conversion assessment submitted to HUD must contain a 
summary of the resident comments, and the PHA responses to any 
significant issues raised by the commenters.
    (3) Impact on affordable housing. The impact on affordable housing 
may be demonstrated in the rental market analysis and the analysis of 
the impact of conversion on the neighborhood.

                            Conversion Plans



Sec. 972.227  Public and resident consultation process for developing 
a conversion plan.

    (a) A conversion plan must be developed in consultation with 
appropriate public officials and with significant participation by 
residents of the development.
    (b) The requirement for consultation with public officials may be 
satisfied by obtaining a certification from the appropriate state or 
local officials that the conversion plan is consistent with that 
jurisdiction's Consolidated Plan. This may be the same certification as 
is required for the PHA Annual Plan that includes the conversion plan, 
so long as the certification specifically addresses the conversion plan.
    (c) To satisfy the requirement for significant participation by 
residents of the development, in addition to the public participation 
requirements for the PHA Annual Plan, a PHA must:
    (1) Hold at least one meeting with the residents of the affected 
sites (including the duly elected Resident Council, if any, that covers 
the development in question) at which the PHA must:
    (i) Explain the requirements of section 22 of the United States 
Housing Act of 1937 and these regulations, especially as they apply to 
residents of affected developments; and
    (ii) Provide draft copies of the conversion plan to them.
    (2) Provide a reasonable comment period for residents; and
    (3) Summarize the resident comments (as well as the PHA responses to 
the significant issues raised by the commenters) for HUD, and consider 
these comments in developing the final conversion plan.



Sec. 972.230  Conversion plan components.

    A conversion plan must:
    (a) Describe the conversion and future use or disposition of the 
public housing development. If the future use of the development is 
demolition or disposition, the PHA is not required to submit a 
demolition or disposition application, so long as the PHA submits, and 
HUD approves, a conversion plan that includes a description of the 
future uses of the development.
    (b) Include an impact analysis of the conversion on the affected 
community. This may include the description that is required as part of 
the conversion assessment.
    (c) Include a description of how the conversion plan is consistent 
with the findings of the conversion assessment

[[Page 570]]

undertaken in accordance with Sec. 972.218.
    (d) Include a summary of the resident comments received when 
developing the conversion plan, and the PHA responses to the significant 
issues raised by the commenters (including a description of any actions 
taken by the PHA as a result of the comments).
    (e) Confirm that any proceeds received from the conversion are 
subject to the limitations under section 18(a)(5) of the United States 
Housing Act of 1937 (42 U.S.C. 1437p(a)(5)) applicable to proceeds 
resulting from demolition or disposition.
    (f) Summarize why the conversion assessment for the public housing 
project supports the three conditions necessary for conversion described 
in Sec. 972.224.
    (g) Include a relocation plan that incorporates all of the 
information identified in paragraphs (g)(1) through (g)(4) of this 
section. In addition, if the required conversion is subject to the URA, 
the relocation plan must also contain the information identified in 
paragraph (g)(5) of this section. The relocation plan must incorporate 
the following:
    (1) The number of households to be relocated, by bedroom size, by 
the number of accessible units.
    (2) The relocation resources that will be necessary, including a 
request for any necessary Section 8 funding and a description of actual 
or potential public or other assisted housing vacancies that can be used 
as relocation housing and budget for carrying out relocation activities.
    (3) A schedule for relocation and removal of units from the public 
housing inventory (including the schedule for providing actual and 
reasonable relocation expenses, as determined by the PHA, for families 
displaced by the conversion).
    (4) Provide for issuance of a written notice to families residing in 
the development in accordance with the following requirements:
    (i) Timing of notice. If the voluntary conversion is not subject to 
the URA, the notice shall be provided to families at least 90 days 
before displacement. If the voluntary conversion is subject to the URA 
the written notice shall be provided to families no later than the date 
the conversion plan is submitted to HUD. For purposes of a voluntary 
conversion subject to the URA, this written notice shall constitute the 
General Information Notice (GIN) required by the URA.
    (ii) Contents of notice. The written notice shall include all of the 
following:
    (A) The development will no longer be used as public housing and 
that the family may be displaced as a result of the conversion;
    (B) The family will be offered comparable housing, which may include 
tenant-based or project-based assistance, or occupancy in a unit 
operated or assisted by the PHA (if tenant-based assistance is used, the 
comparable housing requirement is fulfilled only upon relocation of the 
family into such housing);
    (C) Any necessary counseling with respect to the relocation will be 
provided, including any appropriate mobility counseling (the PHA may 
finance the mobility counseling using Operating Fund, Capital Fund, or 
Section 8 administrative fee funding);
    (D) The family will be relocated to other decent, safe, sanitary, 
and affordable housing that is, to the maximum extent possible, housing 
of their choice;
    (E) If the development is used as housing after conversion, the PHA 
must ensure that each resident may choose to remain in the housing, 
using tenant-based assistance towards rent;
    (F) Where Section 8 voucher assistance is being used for relocation, 
the family will be provided with the vouchers at least 90 days before 
displacement;
    (5) Additional information required for conversions subject to the 
URA. If the voluntary conversion is subject to the URA, the written 
notice described in paragraph (g)(4) must also provide that:
    (i) The family will not be required to move without at least 90-days 
advance written notice of the earliest date by which the family may be 
required to move, and that the family will not be required to move 
permanently until the family is offered comparable housing as provided 
in paragraph (g)(4)(ii)(B) of this section;

[[Page 571]]

    (ii) Any person who is an alien not lawfully present in the United 
States is ineligible for relocation payments or assistance under the 
URA, unless such ineligibility would result in exceptional and extremely 
unusual hardship to a qualifying spouse, parent, or child, as provided 
in the URA regulations at 49 CFR 24.208.
    (iii) The family has a right to appeal the PHA's determination as to 
the family's application for relocation assistance for which the family 
may be eligible under this subpart and URA.
    (iv) Families residing in the development will be provided with the 
URA Notice of Relocation Eligibility or Notice of Non-displacement (as 
applicable) as of the date HUD approves the conversion plan (for 
purposes of this subpart, the date of HUD's approval of the conversion 
plan shall be the ``date of initiation of negotiations'' as that term is 
used in URA and the implementing regulations at 49 CFR part 24).
    (v) Any family that moves into the development after submission of 
the conversion plan to HUD will also be eligible for relocation 
assistance, unless the PHA issues a written move-in notice to the family 
prior to leasing and occupancy of the unit advising the family of the 
development's possible conversion, the impact of the conversion on the 
family, and that the family will not be eligible for relocation 
assistance.



Sec. 972.233  Timing of submission of conversion plans to HUD.

    A PHA that wishes to convert a public housing project to tenant-
based assistance must submit a conversion plan to HUD. A PHA must 
prepare a conversion plan, in accordance with Sec. 972.230, and submit 
it to HUD, as part of the next PHA Annual Plan within one year after 
submitting the full conversion assessment, or as a significant amendment 
to that Annual Plan. The PHA may also submit the conversion plan in the 
same Annual Plan as the conversion assessment.



Sec. 972.236  HUD process for approving a conversion plan.

    Although a PHA will submit its conversion plan to HUD as part of the 
PHA Annual Plan, the conversion plan will be treated separately for 
purposes of HUD approval. A PHA needs a separate written approval from 
HUD in order to proceed with conversion. HUD anticipates that its review 
of a conversion plan will ordinarily occur within 90 days following 
submission of a complete plan by the PHA. A longer process may be 
required where HUD's initial review of the plan raises questions that 
require further discussion with the PHA. In any event, HUD will provide 
all PHAs with a preliminary response within 90 days following submission 
of a conversion plan. A lack of a HUD response within this time frame 
will constitute automatic HUD approval of the conversion plan.



Sec. 972.239  HUD actions with respect to a conversion plan.

    (a) When a PHA submits a conversion plan to HUD, HUD will review it 
to determine whether:
    (1) The conversion plan is complete and includes all of the 
information required under Sec. 972.230; and
    (2) The conversion plan is consistent with the conversion assessment 
the PHA submitted.
    (b) HUD will disapprove a conversion plan only if HUD determines 
that:
    (1) The conversion plan is plainly inconsistent with the conversion 
assessment;
    (2) There is reliable information and data available to the 
Secretary that contradicts the conversion assessment; or
    (3) The conversion plan is incomplete or otherwise fails to meet the 
requirements under Sec. 972.230.



PART 982_SECTION 8 TENANT BASED ASSISTANCE: HOUSING CHOICE VOUCHER 
PROGRAM--Table of Contents




                      Subpart A_General Information

Sec.
982.1 Programs: Purpose and structure.
982.2 Applicability.
982.3 HUD.
982.4 Definitions.
982.5 Notices required by this part.

  Subpart B_HUD Requirements and PHA Plan for Administration of Program

982.51 PHA authority to administer program.

[[Page 572]]

982.52 HUD requirements.
982.53 Equal opportunity requirements.
982.54 Administrative plan.

            Subpart C_Funding and PHA Application for Funding

982.101 Allocation of funding.
982.102 Allocation of budget authority for renewal of expiring CACC 
          funding increments.
982.103 PHA application for funding.
982.104 HUD review of application.

   Subpart D_Annual Contributions Contract and PHA Administration of 
                                 Program

982.151 Annual contributions contract.
982.152 Administrative fee.
982.153 PHA responsibilities.
982.154 ACC reserve account.
982.155 Administrative fee reserve.
982.156 Depositary for program funds.
982.157 Budget and expenditure.
982.158 Program accounts and records.
982.159 Audit requirements.
982.160 HUD determination to administer a local program.
982.161 Conflict of interest.
982.162 Use of HUD-required contracts and other forms.
982.163 Fraud recoveries.

               Subpart E_Admission to Tenant-Based Program

982.201 Eligibility and targeting.
982.202 How applicants are selected: General requirements.
982.203 Special admission (non-waiting list): Assistance targeted by 
          HUD.
982.204 Waiting list: Administration of waiting list.
982.205 Waiting list: Different programs.
982.206 Waiting list: Opening and closing; public notice.
982.207 Waiting list: Local preferences in admission to program.

Subpart F [Reserved]

                        Subpart G_Leasing a Unit

982.301 Information when family is selected.
982.302 Issuance of certificate or voucher; Requesting PHA approval of 
          assisted tenancy.
982.303 Term of voucher.
982.304 Illegal discrimination: PHA assistance to family.
982.305 PHA approval of assisted tenancy.
982.306 PHA disapproval of owner.
982.307 Tenant screening.
982.308 Lease and tenancy.
982.309 Term of assisted tenancy.
982.310 Owner termination of tenancy.
982.311 When assistance is paid.
982.312 Absence from unit.
982.313 Security deposit: Amounts owed by tenant.
982.314 Move with continued tenant-based assistance.
982.315 Family break-up.
982.316 Live-in aide.
982.317 Lease-purchase agreements.

                Subpart H_Where Family Can Live and Move

982.351 Overview.
982.352 Eligible housing.
982.353 Where family can lease a unit with tenant-based assistance.
982.355 Portability: Administration by receiving PHA.

 Subpart I_Dwelling Unit: Housing Quality Standards, Subsidy Standards, 
                       Inspection and Maintenance

982.401 Housing quality standards (HQS).
982.402 Subsidy standards.
982.403 Terminating HAP contract when unit is too small.
982.404 Maintenance: Owner and family responsibility; PHA remedies.
982.405 PHA initial and periodic unit inspection.
982.406 Enforcement of HQS.

 Subpart J_Housing Assistance Payments Contract and Owner Responsibility

982.451 Housing assistance payments contract.
982.452 Owner responsibilities.
982.453 Owner breach of contract.
982.454 Termination of HAP contract: Insufficient funding.
982.455 Automatic termination of HAP contract.
982.456 Third parties.

              Subpart K_Rent and Housing Assistance Payment

982.501 Overview.
982.502 Conversion to voucher program.
982.503 Voucher tenancy: Payment standard amount and schedule.
982.504 Voucher tenancy: Payment standard for family in restructured 
          subsidized multifamily project.
982.505 Voucher tenancy: How to calculate housing assistance payment.
982.506 Negotiating rent to owner.
982.507 Rent to owner: Reasonable rent.
982.508 Maximum family share at initial occupancy.
982.509 Rent to owner: Effect of rent control.
982.510 Other fees and charges.
982.514 Distribution of housing assistance payment.

[[Page 573]]

982.515 Family share: Family responsibility.
982.516 Family income and composition: Regular and interim examinations.
982.517 Utility allowance schedule.
982.518 Regular tenancy: How to calculate housing assistance payment.
982.519 Regular tenancy: Annual adjustment of rent to owner.
982.520 Regular tenancy: Special adjustment of rent to owner.
982.521 Rent to owner in subsidized project.

   Subpart L_Family Obligations; Denial and Termination of Assistance

982.551 Obligations of participant.
982.552 PHA denial or termination of assistance for family.
982.553 Denial of admission and termination of assistance for criminals 
          and alcohol abusers.
982.554 Informal review for applicant.
982.555 Informal hearing for participant.

                     Subpart M_Special Housing Types

982.601 Overview.

                       Single Room Occupancy (SRO)

982.602 SRO: Who may reside in an SRO?
982.603 SRO: Lease and HAP contract.
982.604 SRO: Voucher housing assistance payment.
982.605 SRO: Housing quality standards.

                           Congregate Housing

982.606 Congregate housing: Who may reside in congregate housing.
982.607 Congregate housing: Lease and HAP contract.
982.608 Congregate housing: Voucher housing assistance payment.
982.609 Congregate housing: Housing quality standards.

                               Group Home

982.610 Group home: Who may reside in a group home.
982.611 Group home: Lease and HAP contract.
982.612 Group home: State approval of group home.
982.613 Group home: Rent and voucher housing assistance payment.
982.614 Group home: Housing quality standards.

                             Shared Housing

982.615 Shared housing: Occupancy.
982.616 Shared housing: Lease and HAP contract.
982.617 Shared housing: Rent and voucher housing assistance payment.
982.618 Shared housing: Housing quality standards.

                               Cooperative

982.619 Cooperative housing.

                            Manufactured Home

982.620 Manufactured home: Applicability of requirements.
982.621 Manufactured home: Housing quality standards.

                     Manufactured Home Space Rental

982.622 Manufactured home space rental: Rent to owner.
982.623 Manufactured home space rental: Housing assistance payment.
982.624 Manufactured home space rental: Utility allowance schedule.

                          Homeownership Option

982.625 Homeownership option: General.
982.626 Homeownership option: Initial requirements.
982.627 Homeownership option: Eligibility requirements for families.
982.628 Homeownership option: Eligible units.
982.629 Homeownership option: Additional PHA requirements for family 
          search and purchase.
982.630 Homeownership option: Homeownership counseling.
982.631 Homeownership option: Home inspections, contract of sale, and 
          PHA disapproval of seller.
982.632 Homeownership option: Financing purchase of home; affordability 
          of purchase.
982.633 Homeownership option: Continued assistance requirements; Family 
          obligations.
982.634 Homeownership option: Maximum term of homeownership assistance.
982.635 Homeownership option: Amount and distribution of monthly 
          homeownership assistance payment.
982.636 Homeownership option: Portability.
982.637 Homeownership option: Move with continued tenant-based 
          assistance.
982.638 Homeownership option: Denial or termination of assistance for 
          family.
982.639 Homeownership option: Administrative fees.
982.641 Homeownership option: Applicability of other requirements.
982.642 Homeownership option: Pilot program for homeownership assistance 
          for disabled families.
982.643 Homeownership option: Downpayment assistance grants.

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

    Source: 59 FR 36682, July 18, 1994, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 982 appear at 64 FR 
26640, May 14, 1999.

[[Page 574]]



                      Subpart A_General Information

    Source: 60 FR 34695, July 3, 1995, unless otherwise noted.



Sec. 982.1  Programs: purpose and structure.

    (a) General description. (1) In the HUD Housing Choice Voucher 
Program (Voucher Program) and the HUD certificate program, HUD pays 
rental subsidies so eligible families can afford decent, safe and 
sanitary housing. Both programs are generally administered by State or 
local governmental entities called public housing agencies (PHAs). HUD 
provides housing assistance funds to the PHA. HUD also provides funds 
for PHA administration of the programs. PHAs are no longer allowed to 
enter into contracts for assistance in the certificate program.
    (2) Families select and rent units that meet program housing quality 
standards. If the PHA approves a family's unit and tenancy, the PHA 
contracts with the owner to make rent subsidy payments on behalf of the 
family. A PHA may not approve a tenancy unless the rents is reasonable.
    (3) In the certificate program, the rental subsidy is generally 
based on the actual rent of a unit leased by the assisted family. In the 
voucher program, the rental subsidy is determined by a formula.
    (4)(i) In the certificate program, the subsidy for most families is 
the difference between the rent and 30 percent of adjusted monthly 
income.
    (ii) In the voucher program, the subsidy is based on a local 
``payment standard'' that reflects the cost to lease a unit in the local 
housing market. If the rent is less than the payment standard, the 
family generally pays 30 percent of adjusted monthly income for rent. If 
the rent is more than the payment standard, the family pays a larger 
share of the rent.
    (b) Tenant-based and project-based assistance. (1) Section 8 
assistance may be ``tenant-based'' or ``project-based''. In project-
based programs, rental assistance is paid for families who live in 
specific housing developments or units. With tenant-based assistance, 
the assisted unit is selected by the family. The family may rent a unit 
anywhere in the United States in the jurisdiction of a PHA that runs a 
voucher program.
    (2) To receive tenant-based assistance, the family selects a 
suitable unit. After approving the tenancy, the PHA enters into a 
contract to make rental subsidy payments to the owner to subsidize 
occupancy by the family. The PHA contract with the owner only covers a 
single unit and a specific assisted family. If the family moves out of 
the leased unit, the contract with the owner terminates. The family may 
move to another unit with continued assistance so long as the family is 
complying with program requirements.

[60 FR 34695, July 3, 1995, as amended at 64 FR 26640, May 14, 1999]



Sec. 982.2  Applicability.

    (a) Part 982 is a unified statement of program requirements for the 
tenant-based housing assistance programs under Section 8 of the United 
States Housing Act of 1937 (42 U.S.C. 1437f). The tenant-based programs 
are the Section 8 tenant-based certificate program and the Section 8 
voucher program.
    (b) Unless specifically stated in this part, requirements for both 
tenant-based programs are the same.

[60 FR 34695, July 3, 1995, as amended at 64 FR 26640, May 14, 1999]



Sec. 982.3  HUD.

    The HUD field offices have been delegated responsibility for day-to-
day administration of the program by HUD. In exercising these functions, 
the field offices are subject to HUD regulations and other HUD 
requirements issued by HUD headquarters. Some functions are specifically 
reserved to HUD headquarters.



Sec. 982.4  Definitions.

    (a) Definitions found elsewhere:
    (1) General definitions. The terms 1937 Act, HUD, and MSA, are 
defined in 24 CFR part 5, subpart A.
    (2) Terms found elsewhere. The following terms are defined in part 
5, subpart A of this title: 1937 Act, covered person, drug, drug-related 
criminal activity, federally assisted housing, guest, household, HUD, 
MSA, other person

[[Page 575]]

under the tenant's control, public housing, Section 8, and violent 
criminal activity.
    (3) Definitions concerning family income and rent. The terms 
``adjusted income,'' ``annual income,'' ``extremely low income family,'' 
``tenant rent,'' ``total tenant payment,'' ``utility allowance,'' 
``utility reimbursement,'' and ``welfare assistance'' are defined in 
part 5, subpart F of this title. The definitions of ``tenant rent'' and 
``utility reimbursement'' in part 5, subpart F of this title, apply to 
the certificate program, but do not apply to the tenant-based voucher 
program under part 982.
    (b) In addition to the terms listed in paragraph (a) of this 
section, the following definitions apply:
    Absorption. In portability (under subpart H of this part 982): the 
point at which a receiving PHA stops billing the initial PHA for 
assistance on behalf of a portability family. The receiving PPHA uses 
funds available under the receiving PHA consolidated ACC.
    Administrative fee. Fee paid by HUD to the PHA for administration of 
the program. See Sec. 982.152.
    Administrative fee reserve (formerly ``operating reserve''). Account 
established by PHA from excess administrative fee income. The 
administrative fee reserve must be used for housing purposes. See Sec. 
982.155.
    Administrative plan. The plan that describes PHA policies for 
administration of the tenant-based programs. See Sec. 982.54.
    Admission. The point when the family becomes a participant in the 
program. The date used for this purpose is the effective date of the 
first HAP contract for a family (first day of initial lease term) in a 
tenant-based program.
    Applicant (applicant family). A family that has applied for 
admission to a program but is not yet a participant in the program.
    Budget authority. An amount authorized and appropriated by the 
Congress for payment to HAs under the program. For each funding 
increment in a PHA program, budget authority is the maximum amount that 
may be paid by HUD to the PHA over the ACC term of the funding 
increment.
    Common space. In shared housing: Space available for use by the 
assisted family and other occupants of the unit.
    Congregate housing. Housing for elderly persons or persons with 
disabilities that meets the HQS for congregate housing. A special 
housing type: see Sec. 982.606 to Sec. 982.609.
    Continuously assisted. An applicant is continuously assisted under 
the 1937 Act if the family is already receiving assistance under any 
1937 Act program when the family is admitted to the certificate or 
voucher program.
    Cooperative. Housing owned by a corporation or association, and 
where a member of the corporation or association has the right to reside 
in a particular unit, and to participate in management of the housing.
    Cooperative member. A family of which one or more members owns 
membership shares in a cooperative.
    Domicile. The legal residence of the household head or spouse as 
determined in accordance with State and local law.
    Downpayment assistance grant. A form of homeownership assistance in 
the homeownership option: A single downpayment assistance grant for the 
family. If a family receives a downpayment assistance grant, a PHA may 
not make monthly homeownership assistance payments for the family. A 
downpayment assistance grant is applied to the downpayment for purchase 
of the home or reasonable and customary closing costs required in 
connection with purchase of the home.
    Fair market rent (FMR). The rent, including the cost of utilities 
(except telephone), as established by HUD for units of varying sizes (by 
number of bedrooms), that must be paid in the housing market area to 
rent privately owned, existing, decent, safe and sanitary rental housing 
of modest (non-luxury) nature with suitable amenities. See periodic 
publications in the Federal Register in accordance with 24 CFR part 888.
    Family. A person or group of persons, as determined by the PHA, 
approved to reside in a unit with assistance under the program. See 
discussion of family composition at Sec. 982.201(c).
    Family rent to owner. In the voucher program, the portion of rent to 
owner

[[Page 576]]

paid by the family. For calculation of family rent to owner, see Sec. 
982.515(b).
    Family self-sufficiency program (FSS program). The program 
established by a PHA in accordance with 24 CFR part 984 to promote self-
sufficiency of assisted families, including the coordination of 
supportive services (42 U.S.C. 1437u).
    Family share. The portion of rent and utilities paid by the family. 
For calculation of family share, see Sec. 982.515(a).
    Family unit size. The appropriate number of bedrooms for a family, 
as determined by the PHA under the PHA subsidy standards.
    First-time homeowner. In the homeownership option: A family of which 
no member owned any present ownership interest in a residence of any 
family member during the three years before commencement of 
homeownership assistance for the family. The term ``first-time 
homeowner'' includes a single parent or displaced homemaker (as those 
terms are defined in 12 U.S.C. 12713) who, while married, owned a home 
with his or her spouse, or resided in a home owned by his or her spouse.
    Funding increment. Each commitment of budget authority by HUD to a 
PHA under the consolidated annual contributions contract for the PHA 
program.
    Gross rent. The sum of the rent to owner plus any utility allowance.
    Group home. A dwelling unit that is licensed by a State as a group 
home for the exclusive residential use of two to twelve persons who are 
elderly or persons with disabilities (including any live-in aide). A 
special housing type: see Sec. 982.610 to Sec. 982.614.
    HAP contract. Housing assistance payments contract.
    Home. In the homeownership option: A dwelling unit for which the PHA 
pays homeownership assistance.
    Homeowner. In the homeownership option: A family of which one or 
more members owns title to the home.
    Homeownership assistance. Assistance for a family under the 
homeownership option. There are two alternative and mutually exclusive 
forms of homeownership assistance by a PHA for a family: monthly 
homeownership assistance payments, or a single downpayment assistance 
grant. Either form of homeownership assistance may be paid to the 
family, or to a mortgage lender on behalf of the family.
    Homeownership expenses. In the homeownership option: A family's 
allowable monthly expenses for the home, as determined by the PHA in 
accordance with HUD requirements (see Sec. 982.635).
    Homeownership option. Assistance for a homeowner or cooperative 
member under Sec. 982.625 to Sec. 982.641. A special housing type.
    Housing assistance payment. The monthly assistance payment by a PHA, 
which includes:
    (1) A payment to the owner for rent to the owner under the family's 
lease; and
    (2) An additional payment to the family if the total assistance 
payment exceeds the rent to owner.
    Housing quality standards (HQS). The HUD minimum quality standards 
for housing assisted under the tenant-based programs. See Sec. 982.401.
    Initial PHA. In portability, the term refers to both:
    (1) a PHA that originally selected a family that later decides to 
move out of the jurisdiction of the selecting PHA; and
    (2) a PHA that absorbed a family that later decides to move out of 
the jurisdiction of the absorbing PHA.
    Initial payment standard. The payment standard at the beginning of 
the HAP contract term.
    Initial rent to owner. The rent to owner at the beginning of the HAP 
contract term.
    Interest in the home. In the homeownership option:
    (1) In the case of assistance for a homeowner, ``interest in the 
home'' includes title to the home, any lease or other right to occupy 
the home, or any other present interest in the home.
    (2) In the case of assistance for a cooperative member, ``interest 
in the home'' includes ownership of membership shares in the 
cooperative, any lease or other right to occupy the home, or any other 
present interest in the home.
    Jurisdiction. The area in which the PHA has authority under State 
and local law to administer the program.

[[Page 577]]

    Lease. (1) A written agreement between an owner and a tenant for the 
leasing of a dwelling unit to the tenant. The lease establishes the 
conditions for occupancy of the dwelling unit by a family with housing 
assistance payments under a HAP contract between the owner and the PHA.
    (2) In cooperative housing, a written agreement between a 
cooperative and a member of the cooperative. The agreement establishes 
the conditions for occupancy of the member's cooperative dwelling unit 
by the member's family with housing assistance payments to the 
cooperative under a HAP contract between the cooperative and the PHA. 
For purposes of this part 982, the cooperative is the Section 8 
``owner'' of the unit, and the cooperative member is the Section 8 
``tenant.''
    Manufactured home. A manufactured structure that is built on a 
permanent chassis, is designed for use as a principal place of 
residence, and meets the HQS. A special housing type: see Sec. 982.620 
and Sec. 982.621.
    Manufactured home space. In manufactured home space rental: A space 
leased by an owner to a family. A manufactured home owned and occupied 
by the family is located on the space. See Sec. 982.622 to Sec. 
982.624.
    Membership shares. In the homeownership option: shares in a 
cooperative. By owning such cooperative shares, the share-owner has the 
right to reside in a particular unit in the cooperative, and the right 
to participate in management of the housing.
    Merger date. October 1, 1999.
    Notice of Funding Availability (NOFA). For budget authority that HUD 
distributes by competitive process, the Federal Register document that 
invites applications for funding. This document explains how to apply 
for assistance and the criteria for awarding the funding.
    Owner. Any person or entity with the legal right to lease or 
sublease a unit to a participant.
    Participant (participant family). A family that has been admitted to 
the PHA program and is currently assisted in the program. The family 
becomes a participant on the effective date of the first HAP contract 
executed by the PHA for the family (first day of initial lease term).
    Payment standard. The maximum monthly assistance payment for a 
family assisted in the voucher program (before deducting the total 
tenant payment by the family).
    PHA plan. The annual plan and the 5-year plan as adopted by the PHA 
and approved by HUD in accordance with part 903 of this chapter.
    Portability. Renting a dwelling unit with Section 8 tenant-based 
assistance outside the jurisdiction of the initial PHA.
    Premises. The building or complex in which the dwelling unit is 
located, including common areas and grounds.
    Present homeownership interest. In the homeownership option: 
``Present ownership interest'' in a residence includes title, in whole 
or in part, to a residence, or ownership, in whole or in part, of 
membership shares in a cooperative. ``Present ownership interest'' in a 
residence does not include the right to purchase title to the residence 
under a lease-purchase agreement.
    Private space. In shared housing: The portion of a contract unit 
that is for the exclusive use of an assisted family.
    Program. The Section 8 tenant-based assistance program under this 
part.
    Program receipts. HUD payments to the PHA under the consolidated 
ACC, and any other amounts received by the PHA in connection with the 
program.
    Public housing agency (PHA). PHA includes both:
    (1) Any State, county, municipality, or other governmental entity or 
public body which is authorized to administer the program (or an agency 
or instrumentality of such an entity), and
    (2) Any of the following:
    (i) A consortium of housing agencies, each of which meets the 
qualifications in paragraph (1) of this definition, that HUD determines 
has the capacity and capability to efficiently administer the program 
(in which case, HUD may enter into a consolidated ACC with any legal 
entity authorized to act as the legal representative of the consortium 
members);
    (ii) Any other public or private non-profit entity that was 
administering a Section 8 tenant-based assistance program pursuant to a 
contract with the

[[Page 578]]

contract administrator of such program (HUD or a PHA) on October 21, 
1998; or
    (iii) For any area outside the jurisdiction of a PHA that is 
administering a tenant-based program, or where HUD determines that such 
PHA is not administering the program effectively, a private non-profit 
entity or a governmental entity or public body that would otherwise lack 
jurisdiction to administer the program in such area.
    Reasonable rent. A rent to owner that is not more than rent charged:
    (1) For comparable units in the private unassisted market; and
    (2) For comparable unassisted units in the premises.
    Receiving PHA. In portability: A PHA that receives a family selected 
for participation in the tenant-based program of another PHA. The 
receiving PHA issues a voucher and provides program assistance to the 
family.
    Renewal units. The number of units, as determined by HUD, for which 
funding is reserved on HUD books for a PHA's program. This number is 
used is calculating renewal budget authority in accordance with Sec. 
982.102.
    Rent to owner. The total monthly rent payable to the owner under the 
lease for the unit. Rent to owner covers payment for any housing 
services, maintenance and utilities that the owner is required to 
provide and pay for.
    Residency preference. A PHA preference for admission of families 
that reside anywhere in a specified area, including families with a 
member who works or has been hired to work in the area (``residency 
preference area'').
    Residency preference area. The specified area where families must 
reside to qualify for a residency preference.
    Shared housing. A unit occupied by two or more families. The unit 
consists of both common space for shared use by the occupants of the 
unit and separate private space for each assisted family. A special 
housing type: see Sec. 982.615 to Sec. 982.618.
    Single room occupancy housing (SRO). A unit that contains no 
sanitary facilities or food preparation facilities, or contains either, 
but not both, types of facilities. A special housing type: see Sec. 
982.602 to Sec. 982.605.
    Special admission. Admission of an applicant that is not on the PHA 
waiting list or without considering the applicant's waiting list 
position.
    Special housing types. See subpart M of this part 982. Subpart M of 
this part states the special regulatory requirements for: SRO housing, 
congregate housing, group home, shared housing, manufactured home 
(including manufactured home space rental), cooperative housing (rental 
assistance for cooperative member) and homeownership option 
(homeownership assistance for cooperative member or first-time 
homeowner).
    Statement of homeowner obligations. In the homeownership option: The 
family's agreement to comply with program obligations.
    Subsidy standards. Standards established by a PHA to determine the 
appropriate number of bedrooms and amount of subsidy for families of 
different sizes and compositions.
    Suspension. Stopping the clock on the term of a family's voucher, 
for such period as determined by the PHA, from the time when the family 
submits a request for PHA approval of the tenancy, until the time when 
the PHA approves or denies the request.
    Tenant. The person or persons (other than a live-in aide) who 
executes the lease as lessee of the dwelling unit.
    Tenant rent. For a tenancy in the certificate program: The total 
tenant payment minus any utility allowance.
    Utility reimbursement. In the voucher program, the portion of the 
housing assistance payment which exceeds the amount of the rent to 
owner. (See Sec. 982.514(b)). (For the certificate program, ``utility 
reimbursement'' is defined in part 5, subpart F of this title.)
    Voucher holder. A family holding a voucher with an unexpired term 
(search time).
    Voucher (rental voucher). A document issued by a PHA to a family 
selected for admission to the voucher program. This document describes 
the program and the procedures for PHA approval of a unit selected by 
the family. The voucher also states obligations of the family under the 
program.
    Waiting list admission. An admission from the PHA waiting list.

[[Page 579]]

    Welfare-to-work (WTW) families. Families assisted by a PHA with 
voucher funding awarded to the PHA under the HUD welfare-to-work voucher 
program (including any renewal of such WTW funding for the same 
purpose).

[63 FR 23857, Apr. 30, 1998; 63 FR 31625, June 10, 1998, as amended at 
64 FR 26641, May 14, 1999; 64 FR 49658, Sept. 14, 1999; 64 FR 56887, 
56911, Oct. 21, 1999; 65 FR 16821, Mar. 30, 2000; 65 FR 55161, Sept. 12, 
2000; 66 FR 28804, May 24, 2001; 66 FR 33613, June 22, 2001; 67 FR 
64492, Oct. 18, 2002]



Sec. 982.5  Notices required by this part.

    Where part 982 requires any notice to be given by the PHA, the 
family or the owner, the notice must be in writing.



  Subpart B_HUD Requirements and PHA Plan for Administration of Program

    Source: 60 FR 34695, July 3, 1995, unless otherwise noted.



Sec. 982.51  PHA authority to administer program.

    (a) The PHA must have authority to administer the program. The PHA 
must provide evidence, satisfactory to HUD, of its status as a PHA, of 
its authority to administer the program, and of the PHA jurisdiction.
    (b) The evidence submitted by the PHA to HUD must include enabling 
legislation and a supporting legal opinion satisfactory to HUD. The PHA 
must submit additional evidence when there is a change that affects its 
status as a PHA, authority to administer the program, or the PHA 
jurisdiction.

[60 FR 34695, July 3, 1995, as amended at 64 FR 26641, May 14, 1999]



Sec. 982.52  HUD requirements.

    (a) The PHA must comply with HUD regulations and other HUD 
requirements for the program. HUD requirements are issued by HUD 
headquarters, as regulations, Federal Register notices or other binding 
program directives.
    (b) The PHA must comply with the consolidated ACC and the PHA's HUD-
approved applications for program funding.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34695, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995]



Sec. 982.53  Equal opportunity requirements.

    (a) The tenant-based program requires compliance with all equal 
opportunity requirements imposed by contract or federal law, including 
the authorities cited at 24 CFR 5.105(a) and title II of the Americans 
with Disabilities Act, 42 U.S.C. 12101 et seq.
    (b) Civil rights certification. The PHA must submit a signed 
certification to HUD that:
    (1) The PHA will administer the program in conformity with the Fair 
Housing Act, Title VI of the Civil Rights Act of 1964, section 504 of 
the Rehabilitation Act of 1973, and Title II of the Americans with 
Disabilities Act.
    (2) The PHA will affirmatively further fair housing in the 
administration of the program.
    (c) Obligation to affirmatively further fair housing. The PHA shall 
affirmatively further fair housing as required by Sec. 903.7(o) of this 
title.
    (d) State and local law. Nothing in part 982 is intended to pre-empt 
operation of State and local laws that prohibit discrimination against a 
Section 8 voucher-holder because of status as a Section 8 voucher-
holder. However, such State and local laws shall not change or affect 
any requirement of this part, or any other HUD requirements for 
administration or operation of the program.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34695, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995; 63 
FR 23859, Apr. 30, 1998; 64 FR 26641, May 14, 1999; 64 FR 56911, Oct. 
21, 1999]



Sec. 982.54  Administrative plan.

    (a) The PHA must adopt a written administrative plan that 
establishes local policies for administration of the program in 
accordance with HUD requirements. The administrative plan and any 
revisions of the plan must be formally adopted by the PHA Board of

[[Page 580]]

Commissioners or other authorized PHA officials. The administrative plan 
states PHA policy on matters for which the PHA has discretion to 
establish local policies.
    (b) The administrative plan must be in accordance with HUD 
regulations and requirements. The administrative plan is a supporting 
document to the PHA plan (part 903 of this title) and must be available 
for public review. The PHA must revise the administrative plan if needed 
to comply with HUD requirements.
    (c) The PHA must administer the program in accordance with the PHA 
administrative plan.
    (d) The PHA administrative plan must cover PHA policies on these 
subjects:
    (1) Selection and admission of applicants from the PHA waiting list, 
including any PHA admission preferences, procedures for removing 
applicant names from the waiting list, and procedures for closing and 
reopening the PHA waiting list;
    (2) Issuing or denying vouchers, including PHA policy governing the 
voucher term and any extensions or suspensions of the voucher term. 
``Suspension'' means stopping the clock on the term of a family's 
voucher after the family submits a request for approval of the tenancy. 
If the PHA decides to allow extensions or suspensions of the voucher 
term, the PHA administrative plan must describe how the PHA determines 
whether to grant extensions or suspensions, and how the PHA determines 
the length of any extension or suspension;
    (3) Any special rules for use of available funds when HUD provides 
funding to the PHA for a special purpose (e.g., desegregation), 
including funding for specified families or a specified category of 
families;
    (4) Occupancy policies, including:
    (i) Definition of what group of persons may qualify as a ``family'';
    (ii) Definition of when a family is considered to be ``continuously 
assisted'';
    (iii) Standards for denying admission or terminating assistance 
based on criminal activity or alcohol abuse in accordance with Sec. 
982.553;
    (5) Encouraging participation by owners of suitable units located 
outside areas of low income or minority concentration;
    (6) Assisting a family that claims that illegal discrimination has 
prevented the family from leasing a suitable unit;
    (7) Providing information about a family to prospective owners;
    (8) Disapproval of owners;
    (9) Subsidy standards;
    (10) Family absence from the dwelling unit;
    (11) How to determine who remains in the program if a family breaks 
up;
    (12) Informal review procedures for applicants;
    (13) Informal hearing procedures for participants;
    (14) The process for establishing and revising voucher payment 
standards;
    (15) The method of determining that rent to owner is a reasonable 
rent (initially and during the term of a HAP contract);
    (16) Special policies concerning special housing types in the 
program (e.g., use of shared housing);
    (17) Policies concerning payment by a family to the PHA of amounts 
the family owes the PHA;
    (18) Interim redeterminations of family income and composition;
    (19) Restrictions, if any, on the number of moves by a participant 
family (see Sec. 982.314(c)); and
    (20) Restrictions, if any, on the number of moves by a participant 
family (see Sec. 982.314(c));
    (21) Approval by the Board of Commissioners or other authorized 
officials to charge the administrative fee reserve;
    (22) Procedural guidelines and performance standards for conducting 
required HQS inspections; and
    (23) PHA screening of applicants for family behavior or suitability 
for tenancy.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34695, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995; 61 
FR 27163, May 30, 1996; 63 FR 23859, Apr. 30, 1998; 64 FR 26641, May 14, 
1999; 64 FR 49658, 64 FR Sept. 14, 1999; 56911, Oct. 21, 1999; 66 FR 
28804, May 24, 2001]

[[Page 581]]



            Subpart C_Funding and PHA Application for Funding

    Source: 60 FR 34695, July 3, 1995, unless otherwise noted.



Sec. 982.101  Allocation of funding.

    (a) Allocation of funding. HUD allocates available budget authority 
for the tenant-based assistance program to HUD field offices.
    (b) Section 213(d) allocation. (1) Section 213(d) of the HCD Act of 
1974 (42 U.S.C. 1439) establishes requirements for allocation of 
assisted housing budget authority. Some budget authority is exempt by 
law from allocation under section 213(d). Unless exempted by law, budget 
authority for the tenant-based programs must be allocated in accordance 
with section 213(d).
    (2) Budget authority subject to allocation under section 213(d) is 
allocated in accordance with 24 CFR part 791, subpart D. There are three 
categories of section 213(d) funding allocations under part 791 of this 
title:
    (i) Funding retained in a headquarters reserve for purposes 
specified by law;
    (ii) funding incapable of geographic formula allocation (e.g., for 
renewal of expiring funding increments); or
    (iii) funding allocated by an objective fair share formula. Funding 
allocated by fair share formula is distributed by a competitive process.
    (c) Competitive process. For budget authority that is distributed by 
competitive process, the Department solicits applications from HAs by 
publishing one or more notices of funding availability (NOFA) in the 
Federal Register. See 24 CFR part 12, subpart B; and 24 CFR 791.406. The 
NOFA explains how to apply for assistance, and specifies the criteria 
for awarding the assistance. The NOFA may identify any special program 
requirements for use of the funding.

[60 FR 34695, July 3, 1995, as amended at 64 FR 26642, May 14, 1999]



Sec. 982.102  Allocation of budget authority for renewal of expiring 
consolidated ACC funding increments.

    (a) Applicability. This section applies to the renewal of 
consolidated ACC funding increments in the program (as described in 
Sec. 982.151(a)(2)) that expire after December 31, 1999 (including any 
assistance that the PHA has attached to units for project-based 
assistance under part 983 of this title). This section implements 
section 8(dd) of the 1937 Act (42 U.S.C. 1437f(dd)),
    (b) Renewal Methodology. HUD will use the following methodology to 
determine the amount of budget authority to be allocated to a PHA for 
the renewal of expiring consolidated ACC funding increments in the 
program, subject to the availability of appropriated funds. If the 
amount of appropriated funds is not sufficient to provide the full 
amount of renewal funding for PHAs, as calculated in accordance with 
this section, HUD may establish a procedure to adjust allocations for 
the shortfall in funding.
    (c) Determining the amount of budget authority allocated for renewal 
of an expiring funding increment. Subject to availability of 
appropriated funds, as determined by HUD, the amount of budget authority 
allocated by HUD to a PHA for renewal of each program funding increment 
that expires during a calendar year will be equal to:
    (1) Number of renewal units. The number of renewal units assigned to 
the funding increment (as determined by HUD pursuant to paragraph (d) of 
this section); multiplied by
    (2) Adjusted annual per unit cost. The adjusted annual per unit cost 
(as determined by HUD pursuant to paragraph (e) of this section).
    (d) Determining the number of renewal units.--(1) Number of renewal 
units. HUD will determine the total number of renewal units for a PHA's 
program as of the last day of the calendar year previous to the calendar 
year for which renewal funding is calculated. The number of renewal 
units for a PHA's program will be determined as follows:
    (i) Step 1: Establishing the initial baseline. HUD will establish a 
baseline number of units (``baseline'') for each PHA program. The 
initial baseline equals the number of units reserved by HUD for the PHA 
program as of December 31, 1999.
    (ii) Step 2: Establishing the adjusted baseline. The adjusted 
baseline equals the initial baseline with the following

[[Page 582]]

adjustments from the initial baseline as of the last day of the calendar 
year previous to the calendar year for which renewal funding is 
calculated:
    (A) Additional units. HUD will add to the initial baseline any 
additional units reserved for the PHA after December 31, 1999.
    (B) Units removed. HUD will subtract from the initial baseline any 
units de-reserved by HUD from the PHA program after December 31, 1999.
    (iii) Step 3: Determining the number of renewal units. The number of 
renewal units equals the adjusted baseline minus the number of units 
supported by contract funding increments that expire after the end of 
the calendar year.
    (2) Funding increments. HUD will assign all units reserved for a PHA 
program to one or more funding increment(s).
    (3) Correction of errors. HUD may adjust the number of renewal units 
to correct errors.
    (e) Determining the adjusted per unit cost. HUD will determine the 
PHA's adjusted per unit cost when HUD processes the allocation of 
renewal funding for an expiring contract funding increment. The adjusted 
per unit cost calculated will be determined as follows:
    (1) Step 1: Determining monthly program expenditure.--(i) Use of 
most recent HUD-approved year end statement. HUD will determine the 
PHA's monthly per unit program expenditure for the PHA certificate and 
voucher programs (including project-based assistance under such 
programs) under the consolidated ACC with HUD using data from the PHA's 
most recent HUD-approved year end statement.
    (ii) Monthly program expenditure. The monthly program expenditure 
equals:
    (A) Total program expenditure. The PHA's total program expenditure 
(the total of housing assistance payments and administrative costs) for 
the PHA fiscal year covered by the approved year end statement; divided 
by
    (B) Total unit months leased. The total of unit months leased for 
the PHA fiscal year covered by the approved year end statement.
    (2) Step 2: Determining annual per unit cost. HUD will determine the 
PHA's annual per unit cost. The annual per unit cost equals the monthly 
program expenditures (as determined under paragraph (e)(1)(ii) of this 
section) multiplied by 12.
    (3) Step 3: Determining adjusted annual per unit cost. (i) HUD will 
determine the PHA's adjusted annual per unit cost. The adjusted annual 
per unit cost equals the annual per unit cost (as determined under 
paragraph (e)(2) of this section) multiplied cumulatively by the 
applicable published Section 8 housing assistance payments program 
annual adjustment factors in effect during the period from the end of 
the PHA fiscal year covered by the approved year end statement to the 
time when HUD processes the allocation of renewal funding.
    (ii) Use of annual adjustment factor applicable to PHA jurisdiction. 
For this purpose, HUD will use the annual adjustment factor from the 
notice published annually in the Federal Register pursuant to part 888 
that is applicable to the jurisdiction of the PHA. For a PHA whose 
jurisdiction spans multiple annual adjustment factor areas, HUD will use 
the highest applicable annual adjustment factor.
    (iii) Use of annual adjustment factors in effect subsequent to most 
recent Year End Statement. HUD will use the Annual Adjustment Factors in 
effect during the time period subsequent to the time covered by the most 
recent HUD approved Year End Statement and the time of the processing of 
the contract funding increment to be renewed.
    (iii) Special circumstances. At its discretion, HUD may modify the 
adjusted annual per unit cost based on receipt of a modification request 
from a PHA. The modification request must demonstrate that because of 
special circumstances application of the annual adjustment factor will 
not provide an accurate adjusted annual per unit cost.
    (4) Correction of errors. HUD may correct for errors in the adjusted 
per unit cost.
    (f) consolidated ACC amendment to add renewal funding. HUD will 
reserve allocated renewal funding available to the PHA within a 
reasonable time prior to the expiration of the funding increment to be 
renewed and establish a new expiration date one-year from the date of 
such expiration.

[[Page 583]]

    (g) Modification of allocation of budget authority--(1) HUD 
authority to conform PHA program costs with PHA program finances through 
Federal Register notice. In the event that a PHA's costs incurred 
threaten to exceed budget authority and allowable reserves, HUD reserves 
the right, through Federal Register notice, to bring PHA program costs 
and the number of families served, in line with PHA program finances.
    (2) HUD authority to limit increases of per unit cost through 
Federal Register notice. HUD may, by Federal Register notice, limit the 
amount or percentage of increases in the adjusted annual per unit cost 
to be used in calculating the allocation of budget authority.
    (3) HUD authority to limit decreases to per unit costs through 
Federal Register notice. HUD may, by Federal Register notice, limit the 
amount or percentage of decreases in the adjusted annual per unit cost 
to be used in calculating the allocation of budget authority.
    (4) Contents of Federal Register notice. If HUD publishes a Federal 
Register notice pursuant to paragraphs (g)(1), (g)(2) or (g)(3) of this 
section, it will describe the rationale, circumstances and procedures 
under which such modifications are implemented. Such circumstances and 
procedures shall, be consistent with the objective of enabling PHAs and 
HUD to meet program goals and requirements including but not limited to:
    (i) Deconcentration of poverty and expanding housing opportunities;
    (ii) Reasonable rent burden;
    (iii) Income targeting;
    (iv) Consistency with applicable consolidated plan(s);
    (v) Rent reasonableness;
    (vi) Program efficiency and economy;
    (vii) Service to additional households within budgetary limitations; 
and
    (viii) Service to the adjusted baseline number of families.
    (5) Public consultation before issuance of Federal Register notice. 
HUD will design and undertake informal public consultation prior to 
issuing Federal Register notices pursuant to paragraphs (g)(1) or (g)(2) 
of this section.
    (h) Ability to prorate and synchronize contract funding increments. 
Notwithstanding paragraphs (c) through (g) of this section, HUD may 
prorate the amount of budget authority allocated for the renewal of 
funding increments that expire on different dates throughout the 
calendar year. HUD may use such proration to synchronize the expiration 
dates of funding increments under the PHA's consolidated ACC.
    (i) Reallocation of budget authority. If a PHA has performance 
deficiencies, such as a failure to adequately lease units, HUD may 
reallocate some of its budget authority to other PHAs. If HUD determines 
to reallocate budget authority, it will reduce the number of units 
reserved by HUD for the PHA program of the PHA whose budget authority is 
being reallocated and increase the number of units reserved by HUD for 
the PHAs whose programs are receiving the benefit of the reallocation, 
so that such PHAs can issue vouchers. HUD will publish a notice in the 
Federal Register that will describe the circumstances and procedures for 
reallocating budget authority pursuant to this paragraph.

[64 FR 56887, Oct. 21, 1999; 65 FR 16818, Mar. 30, 2000]



Sec. 982.103  PHA application for funding.

    (a) a PHA must submit an application for program funding to HUD at 
the time and place and in the form required by HUD.
    (b) For competitive funding under a NOFA, the application must be 
submitted by a PHA in accordance with the requirements of the NOFA.
    (c) The application must include all information required by HUD. 
HUD requirements may be stated in the HUD-required form of application, 
the NOFA, or other HUD instructions.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34695, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995; 63 
FR 23859, Apr. 30, 1998. Redesignated at 64 FR 56887, Oct. 21, 1999]



Sec. 982.104  HUD review of application.

    (a) Competitive funding under NOFA. For competitive funding under a 
NOFA, HUD must evaluate an application on the basis of the selection 
criteria stated in the NOFA, and must

[[Page 584]]

consider the PHA's capacity and capability to administer the program.
    (b) Approval or disapproval of PHA funding application. (1) HUD must 
notify the PHA of its approval or disapproval of the PHA funding 
application.
    (2) When HUD approves an application, HUD must notify the PHA of the 
amount of approved funding.
    (3) For budget authority that is distributed to PHAs by competitive 
process, documentation of the basis for provision or denial of 
assistance is available for public inspection in accordance with 24 CFR 
12.14(b).
    (c) PHA disqualification. HUD will not approve any PHA funding 
application (including an application for competitive funding under a 
NOFA) if HUD determines that the PHA is disbarred or otherwise 
disqualified from providing assistance under the program.

[60 FR 34695, July 3, 1995, as amended at 64 FR 26642, May 14, 1999. 
Redesignated at 64 FR 56887, Oct. 21, 1999]



   Subpart D_Annual Contributions Contract and PHA Administration of 
                                 Program

    Source: 60 FR 34695, July 3, 1995, unless otherwise noted.



Sec. 982.151  Annual contributions contract.

    (a) Nature of ACC. (1) An annual contributions contract (ACC) is a 
written contract between HUD and a PHA. Under the ACC, HUD agrees to 
make payments to the PHA, over a specified term, for housing assistance 
payments to owners and for the PHA administrative fee. The ACC specifies 
the maximum payment over the ACC term. The PHA agrees to administer the 
program in accordance with HUD regulations and requirements.
    (2) HUD's commitment to make payments for each funding increment in 
the PHA program constitutes a separate ACC. However, commitments for all 
the funding increments in a PHA program are listed in one consolidated 
contractual document called the consolidated annual contributions 
contract (consolidated ACC). A single consolidated ACC covers funding 
for the PHA tenant-based assistance program.
    (b) Budget authority. (1) Budget authority is the maximum amount 
that may be paid by HUD to a PHA over the ACC term of a funding 
increment. Before adding a funding increment to the consolidated ACC for 
a PHA program, HUD reserves budget authority from amounts authorized and 
appropriated by the Congress for the program.
    (2) For each funding increment, the ACC specifies the term over 
which HUD will make payments for the PHA program, and the amount of 
available budget authority for each funding increment. The amount to be 
paid to the PHA during each PHA fiscal year (including payment from the 
ACC reserve account described in Sec. 982.154) must be approved by HUD.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34695, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995; 64 
FR 26642, May 14, 1999]



Sec. 982.152  Administrative fee.

    (a) Purposes of administrative fee. (1) HUD may approve 
administrative fees to the PHA for any of the following purposes:
    (i) Ongoing administrative fee;
    (ii) Costs to help families who experience difficulty finding or 
renting appropriate housing under the program;
    (iii) The following types of extraordinary costs approved by HUD:
    (A) Costs to cover necessary additional expenses incurred by the PHA 
to provide reasonable accommodation for persons with disabilities in 
accordance with part 8 of this title (e.g., additional counselling 
costs), where the PHA is unable to cover such additional expenses from 
ongoing administrative fee income or the PHA administrative fee reserve;
    (B) Costs of audit by an independent public accountant;
    (C) Other extraordinary costs determined necessary by HUD 
Headquarters;
    (iv) Preliminary fee (in accordance with paragraph (c) of this 
section);
    (v) Costs to coordinate supportive services for families 
participating in the family self-sufficiency (FSS) program.

[[Page 585]]

    (2) For each HA fiscal year, administrative fees are specified in 
the HA budget. The budget is submitted for HUD approval. Fees are paid 
in the amounts approved by HUD. Administrative fees may only be approved 
or paid from amounts appropriated by the Congress.
    (3) HA administrative fees may only be used to cover costs incurred 
to perform HA administrative responsibilities for the program in 
accordance with HUD regulations and requirements.
    (b) Ongoing administrative fee. (1) The PHA ongoing administrative 
fee is paid for each program unit under HAP contract on the first day of 
the month. The amount of the ongoing fee is determined by HUD in 
accordance with Section 8(q)(1) of the 1937 Act (42 U.S.C. 1437f(q)(1)).
    (2) If appropriations are available, HUD may pay a higher ongoing 
administrative fee for a small program or a program operating over a 
large geographic area. This higher fee level will not be approved unless 
the PHA demonstrates that it is efficiently administering its tenant-
based program, and that the higher ongoing administrative fee is 
reasonable and necessary for administration of the program in accordance 
with HUD requirements.
    (3) HUD may pay a lower ongoing administrative fee for PHA-owned 
units.
    (c) Preliminary fee. (1) If the PHA was not administering a program 
of Section 8 tenant-based assistance prior to the merger date, HUD will 
pay a one-time fee in the amount of $500 in the first year the PHA 
administers a program. The fee is paid for each new unit added to the 
PHA program by the initial funding increment under the consolidated ACC.
    (2) The preliminary fee is used to cover expenses the PHA incurs to 
help families who inquire about or apply for the program, and to lease 
up new program units.
    (d) Reducing PHA administrative fee. HUD may reduce or offset any 
administrative fee to the PHA, in the amount determined by HUD, if the 
PHA fails to perform PHA administrative responsibilities correctly or 
adequately under the program (for example, PHA failure to enforce HQS 
requirements; or to reimburse a receiving PHA promptly under portability 
procedures).

[60 FR 23695, July 3, 1995, as amended at 63 FR 23860, Apr. 30, 1998; 64 
FR 26642, May 14, 1999]



Sec. 982.153  PHA responsibilities.

    The PHA must comply with the consolidated ACC, the application, HUD 
regulations and other requirements, and the PHA administrative plan.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34695, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995; 61 
FR 13627, Mar. 27, 1996; 63 FR 23860, Apr. 30, 1998]



Sec. 982.154  ACC reserve account.

    (a) HUD may establish and maintain an unfunded reserve account for 
the PHA program from available budget authority under the consolidated 
ACC. This reserve is called the ``ACC reserve account'' (formerly 
``project reserve''). There is a single ACC reserve account for the PHA 
program.
    (b) The amount in the ACC reserve account is determined by HUD. HUD 
may approve payments for the PHA program, in accordance with the PHA's 
HUD-approved budget, from available amounts in the ACC reserve account.

[64 FR 26642, May 14, 1999]



Sec. 982.155  Administrative fee reserve.

    (a) The PHA must maintain an administrative fee reserve (formerly 
``operating reserve'') for the program. There is a single administrative 
fee reserve for the PHA program. The PHA must credit to the 
administrative fee reserve the total of:
    (1) The amount by which program administrative fees paid by HUD for 
a PHA fiscal year exceed the PHA program administrative expenses for the 
fiscal year; plus
    (2) Interest earned on the administrative fee reserve.
    (b)(1) The PHA must use funds in the administrative fee reserve to 
pay program administrative expenses in excess of administrative fees 
paid by HUD for a PHA fiscal year. If funds in the administrative fee 
reserve are not needed to cover PHA administrative expenses (to the end 
of the last expiring funding increment under the consolidated

[[Page 586]]

ACC), the PHA may use these funds for other housing purposes permitted 
by State and local law. However, HUD may prohibit use of the funds for 
certain purposes.
    (2) The PHA Board of Commissioners or other authorized officials 
must establish the maximum amount that may be charged against the 
administrative fee reserve without specific approval.
    (3) If the PHA has not adequately administered any Section 8 
program, HUD may prohibit use of funds in the administrative fee 
reserve, and may direct the PHA to use funds in the reserve to improve 
administration of the program or to reimburse ineligible expenses.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34695, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995; 64 
FR 26642, May 14, 1999]



Sec. 982.156  Depositary for program funds.

    (a) Unless otherwise required or permitted by HUD, all program 
receipts must be promptly deposited with a financial institution 
selected as depositary by the PHA in accordance with HUD requirements.
    (b) The PHA may only withdraw deposited program receipts for use in 
connection with the program in accordance with HUD requirements.
    (c) The PHA must enter into an agreement with the depositary in the 
form required by HUD.
    (d)(1) If required under a written freeze notice from HUD to the 
depositary:
    (i) The depositary may not permit any withdrawal by the PHA of funds 
held under the depositary agreement unless expressly authorized by 
written notice from HUD to the depositary; and
    (ii) The depositary must permit withdrawals of such funds by HUD.
    (2) HUD must send the PHA a copy of the freeze notice from HUD to 
the depositary.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34695, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995]



Sec. 982.157  Budget and expenditure.

    (a) Budget submission. Each PHA fiscal year, the PHA must submit its 
proposed budget for the program to HUD for approval at such time and in 
such form as required by HUD.
    (b) PHA use of program receipts. (1) Program receipts must be used 
in accordance with the PHA's HUD-approved budget. Such program receipts 
may only be used for:
    (i) Housing assistance payments; and
    (ii) PHA administrative fees.
    (2) The PHA must maintain a system to ensure that the PHA will be 
able to make housing assistance payments for all participants within the 
amounts contracted under the consolidated ACC.
    (c) Intellectual property rights. Program receipts may not be used 
to indemnify contractors or subcontractors of the PHA against costs 
associated with any judgment of infringement of intellectual property 
rights.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34695, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995; 64 
FR 26642, May 14, 1999]



Sec. 982.158  Program accounts and records.

    (a) The PHA must maintain complete and accurate accounts and other 
records for the program in accordance with HUD requirements, in a manner 
that permits a speedy and effective audit. The records must be in the 
form required by HUD, including requirements governing computerized or 
electronic forms of record-keeping. The PHA must comply with the 
financial reporting requirements in 24 CFR part 5, subpart H.
    (b) The PHA must furnish to HUD accounts and other records, reports, 
documents and information, as required by HUD. For provisions on 
electronic transmission of required family data, see 24 CFR part 908.
    (c) HUD and the Comptroller General of the United States shall have 
full and free access to all PHA offices and facilities, and to all 
accounts and other records of the PHA tPHAt are pertinent to 
administration of the program, including the right to examine or audit

[[Page 587]]

the records, and to make copies. The PHA must grant such access to 
computerized or other electronic records, and to any computers, 
equipment or facilities containing such records, and shall provide any 
information or assistance needed to access the records.
    (d) The PHA must prepare a unit inspection report.
    (e) During the term of each assisted lease, and for at least three 
years thereafter, the PHA must keep:
    (1) A copy of the executed lease;
    (2) The HAP contract; and
    (3) The application from the family.
    (f) The PHA must keep the following records for at least three 
years:
    (1) Records that provide income, racial, ethnic, gender, and 
disability status data on program applicants and participants;
    (2) An application from each ineligible family and notice that the 
applicant is not eligible;
    (3) HUD-required reports;
    (4) Unit inspection reports;
    (5) Lead-based paint records as required by part 35, subpart B of 
this title.
    (6) Accounts and other records supporting PHA budget and financial 
statements for the program;
    (7) Records to document the basis for PHA determination that rent to 
owner is a reasonable rent (initially and during the term of a HAP 
contract); and
    (8) Other records specified by HUD.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34695, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995; 61 
FR 27163, May 30, 1996; 63 FR 23860, Apr. 30, 1998; 63 FR 46593, Sept. 
1, 1998; 64 FR 50229, Sept. 15, 1999]



Sec. 982.159  Audit requirements.

    (a) The PHA must engage and pay an independent public accountant to 
conduct audits in accordance with HUD requirements.
    (b) The PHA is subject to the audit requirements in 24 CFR part 44.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34695, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995]



Sec. 982.160  HUD determination to administer a local program.

    If the Assistant Secretary for Public and Indian Housing determines 
that there is no PHA organized, or that there is no PHA able and willing 
to implement the provisions of this part for an area, HUD (or an entity 
acting on behalf of HUD) may enter into HAP contracts with owners and 
perform the functions otherwise assigned to PHAs under this part with 
respect to the area.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34695, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995]



Sec. 982.161  Conflict of interest.

    (a) Neither the PHA nor any of its contractors or subcontractors may 
enter into any contract or arrangement in connection with the tenant-
based programs in which any of the following classes of persons has any 
interest, direct or indirect, during tenure or for one year thereafter:
    (1) Any present or former member or officer of the PHA (except a 
participant commissioner);
    (2) Any employee of the PHA, or any contractor, subcontractor or 
agent of the PHA, who formulates policy or who influences decisions with 
respect to the programs;
    (3) Any public official, member of a governing body, or State or 
local legislator, who exercises functions or responsibilities with 
respect to the programs; or
    (4) Any member of the Congress of the United States.
    (b) Any member of the classes described in paragraph (a) of this 
section must disclose their interest or prospective interest to the PHA 
and HUD.
    (c) The conflict of interest prohibition under this section may be 
waived by the HUD field office for good cause.



Sec. 982.162  Use of HUD-required contracts and other forms.

    (a) The PHA must use program contracts and other forms required by 
HUD headquarters, including:
    (1) The consolidated ACC between HUD and the PHA;

[[Page 588]]

    (2) The HAP contract between the PHA and the owner; and
    (3) The tenancy addendum required by HUD (which is included both in 
the HAP contract and in the lease between the owner and the tenant).
    (b) Required program contracts and other forms must be word-for-word 
in the form required by HUD headquarters. Any additions to or 
modifications of required program contracts or other forms must be 
approved by HUD headquarters.

[60 FR 34695, July 3, 1995, as amended at 64 FR 26642, May 14, 1999]



Sec. 982.163  Fraud recoveries.

    Under 24 CFR part 792, the PHA may retain a portion of program fraud 
losses that the PHA recovers from a family or owner by litigation, 
court-order or a repayment agreement.

[60 FR 34695, July 3, 1995; 60 FR 43840, Aug. 23, 1995]



               Subpart E_Admission to Tenant-Based Program



Sec. 982.201  Eligibility and targeting.

    (a) When applicant is eligible: general. The PHA may only admit an 
eligible family to the program. To be eligible, the applicant must be a 
``family'', must be income-eligible, and must be a citizen or a 
noncitizen who has eligible immigration status as determined in 
accordance with 24 CFR part 5.
    (b) Income. (1) Income-eligibility. To be income-eligible, the 
applicant must be a family in any of the following categories:
    (i) A ``very low income'' family;
    (ii) A low-income family that is ``continuously assisted'' under the 
1937 Housing Act;
    (iii) A low-income family that meets additional eligibility criteria 
specified in the PHA administrative plan. Such additional PHA criteria 
must be consistent with the PHA plan and with the consolidated plans for 
local governments in the PHA jurisdiction;
    (iv) A low-income family that qualifies for voucher assistance as a 
non-purchasing family residing in a HOPE 1 (HOPE for public housing 
homeownership) or HOPE 2 (HOPE for homeownership of multifamily units) 
project. (Section 8(o)(4)(D) of the 1937 Act (42 U.S.C. 1437f(o)(4)(D));
    (v) A low-income or moderate-income family that is displaced as a 
result of the prepayment of the mortgage or voluntary termination of an 
insurance contract on eligible low-income housing as defined in Sec. 
248.101 of this title;
    (vi) A low-income family that qualifies for voucher assistance as a 
non-purchasing family residing in a project subject to a resident 
homeownership program under Sec. 248.173 of this title.
    (2) Income-targeting. (i) Not less than 75 percent of the families 
admitted to a PHA's tenant-based voucher program during the PHA fiscal 
year from the PHA waiting list shall be extremely low income families. 
Annual income of such families shall be verified within the period 
described in paragraph (e) of this section.
    (ii) A PHA may admit a lower percent of extremely low income 
families during a PHA fiscal year (than otherwise required under 
paragraph (b)(2)(i) of this section) if HUD approves the use of such 
lower percent by the PHA, in accordance with the PHA plan, based on 
HUD's determination that the following circumstances necessitate use of 
such lower percent by the PHA:
    (A) The PHA has opened its waiting list for a reasonable time for 
admission of extremely low income families residing in the same 
metropolitan statistical area (MSA) or non-metropolitan county, both 
inside and outside the PHA jurisdiction;
    (B) The PHA has provided full public notice of such opening to such 
families, and has conducted outreach and marketing to such families, 
including outreach and marketing to extremely low income families on the 
Section 8 and public housing waiting lists of other PHAs with 
jurisdiction in the same MSA or non-metropolitan county;
    (C) Notwithstanding such actions by the PHA (in accordance with 
paragraphs (b)(2)(ii)(A) and (B) of this section), there are not enough 
extremely low income families on the PHA's waiting list to fill 
available slots in the program during any fiscal year for which use of a 
lower percent is approved by HUD; and

[[Page 589]]

    (D) Admission of the additional very low income families other than 
extremely low income families to the PHA's tenant-based voucher program 
will substantially address worst case housing needs as determined by 
HUD.
    (iii) If approved by HUD, the admission of a portion of very low 
income welfare-to-work (WTW) families that are not extremely low income 
families may be disregarded in determining compliance with the PHA's 
income-targeting obligations under paragraph (b)(2)(i) of this section. 
HUD will grant such approval only if and to the extent that the PHA has 
demonstrated to HUD's satisfaction that compliance with such targeting 
obligations with respect to such portion of WTW families would interfere 
with the objectives of the welfare-to-work voucher program. If HUD 
grants such approval, admission of that portion of WTW families is not 
counted in the base number of families admitted to a PHA's tenant-based 
voucher program during the fiscal year for purposes of income targeting.
    (iv) Conversion of assistance for a participant in the PHA 
certificate program to assistance in the PHA voucher program does not 
count as an ``admission,'' and is not subject to targeting under 
paragraph (b)(2)(i) of this section.
    (v) Admission of families as described in paragraphs (b)(1)(ii) or 
(b)(1)(v) of this section is not subject to targeting under paragraph 
(b)(2)(i) of this section.
    (vi) If the jurisdictions of two or more PHAs that administer the 
tenant-based voucher program cover an identical geographic area, such 
PHAs may elect to be treated as a single PHA for purposes of targeting 
under paragraph (b)(2)(i) of this section. In such a case, the PHAs 
shall cooperate to assure that aggregate admissions by such PHAs comply 
with the targeting requirement. If such PHAs do not have a single fiscal 
year, HUD will determine which PHA's fiscal year is used for this 
purpose.
    (vii) If a family initially leases a unit outside the PHA 
jurisdiction under portability procedures at admission to the voucher 
program on or after the merger date, such admission shall be counted 
against the targeting obligation of the initial PHA (unless the 
receiving PHA absorbs the portable family into the receiving PHA voucher 
program from the point of admission).
    (3) The annual income (gross income) of a participant family is used 
both for determination of income-eligibility under paragraph (b)(1) of 
this section and for targeting under paragraph (b)(2)(i) of this 
section. In determining annual income of a participant family which 
includes persons with disabilities, the determination must include the 
disallowance of increase in annual income as provided in 24 CFR 5.617, 
if applicable.
    (4) The applicable income limit for issuance of a voucher when a 
family is selected for the program is the highest income limit (for the 
family size) for areas in the PHA jurisdiction. The applicable income 
limit for admission to the program is the income limit for the area 
where the family is initially assisted in the program. At admission, the 
family may only use the voucher to rent a unit in an area where the 
family is income eligible.
    (c) Family composition. (1) A ``family'' may be a single person or a 
group of persons.
    (2) A ``family'' includes a family with a child or children.
    (3) A group of persons consisting of two or more elderly persons or 
disabled persons living together, or one or more elderly or disabled 
persons living with one or more live-in aides is a family. The PHA 
determines if any other group of persons qualifies as a ``family''.
    (4) A single person family may be:
    (i) An elderly person.
    (ii) A displaced person.
    (iii) A disabled person.
    (iv) Any other single person.
    (5) A child who is temporarily away from the home because of 
placement in foster care is considered a member of the family.
    (d) Continuously assisted. (1) An applicant is continuously assisted 
under the 1937 Housing Act if the family is already receiving assistance 
under any 1937 Housing Act program when the family is admitted to the 
voucher program.
    (2) The PHA must establish policies concerning whether and to what 
extent

[[Page 590]]

a brief interruption between assistance under one of these programs and 
admission to the voucher program will be considered to break continuity 
of assistance under the 1937 Housing Act.
    (e) When PHA verifies that applicant is eligible. The PHA must 
receive information verifying that an applicant is eligible within the 
period of 60 days before the PHA issues a voucher to the applicant.
    (f) Decision to deny assistance--(1) Notice to applicant. The PHA 
must give an applicant prompt written notice of a decision denying 
admission to the program (including a decision that the applicant is not 
eligible, or denying assistance for other reasons). The notice must give 
a brief statement of the reasons for the decision. The notice must also 
state that the applicant may request an informal review of the decision, 
and state how to arrange for the informal review.
    (2) For description of the grounds for denying assistance because of 
action or inaction by the applicant, see Sec. 982.552(b) and (c) 
(requirement and authority to deny admission) and Sec. 982.553(a) 
(crime by family members).

[59 FR 36682, July 18, 1994, as amended at 60 FR 34717, July 3, 1995; 61 
FR 13627, Mar. 27, 1996; 64 FR 26642, May 14, 1999; 64 FR 49658, Sept. 
14, 1999; 64 FR 56911, Oct. 21, 1999; 66 FR 6226, Jan. 19, 2001; 66 FR 
8174, Jan. 30, 2001; 67 FR 6820, Feb. 13, 2002]



Sec. 982.202  How applicants are selected: General requirements.

    (a) Waiting list admissions and special admissions. The PHA may 
admit an applicant for participation in the program either:
    (1) As a special admission (see Sec. 982.203).
    (2) As a waiting list admission (see Sec. 982.204 through Sec. 
982.210).
    (b) Prohibited admission criteria--(1) Where family lives. Admission 
to the program may not be based on where the family lives before 
admission to the program. However, the PHA may target assistance for 
families who live in public housing or other federally assisted housing, 
or may adopt a residency preference (see Sec. 982.207).
    (2) Where family will live. Admission to the program may not be 
based on where the family will live with assistance under the program.
    (3) Family characteristics. The PHA preference system may provide a 
preference for admission of families with certain characteristics from 
the PHA waiting list. However, admission to the program may not be based 
on:
    (i) Discrimination because members of the family are unwed parents, 
recipients of public assistance, or children born out of wedlock;
    (ii) Discrimination because a family includes children (familial 
status discrimination);
    (iii) Discrimination because of age, race, color, religion, sex, or 
national origin;
    (iv) Discrimination because of disability; or
    (v) Whether a family decides to participate in a family self-
sufficiency program.
    (c) Applicant status. An applicant does not have any right or 
entitlement to be listed on the PHA waiting list, to any particular 
position on the waiting list, or to admission to the programs. The 
preceding sentence does not affect or prejudice any right, independent 
of this rule, to bring a judicial action challenging an PHA violation of 
a constitutional or statutory requirement.
    (d) Admission policy. The PHA must admit applicants for 
participation in accordance with HUD regulations and other requirements, 
and with PHA policies stated in the PHA administrative plan and the PHA 
plan. The PHA admission policy must state the system of admission 
preferences that the PHA uses to select applicants from the waiting 
list, including any residency preference or other local preference.

[59 FR 36682, July 18, 1994, as amended at 60 FR 34717, July 3, 1995; 61 
FR 9048, Mar. 6, 1996; 61 FR 27163, May 30, 1996; 64 FR 26643, May 14, 
1999; 65 FR 16821, Mar. 30, 2000]



Sec. 982.203  Special admission (non-waiting list): Assistance targeted 
by HUD.

    (a) If HUD awards a PHA program funding that is targeted for 
families living in specified units:
    (1) The PHA must use the assistance for the families living in these 
units.

[[Page 591]]

    (2) The PHA may admit a family that is not on the PHA waiting list, 
or without considering the family's waiting list position. The PHA must 
maintain records showing that the family was admitted with HUD-targeted 
assistance.
    (b) The following are examples of types of program funding that may 
be targeted for a family living in a specified unit:
    (1) A family displaced because of demolition or disposition of a 
public housing project;
    (2) A family residing in a multifamily rental housing project when 
HUD sells, forecloses or demolishes the project;
    (3) For housing covered by the Low Income Housing Preservation and 
Resident Homeownership Act of 1990 (41 U.S.C. 4101 et seq.):
    (i) A non-purchasing family residing in a project subject to a 
homeownership program (under 24 CFR 248.173); or
    (ii) A family displaced because of mortgage prepayment or voluntary 
termination of a mortgage insurance contract (as provided in 24 CFR 
248.165);
    (4) A family residing in a project covered by a project-based 
Section 8 HAP contract at or near the end of the HAP contract term; and
    (5) A non-purchasing family residing in a HOPE 1 or HOPE 2 project.

[59 FR 36682, July 18, 1994, as amended at 64 FR 26643, May 14, 1999]



Sec. 982.204  Waiting list: Administration of waiting list.

    (a) Admission from waiting list. Except for special admissions, 
participants must be selected from the PHA waiting list. The PHA must 
select participants from the waiting list in accordance with admission 
policies in the PHA administrative plan.
    (b) Organization of waiting list. The PHA must maintain information 
that permits the PHA to select participants from the waiting list in 
accordance with the PHA admission policies. The waiting list must 
contain the following information for each applicant listed:
    (1) Applicant name;
    (2) Family unit size (number of bedrooms for which family qualifies 
under PHA occupancy standards);
    (3) Date and time of application;
    (4) Qualification for any local preference;
    (5) Racial or ethnic designation of the head of household.
    (c) Removing applicant names from the waiting list. (1) The PHA 
administrative plan must state PHA policy on when applicant names may be 
removed from the waiting list. The policy may provide that the PHA will 
remove names of applicants who do not respond to PHA requests for 
information or updates.
    (2) An PHA decision to withdraw from the waiting list the name of an 
applicant family that includes a person with disabilities is subject to 
reasonable accommodation in accordance with 24 CFR part 8. If the 
applicant did not respond to the PHA request for information or updates 
because of the family member's disability, the PHA must reinstate the 
applicant in the family's former position on the waiting list.
    (d) Family size. (1) The order of admission from the waiting list 
may not be based on family size, or on the family unit size for which 
the family qualifies under the PHA occupancy policy.
    (2) If the PHA does not have sufficient funds to subsidize the 
family unit size of the family at the top of the waiting list, the PHA 
may not skip the top family to admit an applicant with a smaller family 
unit size. Instead, the family at the top of the waiting list will be 
admitted when sufficient funds are available.
    (e) Funding for specified category of waiting list families. When 
HUD awards an PHA program funding for a specified category of families 
on the waiting list, the PHA must select applicant families in the 
specified category.
    (f) Number of waiting lists. A PHA must use a single waiting list 
for admission to its Section 8 tenant-based assistance program. However, 
the PHA may use a separate single waiting list for such admissions for a 
county or municipality.

(Approved by the Office of Management and Budget under OMB control 
number 2577-0169)

[59 FR 36682, July 18, 1994, as amended at 60 FR 34717, July 3, 1995; 63 
FR 23860, Apr. 30, 1998; 64 FR 26643, May 14, 1999; 65 FR 16821, Mar. 
30, 2000]

[[Page 592]]



Sec. 982.205  Waiting list: Different programs.

    (a) Merger and cross-listing--(1) Merged waiting list. a PHA may 
merge the waiting list for tenant-based assistance with the PHA waiting 
list for admission to another assisted housing program, including a 
federal or local program. In admission from the merged waiting list, 
admission for each federal program is subject to federal regulations and 
requirements for the particular program.
    (2) Non-merged waiting list: Cross-listing. If the PHA decides not 
to merge the waiting list for tenant-based assistance with the waiting 
list for the PHA's public housing program, project-based voucher program 
or moderate rehabilitation program:
    (i) If the PHA's waiting list for tenant-based assistance is open 
when an applicant is placed on the waiting list for the PHA's public 
housing program, project-based voucher program or moderate 
rehabilitation program, the PHA must offer to place the applicant on its 
waiting list for tenant-based assistance.
    (ii) If the PHA's waiting list for its public housing program, 
project-based voucher program or moderate rehabilitation program is open 
when an applicant is placed on the waiting list for its tenant-based 
program, and if the other program includes units suitable for the 
applicant, the PHA must offer to place the applicant on its waiting list 
for the other program.
    (b) Other housing assistance: Effect of application for, receipt or 
refusal.
    (1) For purposes of this section, ``other housing subsidy'' means a 
housing subsidy other than assistance under the voucher program. Housing 
subsidy includes subsidy assistance under a federal housing program 
(including public housing), a State housing program, or a local housing 
program.
    (2) The PHA may not take any of the following actions because an 
applicant has applied for, received, or refused other housing 
assistance:
    (i) Refuse to list the applicant on the PHA waiting list for tenant-
based assistance;
    (ii) Deny any admission preference for which the applicant is 
currently qualified;
    (iii) Change the applicant's place on the waiting list based on 
preference, date and time of application, or other factors affecting 
selection under the PHA selection policy; or
    (iv) Remove the applicant from the waiting list.

[59 FR 36682, July 18, 1994, as amended at 61 FR 27163, May 30, 1996; 63 
FR 23860, Apr. 30, 1998; 64 FR 26643, May 14, 1999; 65 FR 16821, Mar. 
30, 2000]



Sec. 982.206  Waiting list: Opening and closing; public notice.

    (a) Public notice. (1) When the PHA opens a waiting list, the PHA 
must give public notice that families may apply for tenant-based 
assistance. The public notice must state where and when to apply.
    (2) The PHA must give the public notice by publication in a local 
newspaper of general circulation, and also by minority media and other 
suitable means. The notice must comply with HUD fair housing 
requirements.
    (3) The public notice must state any limitations on who may apply 
for available slots in the program.
    (b) Criteria defining what families may apply. (1) The PHA may adopt 
criteria defining what families may apply for assistance under a public 
notice.
    (2) If the waiting list is open, the PHA must accept applications 
from families for whom the list is open unless there is good cause for 
not accepting the application (such as denial of assistance because of 
action or inaction by members of the family) for the grounds stated in 
Sec. Sec. 982.552 and 982.553.
    (c) Closing waiting list. If the PHA determines that the existing 
waiting list contains an adequate pool for use of available program 
funding, the PHA may stop accepting new applications, or may accept only 
applications meeting criteria adopted by the PHA.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[59 FR 36682, July 18, 1994, as amended at 60 FR 34717, July 3, 1995; 60 
FR 45661, Sept. 1, 1995; 63 FR 23860, Apr. 30, 1998; 64 FR 26643, May 
14, 1999]

[[Page 593]]



Sec. 982.207  Waiting list: Local preferences in admission to program.

    (a) Establishment of PHA local preferences. (1) The PHA may 
establish a system of local preferences for selection of families 
admitted to the program. PHA selection preferences must be described in 
the PHA administrative plan.
    (2) The PHA system of local preferences must be based on local 
housing needs and priorities, as determined by the PHA. In determining 
such needs and priorities, the PHA shall use generally accepted data 
sources. The PHA shall consider public comment on the proposed public 
housing agency plan (as received pursuant to Sec. 903.17 of this 
chapter) and on the consolidated plan for the relevant jurisdiction (as 
received pursuant to part 91 of this title).
    (3) The PHA may limit the number of applicants that may qualify for 
any local preference.
    (4) The PHA shall not deny a local preference, nor otherwise exclude 
or penalize a family in admission to the program, solely because the 
family resides in a public housing project. The PHA may establish a 
preference for families residing in public housing who are victims of a 
crime of violence (as defined in 18 U.S.C. 16).
    (b) Particular local preferences. (1) Residency requirements or 
preferences. (i) Residency requirements are prohibited. Although a PHA 
is not prohibited from adopting a residency preference, the PHA may only 
adopt or implement residency preferences in accordance with non-
discrimination and equal opportunity requirements listed at Sec. 
5.105(a) of this title.
    (ii) A residency preference is a preference for admission of persons 
who reside in a specified geographic area (``residency preference 
area''). A county or municipality may be used as a residency preference 
area. An area smaller than a county or municipality may not be used as a 
residency preference area.
    (iii) Any PHA residency preferences must be included in the 
statement of PHA policies that govern eligibility, selection and 
admission to the program, which is included in the PHA annual plan (or 
supporting documents) pursuant to part 903 of this title. Such policies 
must specify that use of a residency preference will not have the 
purpose or effect of delaying or otherwise denying admission to the 
program based on the race, color, ethnic origin, gender, religion, 
disability, or age of any member of an applicant family.
    (iv) A residency preference must not be based on how long an 
applicant has resided or worked in a residency preference area.
    (v) Applicants who are working or who have been notified that they 
are hired to work in a residency preference area must be treated as 
residents of the residency preference area. The PHA may treat graduates 
of, or active participants in, education and training programs in a 
residency preference area as residents of the residency preference area 
if the education or training program is designed to prepare individuals 
for the job market.
    (2) Preference for working families. The PHA may adopt a preference 
for admission of working families (families where the head, spouse or 
sole member is employed). However, an applicant shall be given the 
benefit of the working family preference if the head and spouse, or sole 
member is age 62 or older, or is a person with disabilities.
    (3) Preference for person with disabilities. The PHA may adopt a 
preference for admission of families that include a person with 
disabilities. However, the PHA may not adopt a preference for admission 
of persons with a specific disability.
    (4) Preference for victims of domestic violence. The PHA should 
consider whether to adopt a local preference for admission of families 
that include victims of domestic violence.
    (5) Preference for single persons who are elderly, displaced, 
homeless, or persons with disabilities. The PHA may adopt a preference 
for admission of single persons who are age 62 or older, displaced, 
homeless, or persons with disabilities over other single persons.
    (c) Selection among families with preference. The PHA system of 
preferences may use either of the following to select among applicants 
on the waiting list with the same preference status:
    (1) Date and time of application; or
    (2) A drawing or other random choice technique.

[[Page 594]]

    (d) Preference for higher-income families. The PHA must not select 
families for admission to the program in an order different from the 
order on the waiting list for the purpose of selecting higher income 
families for admission to the program.
    (e) Verification of selection method. The method for selecting 
applicants from a preference category must leave a clear audit trail 
that can be used to verify that each applicant has been selected in 
accordance with the method specified in the administrative plan.

[64 FR 26643, May 14, 1999, as amended at 64 FR 56912, Oct. 21, 1999; 65 
FR 16821, Mar. 30, 2000]

Subpart F [Reserved]



                        Subpart G_Leasing a Unit

    Source: 60 FR 34695, July 3, 1995, unless otherwise noted.



Sec. 982.301  Information when family is selected.

    (a) PHA briefing of family. (1) When the PHA selects a family to 
participate in a tenant-based program, the PHA must give the family an 
oral briefing. The briefing must include information on the following 
subjects:
    (i) A description of how the program works;
    (ii) Family and owner responsibilities; and
    (iii) Where the family may lease a unit, including renting a 
dwelling unit inside or outside the PHA jurisdiction.
    (2) For a family that qualifies to lease a unit outside the PHA 
jurisdiction under portability procedures, the briefing must include an 
explanation of how portability works. The PHA may not discourage the 
family from choosing to live anywhere in the PHA jurisdiction, or 
outside the PHA jurisdiction under portability procedures.
    (3) If the family is currently living in a high poverty census tract 
in the PHA's jurisdiction, the briefing must also explain the advantages 
of moving to an area that does not have a high concentration of poor 
families.
    (4) In briefing a family that includes any disabled person, the PHA 
must take appropriate steps to ensure effective communication in 
accordance with 24 CFR 8.6.
    (5) In briefing a welfare-to-work family, the PHA must include 
specification of any local obligations of a welfare-to-work family and 
an explanation that failure to meet these obligations is grounds for PHA 
denial of admission or termination of assistance.
    (b) Information packet. When a family is selected to participate in 
the program, the PHA must give the family a packet that includes 
information on the following subjects:
    (1) The term of the voucher, and PHA policy on any extensions or 
suspensions of the term. If the PHA allows extensions, the packet must 
explain how the family can request an extension;
    (2) How the PHA determines the amount of the housing assistance 
payment for a family, including:
    (i) How the PHA determines the payment standard for a family; and
    (ii) How the PHA determines the total tenant payment for a family.
    (3) How the PHA determines the maximum rent for an assisted unit;
    (4) Where the family may lease a unit. For a family that qualifies 
to lease a unit outside the PHA jurisdiction under portability 
procedures, the information packet must include an explanation of how 
portability works;
    (5) The HUD-required ``tenancy addendum'' that must be included in 
the lease;
    (6) The form that the family uses to request PHA approval of the 
assisted tenancy, and an explanation of how to request such approval;
    (7) A statement of the PHA policy on providing information about a 
family to prospective owners;
    (8) PHA subsidy standards, including when the PHA will consider 
granting exceptions to the standards;
    (9) The HUD brochure on how to select a unit;
    (10) Information on federal, State and local equal opportunity laws, 
and a copy of the housing discrimination complaint form;
    (11) A list of landlords or other parties known to the PHA who may 
be willing to lease a unit to the family, or help the family find a 
unit;

[[Page 595]]

    (12) Notice that if the family includes a disabled person, the 
family may request a current listing of accessible units known to the 
PHA that may be available;
    (13) Family obligations under the program;
    (14) Family obligations under the program, including any obligations 
of a welfare-to-work family.
    (15) PHA informal hearing procedures. This information must describe 
when the PHA is required to give a participant family the opportunity 
for an informal hearing, and how to request a hearing.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34695, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995; 61 
FR 27163, May 30, 1996; 64 FR 26644, May 14, 1999; 64 FR 50229, Sept. 
15, 1999; 64 FR 56912, Oct. 21, 1999



Sec. 982.302  Issuance of voucher; Requesting PHA approval of assisted 
tenancy.

    (a) When a family is selected, or when a participant family wants to 
move to another unit, the PHA issues a voucher to the family. The family 
may search for a unit.
    (b) If the family finds a unit, and the owner is willing to lease 
the unit under the program, the family may request PHA approval of the 
tenancy. The PHA has the discretion whether to permit the family to 
submit more than one request at a time.
    (c) The family must submit to the PHA a request for approval of the 
tenancy and a copy of the lease, including the HUD-prescribed tenancy 
addendum. The request must be submitted during the term of the voucher.
    (d) The PHA specifies the procedure for requesting approval of the 
tenancy. The family must submit the request for approval of the tenancy 
in the form and manner required by the PHA.

[64 FR 26644, May 14, 1999]



Sec. 982.303  Term of voucher.

    (a) Initial term. The initial term of a voucher must be at least 60 
calendar days. The initial term must be stated on the voucher.
    (b) Extensions of term. (1) At its discretion, the PHA may grant a 
family one or more extensions of the initial voucher term in accordance 
with PHA policy as described in the PHA administrative plan. Any 
extension of the term is granted by PHA notice to the family.
    (2) If the family needs and requests an extension of the initial 
voucher term as a reasonable accommodation, in accordance with part 8 of 
this title, to make the program accessible to a family member who is a 
person with disabilities, the PHA must extend the voucher term up to the 
term reasonably required for that purpose.
    (c) Suspension of term. The PHA policy may or may not provide for 
suspension of the initial or any extended term of the voucher. At its 
discretion, and in accordance with PHA policy as described in the PHA 
administrative plan, the PHA may grant a family a suspension of the 
voucher term if the family has submitted a request for approval of the 
tenancy during the term of the voucher. (Sec. 982.4 (definition of 
``suspension''); Sec. 982.54(d)(2)) The PHA may grant a suspension for 
any part of the period after the family has submitted a request for 
approval of the tenancy up to the time when the PHA approves or denies 
the request.
    (d) Progress report by family to the PHA. During the initial or any 
extended term of a voucher, the PHA may require the family to report 
progress in leasing a unit. Such reports may be required at such 
intervals or times as determined by the PHA.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34695, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995; 63 
FR 23860, Apr. 30, 1998; 64 FR 26644, May 14, 1999; 64 FR 56913, Oct. 
21, 1999]



Sec. 982.304  Illegal discrimination: PHA assistance to family.

    A family may claim that illegal discrimination because of race, 
color, religion, sex, national origin, age, familial status or 
disability prevents the family from finding or leasing a suitable unit 
with assistance under the program.

[[Page 596]]

The PHA must give the family information on how to fill out and file a 
housing discrimination complaint.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34695, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995]



Sec. 982.305  PHA approval of assisted tenancy.

    (a) Program requirements. The PHA may not give approval for the 
family of the assisted tenancy, or execute a HAP contract, until the PHA 
has determined that all the following meet program requirements:
    (1) The unit is eligible;
    (2) The unit has been inspected by the PHA and passes HQS;
    (3) The lease includes the tenancy addendum;
    (4) The rent to owner is reasonable; and
    (5) At the time a family initially receives tenant-based assistance 
for occupancy of a dwelling unit, and where the gross rent of the unit 
exceeds the applicable payment standard for the family, the family share 
does not exceed 40 percent of the family's monthly adjusted income.
    (b) Actions before lease term. (1) All of the following must always 
be completed before the beginning of the initial term of the lease for a 
unit:
    (i) The PHA has inspected the unit and has determined that the unit 
satisfies the HQS;
    (ii) The landlord and the tenant have executed the lease (including 
the HUD-prescribed tenancy addendum, and the lead-based paint disclosure 
information as required in Sec. 35.13(b) of this title); and
    (2)(i) The PHA must inspect the unit, determine whether the unit 
satisfies the HQS, and notify the family and owner of the determination:
    (A) In the case of a PHA with up to 1250 budgeted units in its 
tenant-based program, within fifteen days after the family and the owner 
submit a request for approval of the tenancy.
    (B) In the case of a PHA with more than 1250 budgeted units in its 
tenant-based program, within a reasonable time after the family submits 
a request for approval of the tenancy. To the extent practicable, such 
inspection and determination must be completed within fifteen days after 
the family and the owner submit a request for approval of the tenancy.
    (ii) The fifteen day clock (under paragraph (b)(2)(i)(A) or 
paragraph (b)(2)(i)(B) of this section) is suspended during any period 
when the unit is not available for inspection.
    (3) In the case of a unit subject to a lease-purchase agreement, the 
PHA must provide written notice to the family of the environmental 
requirements that must be met before commencing homeownership assistance 
for the family (see Sec. 982.626(c)).
    (c) When HAP contract is executed. (1) The PHA must use best efforts 
to execute the HAP contract before the beginning of the lease term. The 
HAP contract must be executed no later than 60 calendar days from the 
beginning of the lease term.
    (2) The PHA may not pay any housing assistance payment to the owner 
until the HAP contract has been executed.
    (3) If the HAP contract is executed during the period of 60 calendar 
days from the beginning of the lease term, the PHA will pay housing 
assistance payments after execution of the HAP contract (in accordance 
with the terms of the HAP contract), to cover the portion of the lease 
term before execution of the HAP contract (a maximum of 60 days).
    (4) Any HAP contract executed after the 60 day period is void, and 
the PHA may not pay any housing assistance payment to the owner.
    (d) Notice to family and owner. After receiving the family's request 
for approval of the assisted tenancy, the PHA must promptly notify the 
family and owner whether the assisted tenancy is approved.
    (e) Procedure after PHA approval. If the PHA has given approval for 
the family of the assisted tenancy, the owner and the PHA execute the 
HAP contract.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34695, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995; 64 
FR 26644, May 14, 1999; 64 FR 56913, Oct. 21, 1999; 64 FR 59622, Nov. 3, 
1999; 65 FR 16818, Mar. 30, 2000; 65 FR 55161, Sept. 12, 2000]

[[Page 597]]



Sec. 982.306  PHA disapproval of owner.

    (a) The PHA must not approve an assisted tenancy if the PHA has been 
informed (by HUD or otherwise) that the owner is debarred, suspended, or 
subject to a limited denial of participation under 24 CFR part 24.
    (b) When directed by HUD, the PHA must not approve an assisted 
tenancy if:
    (1) The federal government has instituted an administrative or 
judicial action against the owner for violation of the Fair Housing Act 
or other federal equal opportunity requirements, and such action is 
pending; or
    (2) A court or administrative agency has determined that the owner 
violated the Fair Housing Act or other federal equal opportunity 
requirements.
    (c) In its administrative discretion, the PHA may deny approval of 
an assisted tenancy for any of the following reasons:
    (1) The owner has violated obligations under a HAP contract under 
Section 8 of the 1937 Act (42 U.S.C. 1437f);
    (2) The owner has committed fraud, bribery or any other corrupt or 
criminal act in connection with any federal housing program;
    (3) The owner has engaged in any drug-related criminal activity or 
any violent criminal activity;
    (4) The owner has a history or practice of non-compliance with the 
HQS for units leased under the tenant-based programs, or with applicable 
housing standards for units leased with project-based Section 8 
assistance or leased under any other federal housing program;
    (5) The owner has a history or practice of failing to terminate 
tenancy of tenants of units assisted under Section 8 or any other 
federally assisted housing program for activity engaged in by the 
tenant, any member of the household, a guest or another person under the 
control of any member of the household that:
    (i) Threatens the right to peaceful enjoyment of the premises by 
other residents;
    (ii) Threatens the health or safety of other residents, of employees 
of the PHA, or of owner employees or other persons engaged in management 
of the housing;
    (iii) Threatens the health or safety of, or the right to peaceful 
enjoyment of their residences, by persons residing in the immediate 
vicinity of the premises; or
    (iv) Is drug-related criminal activity or violent criminal activity; 
or
    (6) The owner has a history or practice of renting units that fail 
to meet State or local housing codes; or
    (7) The owner has not paid State or local real estate taxes, fines 
or assessments.
    (d) The PHA must not approve a unit if the owner is the parent, 
child, grandparent, grandchild, sister, or brother of any member of the 
family, unless the PHA determines that approving the unit would provide 
reasonable accommodation for a family member who is a person with 
disabilities. This restriction against PHA approval of a unit only 
applies at the time a family initially receives tenant-based assistance 
for occupancy of a particular unit, but does not apply to PHA approval 
of a new tenancy with continued tenant-based assistance in the same 
unit.
    (e) Nothing in this rule is intended to give any owner any right to 
participate in the program.
    (f) For purposes of this section, ``owner'' includes a principal or 
other interested party.

[60 FR 34695, July 3, 1995, as amended at 63 FR 27437, May 18, 1998; 64 
FR 26644, May 14, 1999; 64 FR 56913, Oct. 21, 1999; 65 FR 16821, Mar. 
30, 2000]



Sec. 982.307  Tenant screening.

    (a) PHA option and owner responsibility. (1) The PHA has no 
liability or responsibility to the owner or other persons for the 
family's behavior or suitability for tenancy. However, the PHA may opt 
to screen applicants for family behavior or suitability for tenancy. The 
PHA must conduct any such screening of applicants in accordance with 
policies stated in the PHA administrative plan.
    (2) The owner is responsible for screening and selection of the 
family to occupy the owner's unit. At or before PHA approval of the 
tenancy, the PHA must inform the owner that screening and selection for 
tenancy is the responsibility of the owner.

[[Page 598]]

    (3) The owner is responsible for screening of families on the basis 
of their tenancy histories. An owner may consider a family's background 
with respect to such factors as:
    (i) Payment of rent and utility bills;
    (ii) Caring for a unit and premises;
    (iii) Respecting the rights of other residents to the peaceful 
enjoyment of their housing;
    (iv) Drug-related criminal activity or other criminal activity that 
is a threat to the health, safety or property of others; and
    (v) Compliance with other essential conditions of tenancy.
    (b) PHA information about tenant. (1) The PHA must give the owner:
    (i) The family's current and prior address (as shown in the PHA 
records); and
    (ii) The name and address (if known to the PHA) of the landlord at 
the family's current and prior address.
    (2) When a family wants to lease a dwelling unit, the PHA may offer 
the owner other information in the PHA possession, about the family, 
including information about the tenancy history of family members, or 
about drug-trafficking by family members.
    (3) The PHA must give the family a statement of the PHA policy on 
providing information to owners. The statement must be included in the 
information packet that is given to a family selected to participate in 
the program. The PHA policy must provide that the PHA will give the same 
types of information to all families and to all owners.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34695, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995; 61 
FR 27163, May 30, 1996; 64 FR 26645, May 14, 1999; 64 FR 49658, Sept. 
14, 1999]



Sec. 982.308  Lease and tenancy.

    (a) Tenant's legal capacity. The tenant must have legal capacity to 
enter a lease under State and local law. ``Legal capacity'' means that 
the tenant is bound by the terms of the lease and may enforce the terms 
of the lease against the owner.
    (b) Form of lease. (1) The tenant and the owner must enter a written 
lease for the unit. The lease must be executed by the owner and the 
tenant.
    (2) If the owner uses a standard lease form for rental to unassisted 
tenants in the locality or the premises, the lease must be in such 
standard form (plus the HUD-prescribed tenancy addendum). If the owner 
does not use a standard lease form for rental to unassisted tenants, the 
owner may use another form of lease, such as a PHA model lease 
(including the HUD-prescribed tenancy addendum). The HAP contract 
prescribed by HUD will contain the owner's certification that if the 
owner uses a standard lease form for rental to unassisted tenants, the 
lease is in such standard form.
    (c) State and local law. The PHA may review the lease to determine 
if the lease complies with State and local law. The PHA may decline to 
approve the tenancy if the PHA determines that the lease does not comply 
with State or local law.
    (d) Required information. The lease must specify all of the 
following:
    (1) The names of the owner and the tenant;
    (2) The unit rented (address, apartment number, and any other 
information needed to identify the contract unit);
    (3) The term of the lease (initial term and any provisions for 
renewal);
    (4) The amount of the monthly rent to owner; and
    (5) A specification of what utilities and appliances are to be 
supplied by the owner, and what utilities and appliances are to be 
supplied by the family.
    (e) Reasonable rent. The rent to owner must be reasonable (see Sec. 
982.507).
    (f) Tenancy addendum. (1) The HAP contract form required by HUD 
shall include an addendum (the ``tenancy addendum''), that sets forth:
    (i) The tenancy requirements for the program (in accordance with 
this section and Sec. Sec. 982.309 and 982.310); and
    (ii) The composition of the household as approved by the PHA (family 
members and any PHA-approved live-in aide).
    (2) All provisions in the HUD-required tenancy addendum must be 
added word-for-word to the owner's standard form lease that is used by 
the

[[Page 599]]

owner for unassisted tenants. The tenant shall have the right to enforce 
the tenancy addendum against the owner, and the terms of the tenancy 
addendum shall prevail over any other provisions of the lease.
    (g) Changes in lease or rent. (1) If the tenant and the owner agree 
to any changes in the lease, such changes must be in writing, and the 
owner must immediately give the PHA a copy of such changes. The lease, 
including any changes, must be in accordance with the requirements of 
this section.
    (2) In the following cases, tenant-based assistance shall not be 
continued unless the PHA has approved a new tenancy in accordance with 
program requirements and has executed a new HAP contract with the owner:
    (i) If there are any changes in lease requirements governing tenant 
or owner responsibilities for utilities or appliances;
    (ii) If there are any changes in lease provisions governing the term 
of the lease;
    (iii) If the family moves to a new unit, even if the unit is in the 
same building or complex.
    (3) PHA approval of the tenancy, and execution of a new HAP 
contract, are not required for changes in the lease other than as 
specified in paragraph (g)(2) of this section.
    (4) The owner must notify the PHA of any changes in the amount of 
the rent to owner at least sixty days before any such changes go into 
effect, and any such changes shall be subject to rent reasonableness 
requirements (see Sec. 982.503).

[64 FR 26645, May 14, 1999, as amended at 64 FR 56913, Oct. 21, 1999]



Sec. 982.309  Term of assisted tenancy.

    (a) Initial term of lease. (1) Except as provided in paragraph 
(a)(2) of this section, the initial lease term must be for at least one 
year.
    (2) The PHA may approve a shorter initial lease term if the PHA 
determines that:
    (i) Such shorter term would improve housing opportunities for the 
tenant; and
    (ii) Such shorter term is the prevailing local market practice.
    (3) During the initial term of the lease, the owner may not raise 
the rent to owner.
    (4) The PHA may execute the HAP contract even if there is less than 
one year remaining from the beginning of the initial lease term to the 
end of the last expiring funding increment under the consolidated ACC.
    (b) Term of HAP contract. (1) The term of the HAP contract begins on 
the first day of the lease term and ends on the last day of the lease 
term.
    (2) The HAP contract terminates if any of the following occurs:
    (i) The lease is terminated by the owner or the tenant;
    (ii) The PHA terminates the HAP contract; or
    (iii) The PHA terminates assistance for the family.
    (c) Family responsibility. (1) If the family terminates the lease on 
notice to the owner, the family must give the PHA a copy of the notice 
of termination at the same time. Failure to do this is a breach of 
family obligations under the program.
    (2) The family must notify the PHA and the owner before the family 
moves out of the unit. Failure to do this is a breach of family 
obligations under the program.

[64 FR 26645, May 14, 1999]



Sec. 982.310  Owner termination of tenancy.

    (a) Grounds. During the term of the lease, the owner may not 
terminate the tenancy except on the following grounds:
    (1) Serious violation (including but not limited to failure to pay 
rent or other amounts due under the lease) or repeated violation of the 
terms and conditions of the lease;
    (2) Violation of federal, State, or local law that imposes 
obligations on the tenant in connection with the occupancy or use of the 
premises; or
    (3) Other good cause.
    (b) Nonpayment by PHA: Not grounds for termination of tenancy. (1) 
The family is not responsible for payment of the portion of the rent to 
owner covered by the housing assistance payment under the HAP contract 
between the owner and the PHA.

[[Page 600]]

    (2) The PHA failure to pay the housing assistance payment to the 
owner is not a violation of the lease between the tenant and the owner. 
During the term of the lease the owner may not terminate the tenancy of 
the family for nonpayment of the PHA housing assistance payment.
    (c) Criminal activity. (1) Evicting drug criminals due to drug crime 
on or near the premises. The lease must provide that drug-related 
criminal activity engaged in, on or near the premises by any tenant, 
household member, or guest, or such activity engaged in on the premises 
by any other person under the tenant's control, is grounds for the owner 
to terminate tenancy. In addition, the lease must provide that the owner 
may evict a family when the owner determines that a household member is 
illegally using a drug or when the owner determines that a pattern of 
illegal use of a drug interferes with the health, safety, or right to 
peaceful enjoyment of the premises by other residents.
    (2) Evicting other criminals. (i) Threat to other residents. The 
lease must provide that the owner may terminate tenancy for any of the 
following types of criminal activity by a covered person:
    (A) Any criminal activity that threatens the health, safety, or 
right to peaceful enjoyment of the premises by other residents 
(including property management staff residing on the premises);
    (B) Any criminal activity that threatens the health, safety, or 
right to peaceful enjoyment of their residences by persons residing in 
the immediate vicinity of the premises; or
    (C) Any violent criminal activity on or near the premises by a 
tenant, household member, or guest, or any such activity on the premises 
by any other person under the tenant's control.
    (ii) Fugitive felon or parole violator. The lease must provide that 
the owner may terminate the tenancy if a tenant is:
    (A) Fleeing to avoid prosecution, or custody or confinement after 
conviction, for a crime, or attempt to commit a crime, that is a felony 
under the laws of the place from which the individual flees, or that, in 
the case of the State of New Jersey, is a high misdemeanor; or
    (B) Violating a condition of probation or parole imposed under 
Federal or State law.
    (3) Evidence of criminal activity. The owner may terminate tenancy 
and evict by judicial action a family for criminal activity by a covered 
person in accordance with this section if the owner determines that the 
covered person has engaged in the criminal activity, regardless of 
whether the covered person has been arrested or convicted for such 
activity and without satisfying the standard of proof used for a 
criminal conviction. (See part 5, subpart J, of this title for 
provisions concerning access to criminal records.)
    (d) Other good cause. (1) ``Other good cause'' for termination of 
tenancy by the owner may include, but is not limited to, any of the 
following examples:
    (i) Failure by the family to accept the offer of a new lease or 
revision;
    (ii) A family history of disturbance of neighbors or destruction of 
property, or of living or housekeeping habits resulting in damage to the 
unit or premises;
    (iii) The owner's desire to use the unit for personal or family use, 
or for a purpose other than as a residential rental unit; or
    (iv) A business or economic reason for termination of the tenancy 
(such as sale of the property, renovation of the unit, or desire to 
lease the unit at a higher rental).
    (2) During the initial lease term, the owner may not terminate the 
tenancy for ``other good cause'', unless the owner is terminating the 
tenancy because of something the family did or failed to do. For 
example, during this period, the owner may not terminate the tenancy for 
``other good cause'' based on any of the following grounds: failure by 
the family to accept the offer of a new lease or revision; the owner's 
desire to use the unit for personal or family use, or for a purpose 
other than as a residential rental unit; or a business or economic 
reason for termination of the tenancy (see paragraph (d)(1)(iv) of this 
section).
    (e) Owner notice--(1) Notice of grounds.
    (i) The owner must give the tenant a written notice that specifies 
the

[[Page 601]]

grounds for termination of tenancy during the term of the lease. The 
tenancy does not terminate before the owner has given this notice, and 
the notice must be given at or before commencement of the eviction 
action.
    (ii) The notice of grounds may be included in, or may be combined 
with, any owner eviction notice to the tenant.
    (2) Eviction notice. (i) Owner eviction notice means a notice to 
vacate, or a complaint or other initial pleading used under State or 
local law to commence an eviction action.
    (ii) The owner must give the PHA a copy of any owner eviction notice 
to the tenant.
    (f) Eviction by court action. The owner may only evict the tenant 
from the unit by instituting a court action.
    (g) Regulations not applicable. 24 CFR part 247 (concerning 
evictions from certain subsidized and HUD-owned projects) does not apply 
to a tenancy assisted under this part 982.
    (h) Termination of tenancy decisions.--(1) General. If the law and 
regulation permit the owner to take an action but do not require action 
to be taken, the owner may take or not take the action in accordance 
with the owner's standards for eviction. The owner may consider all of 
the circumstances relevant to a particular eviction case, such as:
    (i) The seriousness of the offending action;
    (ii) The effect on the community of denial or termination or the 
failure of the owner to take such action;
    (iii) The extent of participation by the leaseholder in the 
offending action;
    (iv) The effect of denial of admission or termination of tenancy on 
household members not involved in the offending activity;
    (v) The demand for assisted housing by families who will adhere to 
lease responsibilities;
    (vi) The extent to which the leaseholder has shown personal 
responsibility and taken all reasonable steps to prevent or mitigate the 
offending action;
    (vii) The effect of the owner's action on the integrity of the 
program.
    (2) Exclusion of culpable household member. The owner may require a 
tenant to exclude a household member in order to continue to reside in 
the assisted unit, where that household member has participated in or 
been culpable for action or failure to act that warrants termination.
    (3) Consideration of rehabilitation. In determining whether to 
terminate tenancy for illegal use of drugs or alcohol abuse by a 
household member who is no longer engaged in such behavior, the owner 
may consider whether such household member is participating in or has 
successfully completed a supervised drug or alcohol rehabilitation 
program, or has otherwise been rehabilitated successfully (42 U.S.C. 
13661). For this purpose, the owner may require the tenant to submit 
evidence of the household member's current participation in, or 
successful completion of, a supervised drug or alcohol rehabilitation 
program or evidence of otherwise having been rehabilitated successfully.
    (4) Nondiscrimination limitation. The owner's termination of 
assistance actions must be consistent with fair housing and equal 
opportunity provisions of Sec. 5.105 of this title.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34695, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995; 64 
FR 26645, May 14, 1999; 64 FR 56913, Oct. 21, 1999; 66 FR 28804, May 24, 
2001]



Sec. 982.311  When assistance is paid.

    (a) Payments under HAP contract. Housing assistance payments are 
paid to the owner in accordance with the terms of the HAP contract. 
Housing assistance payments may only be paid to the owner during the 
lease term, and while the family is residing in the unit.
    (b) Termination of payment: When owner terminates the lease. Housing 
assistance payments terminate when the lease is terminated by the owner 
in accordance with the lease. However, if the owner has commenced the 
process to evict the tenant, and if the family continues to reside in 
the unit, the PHA must continue to make housing assistance payments to 
the owner in accordance with the HAP contract until the owner has 
obtained a court judgment or other process allowing the owner to evict 
the tenant. The HA may

[[Page 602]]

continue such payments until the family moves from or is evicted from 
the unit.
    (c) Termination of payment: Other reasons for termination. Housing 
assistance payments terminate if:
    (1) The lease terminates;
    (2) The HAP contract terminates; or
    (3) The PHA terminates assistance for the family.
    (d) Family move-out. (1) If the family moves out of the unit, the 
PHA may not make any housing assistance payment to the owner for any 
month after the month when the family moves out. The owner may keep the 
housing assistance payment for the month when the family moves out of 
the unit.
    (2) If a participant family moves from an assisted unit with 
continued tenant-based assistance, the term of the assisted lease for 
the new assisted unit may begin during the month the family moves out of 
the first assisted unit. Overlap of the last housing assistance payment 
(for the month when the family moves out of the old unit) and the first 
assistance payment for the new unit, is not considered to constitute a 
duplicative housing subsidy.



Sec. 982.312  Absence from unit.

    (a) The family may be absent from the unit for brief periods. For 
longer absences, the PHA administrative plan establishes the PHA policy 
on how long the family may be absent from the assisted unit. However, 
the family may not be absent from the unit for a period of more than 180 
consecutive calendar days in any circumstance, or for any reason. At its 
discretion, the PHA may allow absence for a lesser period in accordance 
with PHA policy.
    (b) Housing assistance payments terminate if the family is absent 
for longer than the maximum period permitted. The term of the HAP 
contract and assisted lease also terminate.
    (The owner must reimburse the PHA for any housing assistance payment 
for the period after the termination.)
    (c) Absence means that no member of the family is residing in the 
unit.
    (d)(1) The family must supply any information or certification 
requested by the PHA to verify that the family is residing in the unit, 
or relating to family absence from the unit. The family must cooperate 
with the PHA for this purpose. The family must promptly notify the PHA 
of absence from the unit, including any information requested on the 
purposes of family absences.
    (2) The PHA may adopt appropriate techniques to verify family 
occupancy or absence, including letters to the family at the unit, phone 
calls, visits or questions to the landlord or neighbors.
    (e) The PHA administrative plan must state the PHA policies on 
family absence from the dwelling unit. The PHA absence policy includes:
    (1) How the PHA determines whether or when the family may be absent, 
and for how long. For example, the PHA may establish policies on 
absences because of vacation, hospitalization or imprisonment; and
    (2) Any provision for resumption of assistance after an absence, 
including readmission or resumption of assistance to the family.



Sec. 982.313  Security deposit: Amounts owed by tenant.

    (a) The owner may collect a security deposit from the tenant.
    (b) The PHA may prohibit security deposits in excess of private 
market practice, or in excess of amounts charged by the owner to 
unassisted tenants.
    (c) When the tenant moves out of the dwelling unit, the owner, 
subject to State or local law, may use the security deposit, including 
any interest on the deposit, in accordance with the lease, as 
reimbursement for any unpaid rent payable by the tenant, damages to the 
unit or for other amounts the tenant owes under the lease.
    (d) The owner must give the tenant a written list of all items 
charged against the security deposit, and the amount of each item. After 
deducting the amount, if any, used to reimburse the owner, the owner 
must refund promptly the full amount of the unused balance to the 
tenant.
    (e) If the security deposit is not sufficient to cover amounts the 
tenant owes under the lease, the owner may seek to collect the balance 
from the tenant.

[[Page 603]]



Sec. 982.314  Move with continued tenant-based assistance.

    (a) Applicability. This section states when a participant family may 
move to a new unit with continued tenant-based assistance:
    (b) When family may move. A family may move to a new unit if:
    (1) The assisted lease for the old unit has terminated. This 
includes a termination because:
    (i) The PHA has terminated the HAP contract for the owner's breach; 
or
    (ii) The lease has terminated by mutual agreement of the owner and 
the tenant.
    (2) The owner has given the tenant a notice to vacate, or has 
commenced an action to evict the tenant, or has obtained a court 
judgment or other process allowing the owner to evict the tenant.
    (3) The tenant has given notice of lease termination (if the tenant 
has a right to terminate the lease on notice to the owner, for owner 
breach or otherwise).
    (c) How many moves. (1) A participant family may move one or more 
times with continued assistance under the program, either inside the PHA 
jurisdiction, or under the portability procedures. (See Sec. 982.353)
    (2) The PHA may establish:
    (i) Policies that prohibit any move by the family during the initial 
lease term; and
    (ii) Policies that prohibit more than one move by the family during 
any one year period.
    (3) The PHA policies may apply to moves within the PHA jurisdiction 
by a participant family, and to moves by a participant family outside 
the PHA jurisdiction under portability procedures.
    (d) Notice that family wants to move. (1) If the family terminates 
the lease on notice to the owner, the family must give the PHA a copy of 
the notice at the same time.
    (2) If the family wants to move to a new unit, the family must 
notify the PHA and the owner before moving from the old unit. If the 
family wants to move to a new unit that is located outside the initial 
PHA jurisdiction, the notice to the initial PHA must specify the area 
where the family wants to move. See portability procedures in subpart H 
of this part.
    (e) When PHA may deny permission to move. (1) The PHA may deny 
permission to move if the PHA does not have sufficient funding for 
continued assistance.
    (2) At any time, the PHA may deny permission to move in accordance 
with Sec. 982.552 (grounds for denial or termination of assistance).

[60 FR 34695, July 3, 1995, as amended at 64 FR 56913, Oct. 21, 1999]



Sec. 982.315  Family break-up.

    (a) The PHA has discretion to determine which members of an assisted 
family continue to receive assistance in the program if the family 
breaks up. The PHA administrative plan must state PHA policies on how to 
decide who remains in the program if the family breaks up.
    (b) The factors to be considered in making this decision under the 
PHA policy may include:
    (1) Whether the assistance should remain with family members 
remaining in the original assisted unit.
    (2) The interest of minor children or of ill, elderly or disabled 
family members.
    (3) Whether family members are forced to leave the unit as a result 
or actual or threatened physical violence against family members by a 
spouse or other member of the household.
    (4) Other factors specified by the PHA.
    (c) If a court determines the disposition of property between 
members of the assisted family in a divorce or separation under a 
settlement or judicial decree, the PHA is bound by the court's 
determination of which family members continue to receive assistance in 
the program.



Sec. 982.316  Live-in aide.

    (a) A family that consists of one or more elderly, near-elderly or 
disabled persons may request that the PHA approve a live-in aide to 
reside in the unit and provide necessary supportive services for a 
family member who is a person with disabilities. The PHA must approve a 
live-in aide if needed as a reasonable accommodation in accordance with 
24 CFR part 8 to make the

[[Page 604]]

program accessible to and usable by the family member with a disability. 
(See Sec. 982.402(b)(6) concerning effect of live-in aide on family 
unit size.)
    (b) At any time, the PHA may refuse to approve a particular person 
as a live-in aide, or may withdraw such approval, if:
    (1) The person commits fraud, bribery or any other corrupt or 
criminal act in connection with any federal housing program;
    (2) The person commits drug-related criminal activity or violent 
criminal activity; or
    (3) The person currently owes rent or other amounts to the PHA or to 
another PHA in connection with Section 8 or public housing assistance 
under the 1937 Act.

[63 FR 23860, Apr. 30, 1998; 63 FR 31625, June 10, 1998]



Sec. 982.317  Lease-purchase agreements.

    (a) A family leasing a unit with assistance under the program may 
enter into an agreement with an owner to purchase the unit. So long as 
the family is receiving such rental assistance, all requirements 
applicable to families otherwise leasing units under the tenant-based 
program apply. Any homeownership premium (e.g., increment of value 
attributable to the value of the lease-purchase right or agreement such 
as an extra monthly payment to accumulate a downpayment or reduce the 
purchase price) included in the rent to the owner that would result in a 
higher subsidy amount than would otherwise be paid by the PHA must be 
absorbed by the family.
    (b) In determining whether the rent to owner for a unit subject to a 
lease-purchase agreement is a reasonable amount in accordance with Sec. 
982.503, any homeownership premium paid by the family to the owner must 
be excluded when the PHA determines rent reasonableness.

[65 FR 55162, Sept. 12, 2000]



                Subpart H_Where Family Can Live and Move

    Source: 60 FR 34695, July 3, 1995, unless otherwise noted.



Sec. 982.351  Overview.

    This subpart describes what kind of housing is eligible for leasing, 
and the areas where a family can live with tenant-based assistance. The 
subpart covers:
    (a) Assistance for a family that rents a dwelling unit in the 
jurisdiction of the PHA that originally selected the family for tenant-
based assistance.
    (b) ``Portability'' assistance for a family PHA rents a unit outside 
the jurisdiction of the initial PHA.



Sec. 982.352  Eligible housing.

    (a) Ineligible housing. The following types of housing may not be 
assisted by a PHA in the tenant-based programs:
    (1) A public housing or Indian housing unit;
    (2) A unit receiving project-based assistance under section 8 of the 
1937 Act (42 U.S.C. 1437f);
    (3) Nursing homes, board and care homes, or facilities providing 
continual psychiatric, medical, or nursing services;
    (4) College or other school dormitories;
    (5) Units on the grounds of penal, reformatory, medical, mental, and 
similar public or private institutions;
    (6) A unit occupied by its owner or by a person with any interest in 
the unit.
    (7) For provisions on PHA disapproval of an owner, see Sec. 
982.306.
    (b) PHA-owned housing. (1) A unit that is owned by the PHA that 
administers the assistance under the consolidated ACC (including a unit 
owned by an entity substantially controlled by the PHA) may only be 
assisted under the tenant-based program if all the following conditions 
are satisfied:
    (i) The PHA must inform the family, both orally and in writing, that 
the family has the right to select any eligible unit available for 
lease, and a PHA-owned unit is freely selected by the family, without 
PHA pressure or steering.
    (ii) The unit is not ineligible housing.
    (iii) During assisted occupancy, the family may not benefit from any 
form of housing subsidy that is prohibited under paragraph (c) of this 
section.
    (iv)(A) The PHA must obtain the services of an independent entity to

[[Page 605]]

perform the following PHA functions as required under the program rule:
    (1) To determine rent reasonableness in accordance with Sec. 
982.507. The independent agency shall communicate the rent 
reasonableness determination to the family and the PHA.
    (2) To assist the family negotiate the rent to owner in accordance 
with Sec. 982.506.
    (3) To inspect the unit for compliance with the HQS in accordance 
with Sec. 982.305(a) and Sec. 982.405 (except that Sec. 982.405(e) is 
not applicable). The independent agency shall communicate the results of 
each such inspection to the family and the PHA.
    (B) The independent agency used to perform these functions must be 
approved by HUD. The independent agency may be the unit of general local 
government for the PHA jurisdiction (unless the PHA is itself the unit 
of general local government or an agency of such government), or may be 
another HUD-approved independent agency.
    (C) The PHA may compensate the independent agency from PHA ongoing 
administrative fee income for the services performed by the independent 
agency. The PHA may not use other program receipts to compensate the 
independent agency for such services. The PHA and the independent agency 
may not charge the family any fee or charge for the services provided by 
the independent agency.
    (c) Prohibition against other housing subsidy. A family may not 
receive the benefit of tenant-based assistance while receiving the 
benefit of any of the following forms of other housing subsidy, for the 
same unit or for a different unit:
    (1) Public or Indian housing assistance;
    (2) Other Section 8 assistance (including other tenant-based 
assistance);
    (3) Assistance under former Section 23 of the United States Housing 
Act of 1937 (before amendment by the Housing and Community Development 
Act of 1974);
    (4) Section 101 rent supplements;
    (5) Section 236 rental assistance payments;
    (6) Tenant-based assistance under the HOME Program;
    (7) Rental assistance payments under Section 521 of the Housing Act 
of 1949 (a program of the Rural Development Administration);
    (8) Any local or State rent subsidy;
    (9) Section 202 supportive housing for the elderly;
    (10) Section 811 supportive housing for persons with disabilities;
    (11) Section 202 projects for non-elderly persons with disabilities 
(Section 162 assistance); or
    (12) Any other duplicative federal, State, or local housing subsidy, 
as determined by HUD. For this purpose, ``housing subsidy'' does not 
include the housing component of a welfare payment, a social security 
payment received by the family, or a rent reduction because of a tax 
credit.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34695, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995; 63 
FR 23860, Apr. 30, 1998; 64 FR 13057, Mar. 16, 1999; 64 FR 26645, May 
14, 1999; 65 FR 55162, Sept. 12, 2000]



Sec. 982.353  Where family can lease a unit with tenant-based assistance.

    (a) Assistance in the initial PHA jurisdiction. The family may 
receive tenant-based assistance to lease a unit located anywhere in the 
jurisdiction (as determined by State and local law) of the initial PHA. 
HUD may nevertheless restrict the family's right to lease such a unit 
anywhere in such jurisdiction if HUD determines that limitations on a 
family's opportunity to select among available units in that 
jurisdiction are appropriate to achieve desegregation goals in 
accordance with obligations generated by a court order or consent 
decree.
    (b) Portability: Assistance outside the initial PHA jurisdiction. 
Subject to paragraph (c) of this section, and to Sec. 982.552 and Sec. 
982.553, a voucher-holder or participant family has the right to receive 
tenant-based voucher assistance in accordance with requirements of this 
part to lease a unit outside the initial PHA jurisdiction, anywhere in 
the United States, in the jurisdiction of a PHA with a tenant-based 
program under this part. The initial PHA must not provide such portable 
assistance for a participant if the family has

[[Page 606]]

moved out of its assisted unit in violation of the lease.
    (c) Nonresident applicants. (1) This paragraph (c) applies if 
neither the household head or spouse of an assisted family already had a 
``domicile'' (legal residence) in the jurisdiction of the initial PHA at 
the time when the family first submitted an application for 
participation in the program to the initial PHA.
    (2) The following apply during the 12 month period from the time 
when a family described in paragraph (c)(1) of this section is admitted 
to the program:
    (i) The family may lease a unit anywhere in the jurisdiction of the 
initial PHA;
    (ii) The family does not have any right to portability;
    (iii) The initial PHA may choose to allow portability during this 
period.
    (3) If both the initial PHA and a receiving PHA agree, the family 
may lease a unit outside the PHA jurisdiction under portability 
procedures.
    (d) Income eligibility. (1) For admission to the program, a family 
must be income eligible in the area where the family initially leases a 
unit with assistance under the program.
    (2) If a portable family is a participant in the initial PHA Section 
8 tenant-based program (either the PHA voucher program or the PHA 
certificate program), income eligibility is not redetermined when the 
family moves to the receiving PHA program under portability procedures.
    (3) Except as provided in paragraph (d)(2) of this section, a 
portable family must be income eligible for admission to the voucher 
program in the area where the family leases a unit under portability 
procedures.
    (e) Leasing in-place. If the dwelling unit is approvable, a family 
may select the dwelling unit occupied by the family before selection for 
participation in the program.
    (f) Freedom of choice. The PHA may not directly or indirectly reduce 
the family's opportunity to select among available units except as 
provided in paragraph (a) of this section, or elsewhere in this part 982 
(e.g. prohibition on use of ineligible housing, housing not meeting HQS, 
or housing for which the rent to owner exceeds a reasonable rent).

[60 FR 34695, July 3, 1995, as amended at 61 FR 27163, May 30, 1996; 61 
FR 42131, Aug. 13, 1996; 64 FR 26646, May 14, 1999]



Sec. 982.355  Portability: Administration by receiving PHA.

    (a) When a family moves under portability (in accordance with Sec. 
982.353(b)) to an area outside the initial PHA jurisdiction, another PHA 
(the ``receiving PHA'') must administer assistance for the family if a 
PHA with a tenant-based program has jurisdiction in the area where the 
unit is located.
    (b) In the conditions described in paragraph (a) of this section, a 
PHA with jurisdiction in the area where the family wants to lease a unit 
must issue a voucher to the family. If there is more than one such PHA, 
the initial PHA may choose the receiving PHA.
    (c) Portability procedures. (1) The receiving PHA does not 
redetermine elibilibility for a portable family that was already 
receiving assistance in the initial PHA Section 8 tenant-based program 
(either the PHA voucher program or certificate program). However, for a 
portable family that was not already receiving assistance in the PHA 
tenant-based program, the initial PHA must determine whether the family 
is eligible for admission to the receiving PHA voucher program.
    (2) The initial PHA must advise the family how to contact and 
request assistance from the receiving PHA. The initial PHA must promptly 
notify the receiving PHA to expect the family.
    (3) The family must promptly contact the receiving PHA, and comply 
with receiving PHA procedures for incoming portable families.
    (4) The initial PHA must give the receiving PHA the most recent HUD 
Form 50058 (Family Report) for the family, and related verification 
information. If the receiving PHA opts to conduct a new reexamination, 
the receiving PHA may not delay issuing the family a voucher or 
otherwise delay approval of a unit unless the recertification is 
necessary to determine income eligibility.
    (5) When the portable family requests assistance from the receiving 
PHA, the receiving PHA must promptly inform

[[Page 607]]

the initial PHA whether the receiving PHA will bill the initial PHA for 
assistance on behalf of the portable family, or will absorb the family 
into its own program.
    (6) The receiving PHA must issue a voucher to the family. The term 
of the receiving PHA voucher may not expire before the expiration date 
of any initial PHA voucher. The receiving PHA must determine whether to 
extend the voucher term. The family must submit a request for approval 
of the tenancy to the receiving PHA during the term of the receiving PHA 
voucher.
    (7) The receiving PHA must determine the family unit size for the 
portable family. The family unit size is determined in accordance with 
the subsidy standards of the receiving PHA.
    (8) The receiving PHA must promptly notify the initial PHA if the 
family has leased an eligible unit under the program, or if the family 
fails to submit a request for approval of the tenancy for an eligible 
unit within the term of the voucher.
    (9) To provide tenant-based assistance for portable families, the 
receiving PHA must perform all PHA program functions, such as 
reexaminations of family income and composition. At any time, either the 
initial PHA or the receiving PHA may make a determination to deny or 
terminate assistance to the family in accordance with Sec. Sec. 982.552 
and 982.553.
    (10) When the family has a right to lease a unit in the receiving 
PHA jurisdiction under portability procedures in accordance with Sec. 
982.353(b), the receiving PHA must provide assistance for the family. 
Receiving PHA procedures and preferences for selection among eligible 
applicants do not apply, and the receiving PHA waiting list is not used. 
However, the receiving PHA may deny or terminate assistance for family 
action or inaction in accordance with Sec. Sec. 982.552 and 982.553.
    (d) Absorption by the receiving PHA. (1) If funding is available 
under the consolidated ACC for the receiving PHA voucher program when 
the portable family is received, the receiving PHA may absorb the family 
into the receiving PHA voucher program. After absorption, the family is 
assisted with funds available under the consolidated ACC for the 
receiving PHA tenant-based program.
    (2) HUD may require that the receiving PHA absorb all or a portion 
of the portable families.
    (e) Portability Billing. (1) To cover assistance for a portable 
family, the receiving PHA may bill the initial PHA for housing 
assistance payments and administrative fees. This paragraph (e) 
describes the billing procedure.
    (2) The initial PHA must promptly reimburse the receiving PHA for 
the full amount of the housing assistance payments made by the receiving 
PHA for the portable family. The amount of the housing assistance 
payment for a portable family in the receiving PHA program is determined 
in the same manner as for other families in the receiving PHA program.
    (3) The initial PHA must promptly reimburse the receiving PHA for 80 
percent of the initial PHA on-going administrative fee for each unit 
month that the family receives assistance under the tenant-based 
programs from the receiving PHA. If both PHAs agree, the PHAs may 
negotiate a different amount of reimbursement.
    (4) HUD may reduce the administrative fee to an initial or receiving 
PHA if the PHA does not comply with HUD portability requirements.
    (5) In administration of portability, the initial PHA and the 
receiving PHA must comply with financial procedures required by HUD, 
including the use of HUD-required billing forms. The initial and 
receiving PHA must comply with billing and payment deadlines under the 
financial procedures.
    (6) a PHA must manage the PHA tenant-based program in a manner that 
ensures that the PHA has the financial ability to provide assistance for 
families that move out of the PHA program under the portability 
procedures that have not been absorbed by the receiving PHA, as well as 
for families that remain in the PHA program.
    (7) When a portable family moves out of the tenant-based program of 
a receiving PHA that has not absorbed the family, the PHA in the new 
jurisdiction to which the family moves becomes the receiving PHA, and 
the first receiving PHA is no longer required to provide assistance for 
the family.

[[Page 608]]

    (f) Portability funding. (1) HUD may transfer funds for assistance 
to portable families to the receiving PHA from funds available under the 
initial PHA ACC.
    (2) HUD may provide additional funding (e.g., funds for incremental 
units) to the initial PHA for funds transferred to a receiving PHA for 
portability purposes.
    (3) HUD may provide additional funding (e.g., funds for incremental 
units) to the receiving PHA for absorption of portable families.
    (4) HUD may require the receiving PHA to absorb portable families.

[60 FR 34695, July 3, 1995, as amended at 61 FR 27163, May 30, 1996; 64 
FR 26646, May 14, 1999; 64 FR 56914, Oct. 21, 1999]



 Subpart I_Dwelling Unit: Housing Quality Standards, Subsidy Standards, 
                       Inspection and Maintenance

    Source: 60 FR 34695, July 3, 1995, unless otherwise noted.



Sec. 982.401  Housing quality standards (HQS).

    (a) Performance and acceptability requirements. (1) This section 
states the housing quality standards (HQS) for housing assisted in the 
programs.
    (2)(i) The HQS consist of:
    (A) Performance requirements; and
    (B) Acceptability criteria or HUD approved variations in the 
acceptability criteria.
    (ii) This section states performance and acceptability criteria for 
these key aspects of housing quality:
    (A) Sanitary facilities;
    (B) Food preparation and refuse disposal;
    (C) Space and security;
    (D) Thermal environment;
    (E) Illumination and electricity;
    (F) Structure and materials;
    (G) Interior air quality;
    (H) Water supply;
    (I) Lead-based paint;
    (J) Access;
    (K) Site and neighborhood;
    (L) Sanitary condition; and
    (M) Smoke detectors.
    (3) All program housing must meet the HQS performance requirements 
both at commencement of assisted occupancy, and throughout the assisted 
tenancy.
    (4)(i) In addition to meeting HQS performance requirements, the 
housing must meet the acceptability criteria stated in this section, 
unless variations are approved by HUD.
    (ii) HUD may approve acceptability criteria variations for the 
following purposes:
    (A) Variations which apply standards in local housing codes or other 
codes adopted by the PHA; or
    (B) Variations because of local climatic or geographic conditions.
    (iii) Acceptability criteria variations may only be approved by HUD 
pursuant to paragraph (a)(4)(ii) of this section if such variations 
either:
    (A) Meet or exceed the performance requirements; or
    (B) Significantly expand affordable housing opportunities for 
families assisted under the program.
    (iv) HUD will not approve any acceptability criteria variation if 
HUD believes that such variation is likely to adversely affect the 
health or safety of participant families, or severely restrict housing 
choice.
    (b) Sanitary facilities--(1) Performance requirements. The dwelling 
unit must include sanitary facilities located in the unit. The sanitary 
facilities must be in proper operating condition, and adequate for 
personal cleanliness and the disposal of human waste. The sanitary 
facilities must be usable in privacy.
    (2) Acceptability criteria. (i) The bathroom must be located in a 
separate private room and have a flush toilet in proper operating 
condition.
    (ii) The dwelling unit must have a fixed basin in proper operating 
condition, with a sink trap and hot and cold running water.
    (iii) The dwelling unit must have a shower or a tub in proper 
operating condition with hot and cold running water.
    (iv) The facilities must utilize an approvable public or private 
disposal system (including a locally approvable septic system).
    (c) Food preparation and refuse disposal--(1) Performance 
requirement. (i) The dwelling unit must have suitable

[[Page 609]]

space and equipment to store, prepare, and serve foods in a sanitary 
manner.
    (ii) There must be adequate facilities and services for the sanitary 
disposal of food wastes and refuse, including facilities for temporary 
storage where necessary (e.g, garbage cans).
    (2) Acceptability criteria. (i) The dwelling unit must have an oven, 
and a stove or range, and a refrigerator of appropriate size for the 
family. All of the equipment must be in proper operating condition. The 
equipment may be supplied by either the owner or the family. A microwave 
oven may be substituted for a tenant-supplied oven and stove or range. A 
microwave oven may be substituted for an owner-supplied oven and stove 
or range if the tenant agrees and microwave ovens are furnished instead 
of an oven and stove or range to both subsidized and unsubsidized 
tenants in the building or premises.
    (ii) The dwelling unit must have a kitchen sink in proper operating 
condition, with a sink trap and hot and cold running water. The sink 
must drain into an approvable public or private system.
    (iii) The dwelling unit must have space for the storage, 
preparation, and serving of food.
    (iv) There must be facilities and services for the sanitary disposal 
of food waste and refuse, including temporary storage facilities where 
necessary (e.g., garbage cans).
    (d) Space and security--(1) Performance requirement. The dwelling 
unit must provide adequate space and security for the family.
    (2) Acceptability criteria. (i) At a minimum, the dwelling unit must 
have a living room, a kitchen area, and a bathroom.
    (ii) The dwelling unit must have at least one bedroom or living/
sleeping room for each two persons. Children of opposite sex, other than 
very young children, may not be required to occupy the same bedroom or 
living/sleeping room.
    (iii) Dwelling unit windows that are accessible from the outside, 
such as basement, first floor, and fire escape windows, must be lockable 
(such as window units with sash pins or sash locks, and combination 
windows with latches). Windows that are nailed shut are acceptable only 
if these windows are not needed for ventilation or as an alternate exit 
in case of fire.
    (iv) The exterior doors of the dwelling unit must be lockable. 
Exterior doors are doors by which someone can enter or exit the dwelling 
unit.
    (e) Thermal environment--(1) Performance requirement. The dwelling 
unit must have and be capable of maintaining a thermal environment 
healthy for the human body.
    (2) Acceptability criteria. (i) There must be a safe system for 
heating the dwelling unit (and a safe cooling system, where present). 
The system must be in proper operating condition. The system must be 
able to provide adequate heat (and cooling, if applicable), either 
directly or indirectly, to each room, in order to assure a healthy 
living environment appropriate to the climate.
    (ii) The dwelling unit must not contain unvented room heaters that 
burn gas, oil, or kerosene. Electric heaters are acceptable.
    (f) Illumination and electricity--(1) Performance requirement. Each 
room must have adequate natural or artificial illumination to permit 
normal indoor activities and to support the health and safety of 
occupants. The dwelling unit must have sufficient electrical sources so 
occupants can use essential electrical appliances. The electrical 
fixtures and wiring must ensure safety from fire.
    (2) Acceptability criteria. (i) There must be at least one window in 
the living room and in each sleeping room.
    (ii) The kitchen area and the bathroom must have a permanent ceiling 
or wall light fixture in proper operating condition. The kitchen area 
must also have at least one electrical outlet in proper operating 
condition.
    (iii) The living room and each bedroom must have at least two 
electrical outlets in proper operating condition. Permanent overhead or 
wall-mounted light fixtures may count as one of the required electrical 
outlets.
    (g) Structure and materials--(1) Performance requirement. The 
dwelling unit must be structurally sound. The structure must not present 
any threat to the health and safety of the occupants

[[Page 610]]

and must protect the occupants from the environment.
    (2) Acceptability criteria. (i) Ceilings, walls, and floors must not 
have any serious defects such as severe bulging or leaning, large holes, 
loose surface materials, severe buckling, missing parts, or other 
serious damage.
    (ii) The roof must be structurally sound and weathertight.
    (iii) The exterior wall structure and surface must not have any 
serious defects such as serious leaning, buckling, sagging, large holes, 
or defects that may result in air infiltration or vermin infestation.
    (iv) The condition and equipment of interior and exterior stairs, 
halls, porches, walkways, etc., must not present a danger of tripping 
and falling. For example, broken or missing steps or loose boards are 
unacceptable.
    (v) Elevators must be working and safe.
    (h) Interior air quality--(1) Performance requirement. The dwelling 
unit must be free of pollutants in the air at levels that threaten the 
health of the occupants.
    (2) Acceptability criteria. (i) The dwelling unit must be free from 
dangerous levels of air pollution from carbon monoxide, sewer gas, fuel 
gas, dust, and other harmful pollutants.
    (ii) There must be adequate air circulation in the dwelling unit.
    (iii) Bathroom areas must have one openable window or other adequate 
exhaust ventilation.
    (iv) Any room used for sleeping must have at least one window. If 
the window is designed to be openable, the window must work.
    (i) Water supply--(1) Performance requirement. The water supply must 
be free from contamination.
    (2) Acceptability criteria. The dwelling unit must be served by an 
approvable public or private water supply that is sanitary and free from 
contamination.
    (j) Lead-based paint performance requirement. The Lead-Based Paint 
Poisoning Prevention Act (42 U.S.C. 4821-4846), the Residential Lead-
Based Paint Hazard Reduction Act of 1992 (42 U.S.C. 4851-4856), and 
implementing regulations at part 35, subparts A, B, M, and R of this 
title apply to units assisted under this part.
    (k) Access performance requirement. The dwelling unit must be able 
to be used and maintained without unauthorized use of other private 
properties. The building must provide an alternate means of exit in case 
of fire (such as fire stairs or egress through windows).
    (l) Site and Neighborhood--(1) Performance requirement. The site and 
neighborhood must be reasonably free from disturbing noises and 
reverberations and other dangers to the health, safety, and general 
welfare of the occupants.
    (2) Acceptability criteria. The site and neighborhood may not be 
subject to serious adverse environmental conditions, natural or manmade, 
such as dangerous walks or steps; instability; flooding, poor drainage, 
septic tank back-ups or sewage hazards; mudslides; abnormal air 
pollution, smoke or dust; excessive noise, vibration or vehicular 
traffic; excessive accumulations of trash; vermin or rodent infestation; 
or fire hazards.
    (m) Sanitary condition--(1) Performance requirement. The dwelling 
unit and its equipment must be in sanitary condition.
    (2) Acceptability criteria. The dwelling unit and its equipment must 
be free of vermin and rodent infestation.
    (n) Smoke detectors performance requirement--(1) Except as provided 
in paragraph (n)(2) of this section, each dwelling unit must have at 
least one battery-operated or hard-wired smoke detector, in proper 
operating condition, on each level of the dwelling unit, including 
basements but excepting crawl spaces and unfinished attics. Smoke 
detectors must be installed in accordance with and meet the requirements 
of the National Fire Protection Association Standard (NFPA) 74 (or its 
successor standards). If the dwelling unit is occupied by any hearing-
impaired person, - smoke detectors must have an alarm system, designed 
for hearing-impaired persons as specified in NFPA 74 (or successor 
standards).
    (2) For units assisted prior to April 24, 1993, owners who installed 
battery-operated or hard-wired smoke detectors prior to April 24, 1993 
in compliance with HUD's smoke detector requirements, including the 
regulations published on July 30, 1992, (57 FR 33846),

[[Page 611]]

will not be required subsequently to comply with any additional 
requirements mandated by NFPA 74 (i.e., the owner would not be required 
to install a smoke detector in a basement not used for living purposes, 
nor would the owner be required to change the location of the smoke 
detectors that have already been installed on the other floors of the 
unit).

[60 FR 34695, July 3, 1995, as amended at 61 FR 27163, May 30, 1996; 63 
FR 23861, Apr. 30, 1998; 64 FR 26646, May 14, 1999; 64 FR 49658, Sept. 
14, 1999; 64 FR 50230, Sept. 15, 1999]



Sec. 982.402  Subsidy standards.

    (a) Purpose. (1) The PHA must establish subsidy standards that 
determine the number of bedrooms needed for families of different sizes 
and compositions.
    (2) For each family, the PHA determines the appropriate number of 
bedrooms under the PHA subsidy standards (family unit size).
    (3) The family unit size number is entered on the voucher issued to 
the family. The PHA issues the family a voucher for the family unit size 
when a family is selected for participation in the program.
    (b) Determining family unit size. The following requirements apply 
when the PHA determines family unit size under the PHA subsidy 
standards:
    (1) The subsidy standards must provide for the smallest number of 
bedrooms needed to house a family without overcrowding.
    (2) The subsidy standards must be consistent with space requirements 
under the housing quality standards (See Sec. 982.401(d)).
    (3) The subsidy standards must be applied consistently for all 
families of like size and composition.
    (4) A child who is temporarily away from the home because of 
placement in foster care is considered a member of the family in 
determining the family unit size.
    (5) A family that consists of a pregnant woman (with no other 
persons) must be treated as a two-person family.
    (6) Any live-in aide (approved by the PHA to reside in the unit to 
care for a family member who is disabled or is at least 50 years of age) 
must be counted in determining the family unit size;
    (7) Unless a live-in-aide resides with the family, the family unit 
size for any family consisting of a single person must be either a zero 
or one-bedroom unit, as determined under the PHA subsidy standards.
    (8) In determining family unit size for a particular family, the PHA 
may grant an exception to its established subsidy standards if the PHA 
determines that the exception is justified by the age, sex, health, 
handicap, or relationship of family members or other personal 
circumstances. (For a single person other than a disabled or elderly 
person or remaining family member, such PHA exception may not override 
the limitation in paragraph (b)(7) of this section.)
    (c) Effect of family unit size-maximum subsidy in voucher program. 
The family unit size as determined for a family under the PHA subsidy 
standard is used to determine the maximum rent subsidy for a family 
assisted in the voucher program. For a voucher tenancy, the PHA 
establishes payment standards by number of bedrooms. The payment 
standard for a family shall be the lower of:
    (1) The payment standard amount for the family unit size; or
    (2) The payment standard amount for the unit size of the unit rented 
by the family.
    (3) Voucher program. For a voucher tenancy, the PHA establishes 
payment standards by number of bedrooms. The payment standards for the 
family must be the lower of:
    (i) The payment standards for the family unit size; or
    (ii) The payment standard for the unit size rented by the family.
    (d) Size of unit occupied by family. (1) The family may lease an 
otherwise acceptable dwelling unit with fewer bedrooms than the family 
unit size. However, the dwelling unit must meet the applicable HQS space 
requirements.
    (2) The family may lease an otherwise acceptable dwelling unit with 
more bedrooms than the family unit size.

[60 FR 34695, July 3, 1995, as amended at 63 FR 23861, Apr. 30, 1998; 64 
FR 26646, May 14, 1999]

[[Page 612]]



Sec. 982.403  Terminating HAP contract when unit is too small.

    (a) Violation of HQS space standards. (1) If the PHA determines that 
a unit does not meet the HQS space standards because of an increase in 
family size or a change in family composition, the PHA must issue the 
family a new voucher, and the family and PHA must try to find an 
acceptable unit as soon as possible.
    (2) If an acceptable unit is available for rental by the family, the 
PHA must terminate the HAP contract in accordance with its terms.
    (b) Certificate program only--Subsidy too big for family size. (1) 
Paragraph (b) of this section applies to the tenant-based certificate 
program.
    (2) The PHA must issue the family a new voucher, and the family and 
PHA must try to find an acceptable unit as soon as possible if:
    (i) The family is residing in a dwelling unit with a larger number 
of bedrooms than appropriate for the family unit size under the PHA 
subsidy standards; and
    (ii) The gross rent for the unit (sum of the contract rent plus any 
utility allowance for the unit size leased) exceeds the FMR/exception 
rent limit for the family unit size under the PHA subsidy standards.
    (3) The PHA must notify the family that exceptions to the subsidy 
standards may be granted, and the circumstances in which the grant of an 
exception will be considered by the PHA.
    (4) If an acceptable unit is available for rental by the family, the 
PHA must terminate the HAP contract in accordance with its terms.
    (c) Termination. When the PHA terminates the HAP contract under 
paragraph (a) of this section:
    (1) The PHA must notify the family and the owner of the termination; 
and
    (2) The HAP contract terminates at the end of the calendar month 
that follows the calendar month in which the PHA gives such notice to 
the owner.
    (3) The family may move to a new unit in accordance with Sec. 
982.314.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34695, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995; 64 
FR 26647, May 14, 1999]



Sec. 982.404  Maintenance: Owner and family responsibility; PHA remedies.

    (a) Owner obligation. (1) The owner must maintain the unit in 
accordance with HQS.
    (2) If the owner fails to maintain the dwelling unit in accordance 
with HQS, the PHA must take prompt and vigorous action to enforce the 
owner obligations. PHA remedies for such breach of the HQS include 
termination, suspension or reduction of housing assistance payments and 
termination of the HAP contract.
    (3) The PHA must not make any housing assistance payments for a 
dwelling unit that fails to meet the HQS, unless the owner corrects the 
defect within the period specified by the PHA and the PHA verifies the 
correction. If a defect is life threatening, the owner must correct the 
defect within no more than 24 hours. For other defects, the owner must 
correct the defect within no more than 30 calendar days (or any PHA-
approved extension).
    (4) The owner is not responsible for a breach of the HQS that is not 
caused by the owner, and for which the family is responsible (as 
provided in Sec. 982.404(b) and Sec. 982.551(c)). (However, the PHA 
may terminate assistance to a family because of HQS breach caused by the 
family.)
    (b) Family obligation. (1) The family is responsible for a breach of 
the HQS that is caused by any of the following:
    (i) The family fails to pay for any utilities that the owner is not 
required to pay for, but which are to be paid by the tenant;
    (ii) The family fails to provide and maintain any appliances that 
the owner is not required to provide, but which are to be provided by 
the tenant; or
    (iii) Any member of the household or guest damages the dwelling unit 
or premises (damages beyond ordinary wear and tear).

[[Page 613]]

    (2) If an HQS breach caused by the family is life threatening, the 
family must correct the defect within no more than 24 hours. For other 
family-caused defects, the family must correct the defect within no more 
than 30 calendar days (or any PHA-approved extension).
    (3) If the family has caused a breach of the HQS, the PHA must take 
prompt and vigorous action to enforce the family obligations. The PHA 
may terminate assistance for the family in accordance with Sec. 
982.552.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34695, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995]



Sec. 982.405  PHA initial and periodic unit inspection.

    (a) The PHA must inspect the unit leased to a family prior to the 
initial term of the lease, at least annually during assisted occupancy, 
and at other times as needed, to determine if the unit meets the HQS. 
(See Sec. 982.305(b)(2) concerning timing of initial inspection by the 
PHA.)
    (b) The PHA must conduct supervisory quality control HQS 
inspections.
    (c) In scheduling inspections, the PHA must consider complaints and 
any other information brought to the attention of the PHA.
    (d) The PHA must notify the owner of defects shown by the 
inspection.
    (e) The PHA may not charge the family or owner for initial 
inspection or reinspection of the unit.

[60 FR 34695, July 3, 1995, as amended at 64 FR 26647, May 14, 1999; 64 
FR 56914, Oct. 21, 1999]



Sec. 982.406  Enforcement of HQS.

    Part 982 does not create any right of the family, or any party other 
tPHAn HUD or the PHA, to require enforcement of the HQS requirements by 
HUD or the PHA, or to assert any claim against HUD or the PHA, for 
damages, injunction or other relief, for alleged failure to enforce the 
HQS.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34695, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995]



 Subpart J_Housing Assistance Payments Contract and Owner Responsibility

    Source: 60 FR 34695, July 3, 1995, unless otherwise noted.



Sec. 982.451  Housing assistance payments contract.

    (a)(1) The HAP contract must be in the form required by HUD.
    (2) The term of the HAP contract is the same as the term of the 
lease.
    (b)(1) The amount of the monthly housing assistance payment by the 
PHA to the owner is determined by the PHA in accordance with HUD 
regulations and other requirements. The amount of the housing assistance 
payment is subject to change during the HAP contract term.
    (2) The monthly housing assistance payment by the PHA is credited 
toward the monthly rent to owner under the family's lease.
    (3) The total of rent paid by the tenant plus the PHA housing 
assistance payment to the owner may not be more than the rent to owner. 
The owner must immediately return any excess payment to the PHA.
    (4)(i) The part of the rent to owner which is paid by the tenant may 
not be more than:
    (A) The rent to owner; minus
    (B) The PHA housing assistance payment to the owner.
    (ii) The owner may not demand or accept any rent payment from the 
tenant in excess of this maximum, and must immediately return any excess 
rent payment to the tenant.
    (iii) The family is not responsible for payment of the portion of 
rent to owner covered by the housing assistance payment under the HAP 
contract between the owner and the PHA. See Sec. 982.310(b).
    (5)(i) The PHA must pay the housing assistance payment promptly when 
due to the owner in accordance with the HAP contract.
    (ii)(A) The HAP contract shall provide for penalties against the PHA 
for late payment of housing assistance payments due to the owner if all 
the following circumstances apply:
    (1) Such penalties are in accordance with generally accepted 
practices and

[[Page 614]]

law, as applicable in the local housing market, governing penalties for 
late payment of rent by a tenant;
    (2) It is the owner's practice to charge such penalties for assisted 
and unassisted tenants; and
    (3) The owner also charges such penalties against the tenant for 
late payment of family rent to owner.
    (B) The PHA is not obligated to pay any late payment penalty if HUD 
determines that late payment by the PHA is due to factors beyond the 
PHA's control. The PHA may add HAP contract provisions which define when 
the housing assistance payment by the PHA is deemed received by the 
owner (e.g., upon mailing by the PHA or actual receipt by the owner).
    (iii) The PHA may only use the following sources to pay a late 
payment penalty from program receipts under the consolidated ACC: 
administrative fee income for the program; or the administrative fee 
reserve for the program. The PHA may not use other program receipts for 
this purpose.

[60 FR 34695, July 3, 1995, as amended at 61 FR 27163, May 30, 1996; 63 
FR 23861, Apr. 30, 1998; 64 FR 26647, May 14, 1999; 64 FR 56914, Oct. 
21, 1999]



Sec. 982.452  Owner responsibilities.

    (a) The owner is responsible for performing all of the owner's 
obligations under the HAP contract and the lease.
    (b) The owner is responsible for:
    (1) Performing all management and rental functions for the assisted 
unit, including selecting a voucher-holder to lease the unit, and 
deciding if the family is suitable for tenancy of the unit.
    (2) Maintaining the unit in accordance with HQS, including 
performance of ordinary and extraordinary maintenance. For provisions on 
family maintenance responsibilities, see Sec. 982.404(a)(4).
    (3) Complying with equal opportunity requirements.
    (4) Preparing and furnishing to the PHA information required under 
the HAP contract.
    (5) Collecting from the family:
    (i) Any security deposit.
    (ii) The tenant contribution
    (the part of rent to owner not covered by the housing assistance 
payment).
    (iii) Any charges for unit damage by the family.
    (6) Enforcing tenant obligations under the lease.
    (7) Paying for utilities and services (unless paid by the family 
under the lease).
    (c) For provisions on modifications to a dwelling unit occupied or 
to be occupied by a disabled person, see 24 CFR 100.203.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34695, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995; 63 
FR 23861, Apr. 30, 1998; 64 FR 26647, May 14, 1999]



Sec. 982.453  Owner breach of contract.

    (a) Any of the following actions by the owner (including a principal 
or other interested party) is a breach of the HAP contract by the owner:
    (1) If the owner has violated any obligation under the HAP contract 
for the dwelling unit, including the owner's obligation to maintain the 
unit in accordance with the HQS.
    (2) If the owner has violated any obligation under any other HAP 
contract under Section 8 of the 1937 Act (42 U.S.C. 1437f).
    (3) If the owner has committed fraud, bribery or any other corrupt 
or criminal act in connection with any federal housing program.
    (4) For projects with mortgages insured by HUD or loans made by HUD, 
if the owner has failed to comply with the regulations for the 
applicable mortgage insurance or loan program, with the mortgage or 
mortgage note, or with the regulatory agreement; or if the owner has 
committed fraud, bribery or any other corrupt or criminal act in 
connection with the mortgage or loan.
    (5) If the owner has engaged in drug-related criminal activity.
    (6) If the owner has committed any violent criminal activity.
    (b) The PHA rights and remedies against the owner under the HAP 
contract include recovery of overpayments, abatement or other reduction 
of

[[Page 615]]

housing assistance payments, termination of housing assistance payments, 
and termination of the HAP contract.

[60 FR 34695, July 3, 1995, as amended at 64 FR 26647, May 14, 1999; 64 
FR 56914, Oct. 21, 1999; 65 FR 16821, Mar. 30, 2000]



Sec. 982.454  Termination of HAP contract: Insufficient funding.

    The PHA may terminate the HAP contract if the PHA determines, in 
accordance with HUD requirements, that funding under the consolidated 
ACC is insufficient to support continued assistance for families in the 
program.

[60 FR 34695, July 3, 1995, as amended at 64 FR 26647, May 14, 1999]



Sec. 982.455  Automatic termination of HAP contract.

    The HAP contract terminates automatically 180 calendar days after 
the last housing assistance payment to the owner.

[64 FR 26647, May 14, 1999]



Sec. 982.456  Third parties.

    (a) Even if the family continues to occupy the unit, the PHA may 
exercise any rights and remedies against the owner under the HAP 
contract.
    (b)(1) The family is not a party to or third party beneficiary of 
the HAP contract. Except as provided in paragraph (b)(2) of this 
section, the family may not exercise any right or remedy against the 
owner under the HAP contract.
    (2) The tenant may exercise any right or remedy against the owner 
under the lease between the tenant and the owner, including enforcement 
of the owner's obligations under the tenancy addendum (which is included 
both in the HAP contract between the PHA and the owner; and in the lease 
between the tenant and the owner.)
    (c) The HAP contract shall not be construed as creating any right of 
the family or other third party (other than HUD) to enforce any 
provision of the HAP contract, or to assert any claim against HUD, the 
PHA or the owner under the HAP contract.

[60 FR 34695, July 3, 1995, as amended at 64 FR 26647, May 14, 1999]



              Subpart K_Rent and Housing Assistance Payment

    Source: 63 FR 23861, Apr. 30, 1998, unless otherwise noted.



Sec. 982.501  Overview.

    (a) This subpart describes program requirements concerning the 
housing assistance payment and rent to owner. These requirements apply 
to the Section 8 tenant-based program.
    (b) There are two types of tenancies in the Section 8 tenant-based 
program:
    (1) A tenancy under the voucher program.
    (2) A tenancy under the certificate program (commenced before merger 
of the certificate and voucher programs on the merger date).
    (c) Unless specifically stated, requirements of this part are the 
same for all tenancies. Sections 982.503, 982.504, and 982.505 only 
apply to a voucher tenancy. Sections 982.518, 982.519, and 982.520 only 
apply to a tenancy under the certificate program.

[64 FR 26647, May 14, 1999, as amended at 65 FR 42509, July 10, 2000]



Sec. 982.502  Conversion to voucher program.

    (a) New HAP contracts. On and after the merger date, the PHA may 
only enter into a HAP contract for a tenancy under the voucher program, 
and may not enter into a new HAP contract for a tenancy under the 
certificate program.
    (b) Over-FMR tenancy. If the PHA had entered into any HAP contract 
for an over-FMR tenancy under the certificate program prior to the 
merger date, on and after the merger date such tenancy shall be 
considered and treated as a tenancy under the voucher program, and shall 
be subject to the voucher program requirements under this part, 
including calculation of the voucher housing assistance payment in 
accordance with Sec. 982.505. However, Sec. 982.505(b)(2) shall not be 
applicable for calculation of the housing assistance payment prior to 
the effective date of the second regular reexamination of family income 
and compostion on or after the merger date.

[[Page 616]]

    (c) Voucher tenancy. If the PHA had entered into any HAP contract 
for a voucher tenancy prior to the merger date, on and after the merger 
date such tenancy shall continue to be considered and treated as a 
tenancy under the voucher program, and shall be subject to the voucher 
program requirements under this part, including calculation of the 
voucher housing assistance payment in accordance with Sec. 982.505. 
However, before the effective date of the second regular reexamination 
of family income and composition on or after the merger date, the 
payment standard for the family shall be the higher of:
    (1) The initial payment standard for the family at the beginning of 
the HAP contract term; or
    (2) The payment standard for the family as calculated in accordance 
with Sec. 982.505, except that Sec. 982.505(b)(2) shall not be 
applicable until the effective date of the second regular reexamination 
of family income and composition on or after the merger date.
    (d) Regular certificate tenancy. The PHA must terminate program 
assistance under any outstanding HAP contract for a regular tenancy 
under the certificate program (entered prior to the merger date) at the 
effective date of the second regular reexamination of family income and 
composition on or after the merger date. Upon such termination of 
assistance, the HAP contract for such tenancy terminates automatically. 
The PHA must give at least 120 days written notice of such termination 
to the family and the owner, and the PHA must offer the family the 
opportunity for continued tenant-based assistance under the voucher 
program. The PHA may deny the family the opportunity for continued 
assistance in accordance with Sec. Sec. 982.552 and 982.553.

[64 FR 26648, May 14, 1999, as amended at 64 FR 56914, Oct. 21, 1999; 65 
FR 16822, Mar. 30, 2000]



Sec. 982.503  Voucher tenancy: Payment standard amount and schedule.

    (a) Payment standard schedule. (1) HUD publishes the fair market 
rents for each market area in the United States (see part 888 of this 
title). The PHA must adopt a payment standard schedule that establishes 
voucher payment standard amounts for each FMR area in the PHA 
jurisdiction. For each FMR area, the PHA must establish payment standard 
amounts for each ``unit size.'' Unit size is measured by number of 
bedrooms (zero-bedroom, one-bedroom, and so on).
    (2) The payment standard amounts on the PHA schedule are used to 
calculate the monthly housing assistance payment for a family (Sec. 
982.505).
    (3) The PHA voucher payment standard schedule shall establish a 
single payment standard amount for each unit size. For each unit size, 
the PHA may establish a single payment standard amount for the whole FMR 
area, or may establish a separate payment standard amount for each 
designated part of the FMR area.
    (b) Establishing payment standard amounts. (1)(i) The PHA may 
establish the payment standard amount for a unit size at any level 
between 90 percent and 110 percent of the published FMR for that unit 
size. HUD approval is not required to establish a payment standard 
amount in that range (``basic range'').
    (ii) The PHA may establish a separate payment standard amount within 
the basic range for a designated part of an FMR area.
    (2) The PHA must request HUD approval to establish a payment 
standard amount that is higher or lower than the basic range. HUD has 
sole discretion to grant or deny approval of a higher or lower payment 
standard amount. Paragraphs (c) and (e) of this section describe the 
requirements for approval of a higher payment standard amount 
(``exception payment standard amount'').
    (c) HUD approval of exception payment standard amount. (1) HUD 
discretion. At HUD's sole discretion, HUD may approve a payment standard 
amount that is higher than the basic range for a designated part of the 
fair market rent area (called an ``exception area''). HUD may approve an 
exception payment standard amount in accordance with this paragraph (c) 
of this section for all units, or for all units of a given unit size, 
leased by program families in the exception area. Any PHA with 
jurisdiction in the exception area may use the

[[Page 617]]

HUD-approved exception payment standard amount.
    (2) Above 110 percent of FMR to 120 percent of published FMR. (i) 
The HUD Field Office may approve an exception payment standard amount 
from above 110 percent of the published FMR to 120 percent of the 
published FMR (upper range) if the HUD Field Office determines that 
approval is justified by either the median rent method or the 40th or 
50th percentile rent method as described in paragraph (c)(2)(i)(B) of 
this section (and that such approval is also supported by an appropriate 
program justification in accordance with paragraph (c)(4) of this 
section).
    (A) Median rent method. In the median rent method, HUD determines 
the exception payment standard amount by multiplying the FMR times a 
fraction of which the numerator is the median gross rent of the 
exception area and the denominator is the median gross rent of the 
entire FMR area. In this method, HUD uses median gross rent data from 
the most recent decennial United States census, and the exception area 
may be any geographic entity within the FMR area (or any combination of 
such entities) for which median gross rent data is provided in decennial 
census products.
    (B) 40th or 50th percentile rent method. In this method, HUD 
determines that the area exception payment standard amount equals either 
the 40th or 50th percentile of rents for standard quality rental housing 
in the exception area. HUD determines whether the 40th or 50th 
percentile rent applies in accordance with the methodology described in 
Sec. 888.113 of this title for determining FMRs. A PHA must present 
statistically representative rental housing survey data to justify HUD 
approval.
    (ii) The HUD Field Office may approve an exception payment standard 
amount within the upper range if required as a reasonable accommodation 
for a family that includes a person with disabilities.
    (3) Above 120 percent of FMR. (i) At the request of a PHA, the 
Assistant Secretary for Public and Indian Housing may approve an 
exception payment standard amount for the total area of a county, PHA 
jurisdiction, or place if the Assistant Secretary determines that:
    (A) Such approval is necessary to prevent financial hardship for 
families;
    (B) Such approval is supported by statistically representative 
rental housing survey data to justify HUD approval in accordance with 
the methodology described in Sec. 888.113 of this title; and
    (C) Such approval is also supported by an appropriate program 
justification in accordance with paragraph (c)(4) of this section.
    (ii) For purposes of paragraph (c)(3) of this section, the term 
``place'' is an incorporated place or a U.S. Census designated place. An 
incorporated place is established by State law and includes cities, 
boroughs, towns, and villages. A U.S. Census designated place is the 
statistical counterpart of an incorporated place.
    (4) Program justification. (i) HUD will only approve an exception 
payment standard amount (pursuant to paragraph (c)(2) or paragraph 
(c)(3) of this section) if HUD determines that approval of such higher 
amount is needed either:
    (A) To help families find housing outside areas of high poverty, or
    (B) Because voucher holders have trouble finding housing for lease 
under the program within the term of the voucher.
    (ii) HUD will only approve an exception payment standard amount 
(pursuant to paragraph (c)(3) of this section) after six months from the 
date of HUD approval of an exception payment standard pursuant to 
paragraph (c)(2) of this section for the area.
    (5) Population. The total population of HUD-approved exception areas 
in an FMR area may not include more than 50 percent of the population of 
the FMR area.
    (6) Withdrawal or modification. At any time, HUD may withdraw or 
modify approval to use an exception payment standard amount.
    (7) Transition: Area exception rents approved prior to merger date. 
Subject to paragraph (c)(6) of this section, the PHA may establish an 
exception payment standard amount up to the amount of a HUD-approved 
area exception rent in effect at the merger date.

[[Page 618]]

    (d) HUD approval of payment standard amount below the basic range. 
HUD may consider a PHA request for approval to establish a payment 
standard amount that is lower than the basic range. At HUD's sole 
discretion, HUD may approve PHA establishment of a payment standard 
lower than the basic range. In determining whether to approve the PHA 
request, HUD will consider appropriate factors, including rent burden of 
families assisted under the program. HUD will not approve a lower 
payment standard if the family share for more than 40 percent of 
participants in the PHA's voucher program exceeds 30 percent of adjusted 
monthly income. Such determination may be based on the most recent 
examinations of family income.
    (e) HUD approval of success rate payment standard amounts. In order 
to increase the number of voucher holders who become participants, HUD 
may approve requests from PHAs whose FMRs are computed at the 40th 
percentile rent to establish higher, success rate payment standard 
amounts. A success rate payment standard amount is defined as any amount 
between 90 percent and 110 percent of the 50th percentile rent, 
calculated in accordance with the methodology described in Sec. 888.113 
of this title.
    (1) A PHA may obtain HUD Field Office approval of success rate 
payment standard amounts provided the PHA demonstrates to HUD that it 
meets the following criteria:
    (i) Fewer than 75 percent of the families to whom the PHA issued 
rental vouchers during the most recent 6 month period for which there is 
success rate data available have become participants in the voucher 
program;
    (ii) The PHA has established payment standard amounts for all unit 
sizes in the entire PHA jurisdiction within the FMR area at 110 percent 
of the published FMR for at least the 6 month period referenced in 
paragraph (e)(1)(i) of this section and up to the time the request is 
made to HUD; and
    (iii) The PHA has a policy of granting automatic extensions of 
voucher terms to at least 90 days to provide a family who has made 
sustained efforts to locate suitable housing with additional search 
time.
    (2) In determining whether to approve the PHA request to establish 
success rate payment standard amounts, HUD will consider whether the PHA 
has a SEMAP overall performance rating of ``troubled''. If a PHA does 
not yet have a SEMAP rating, HUD will consider the PHA's SEMAP 
certification.
    (3) HUD approval of success rate payment standard amounts shall be 
for all unit sizes in the FMR area. A PHA may opt to establish a success 
rate payment standard amount for one or more unit sizes in all or a 
designated part of the PHA jurisdiction within the FMR area.
    (f) Payment standard protection for PHAs that meet deconcentration 
objectives. Paragraph (f) of this section applies only to a PHA with 
jurisdiction in an FMR area where the FMR had previously been set at the 
50th percentile rent to provide a broad range of housing opportunities 
throughout a metropolitan area, pursuant to Sec. 888.113(c), but is now 
set at the 40th percentile rent.
    (1) Such a PHA may obtain HUD Field Office approval of a payment 
standard amount based on the 50th percentile rent if the PHA scored the 
maximum number of points on the deconcentration bonus indicator in Sec. 
985.3(h) in the prior year, or in two of the last three years.
    (2) HUD approval of payment standard amounts based on the 50th 
percentile rent shall be for all unit sizes in the FMR area that had 
previously been set at the 50th percentile rent pursuant to Sec. 
888.113(c). A PHA may opt to establish a payment standard amount based 
on the 50th percentile rent for one or more unit sizes in all or a 
designated part of the PHA jurisdiction within the FMR area.
    (g) HUD review of PHA payment standard schedules. (1) HUD will 
monitor rent burdens of families assisted in a PHA's voucher program. 
HUD will review the PHA's payment standard for a particular unit size if 
HUD finds that 40 percent or more of such families occupying units of 
that unit size currently pay more than 30 percent of adjusted monthly 
income as the family share. Such determination may be based on the most 
recent examinations of family income.

[[Page 619]]

    (2) After such review, HUD may, at its discretion, require the PHA 
to modify payment standard amounts for any unit size on the PHA payment 
standard schedule. HUD may require the PHA to establish an increased 
payment standard amount within the basic range.

[64 FR 26648, May 14, 1999; 64 FR 49658, Sept. 14, 1999, as amended at 
64 FR 56914, Oct. 21, 1999; 65 FR 16822, Mar. 30, 2000; 65 FR 58874, 
Oct. 2, 2000; 66 FR 30568, June 6, 2001; 67 FR 56688, Sept. 4, 2002]



Sec. 982.504  Voucher tenancy: Payment standard for family in 
restructured subsidized multifamily project.

    (a) This section applies to tenant-based assistance under the 
voucher program if all the following conditions are applicable:
    (1) Such tenant-based voucher assistance is provided to a family 
pursuant to Sec. 401.421 of this title when HUD has approved a 
restructuring plan, and the participating administrative entity has 
approved the use of tenant-based assistance to provide continued 
assistance for such families. Such tenant-based voucher assistance is 
provided for a family previously receiving project-based assistance in 
an eligible project (as defined in Sec. 401.2 of this title) at the 
time when the project-based assistance terminates.
    (2) The family chooses to remain in the restructured project with 
tenant-based assistance under the program and leases a unit that does 
not exceed the family unit size;
    (3) The lease for such assisted tenancy commences during the first 
year after the project-based assistance terminates.
    (b) The initial payment standard for the family under such initial 
lease is the sum of the reasonable rent to owner for the unit plus the 
utility allowance for tenant-paid utilities. (Determination of such 
initial payment standard for the family is not subject to paragraphs 
(c)(1) and (c)(2) of Sec. 982.505. Except for determination of the 
initial payment standard as specifically provided in paragraph (b) of 
this section, the payment standard and housing assistance payment for 
the family during the HAP contract term shall be determined in 
accordance with Sec. 982.505.)

[64 FR 26649, May 14, 1999]



Sec. 982.505  Voucher tenancy: How to calculate housing assistance payment.

    (a) Use of payment standard. A payment standard is used to calculate 
the monthly housing assistance payment for a family. The ``payment 
standard'' is the maximum monthly subsidy payment.
    (b) Amount of monthly housing assistance payment. The PHA shall pay 
a monthly housing assistance payment on behalf of the family that is 
equal to the lower of:
    (1) The payment standard for the family minus the total tenant 
payment; or
    (2) The gross rent minus the total tenant payment.
    (c) Payment standard for family. (1) The payment standard for the 
family is the lower of:
    (i) The payment standard amount for the family unit size; or
    (ii) The payment standard amount for the size of the dwelling unit 
rented by the family.
    (2) If the PHA has established a separate payment standard amount 
for a designated part of an FMR area in accordance with Sec. 982.503 
(including an exception payment standard amount as determined in 
accordance with Sec. 982.503(b)(2) and Sec. 982.503(c)), and the 
dwelling unit is located in such designated part, the PHA must use the 
appropriate payment standard amount for such designated part to 
calculate the payment standard for the family. The payment standard for 
the family shall be calculated in accordance with this paragraph and 
paragraph (c)(1) of this section.
    (3) Decrease in the payment standard amount during the HAP contract 
term. If the amount on the payment standard schedule is decreased during 
the term of the HAP contract, the lower payment standard amount 
generally must be used to calculate the monthly housing assistance 
payment for the family beginning at the effective date of the family's 
second regular reexamination following the effective date of the 
decrease in the payment standard amount. The PHA must determine the

[[Page 620]]

payment standard for the family as follows.
    (i) Step 1: At the first regular reexamination following the 
decrease in the payment standard amount, the PHA shall determine the 
payment standard for the family in accordance with paragraphs (c)(1) and 
(c)(2) of this section (using the decreased payment standard amount).
    (ii) Step 2 (first reexamination payment standard amount): The PHA 
shall compare the payment standard amount from step 1 to the payment 
standard amount last used to calculate the monthly housing assistance 
payment for the family. The payment standard amount used by the PHA to 
calculate the monthly housing assistance payment at the first regular 
reexamination following the decrease in the payment standard amount is 
the higher of these two payment standard amounts. The PHA shall advise 
the family that the application of the lower payment standard amount 
will be deferred until the second regular reexamination following the 
effective date of the decrease in the payment standard amount.
    (iii) Step 3 (second reexamination payment standard amount): At the 
second regular reexamination following the decrease in the payment 
standard amount, the lower payment standard amount shall be used to 
calculate the monthly housing assistance payment for the family unless 
the PHA has subsequently increased the payment standard amount, in which 
case the payment standard amount is determined in accordance with 
paragraph (c)(4) of this section.
    (4) Increase in the payment standard amount during the HAP contract 
term. If the payment standard amount is increased during the term of the 
HAP contract, the increased payment standard amount shall be used to 
calculate the monthly housing assistance payment for the family 
beginning at the effective date of the family's first regular 
reexamination on or after the effective date of the increase in the 
payment standard amount.
    (5) Change in family unit size during the HAP contract term. 
Irrespective of any increase or decrease in the payment standard amount, 
if the family unit size increases or decreases during the HAP contract 
term, the new family unit size must be used to determine the payment 
standard amount for the family beginning at the family's first regular 
reexamination following the change in family unit size.
    (d) PHA approval of higher payment standard for the family as a 
reasonable accommodation. If the family includes a person with 
disabilities and requires a higher payment standard for the family, as a 
reasonable accommodation for such person, in accordance with part 8 of 
this title, the PHA may establish a higher payment standard for the 
family within the basic range.

[64 FR 26649, May 14, 1999, as amended at 64 FR 56914, Oct. 21, 1999; 65 
FR 16822, Mar. 30, 2000; 65 FR 42509, July 10, 2000; 66 FR 30568, June 
6, 2001; 67 FR 56689, Sept. 4, 2002]



Sec. 982.506  Negotiating rent to owner.

    The owner and the family negotiate the rent to owner. At the 
family's request, the PHA must help the family negotiate the rent to 
owner.

[63 FR 23861, Apr. 30, 1998. Redesignated at 64 FR 26648, May 14, 1999]



Sec. 982.507  Rent to owner: Reasonable rent.

    (a) PHA determination. (1) The PHA may not approve a lease until the 
PHA determines that the initial rent to owner is a reasonable rent.
    (2) The PHA must redetermine the reasonable rent:
    (i) Before any increase in the rent to owner;
    (ii) If there is a five percent decrease in the published FMR in 
effect 60 days before the contract anniversary (for the unit size rented 
by the family) as compared with the FMR in effect 1 year before the 
contract anniversary; or
    (iii) If directed by HUD.
    (3) The PHA may also redetermine the reasonable rent at any other 
time.
    (4) At all times during the assisted tenancy, the rent to owner may 
not exceed the reasonable rent as most recently determined or 
redetermined by the PHA.
    (b) Comparability. The PHA must determine whether the rent to owner 
is a reasonable rent in comparison to rent for other comparable 
unassisted units.

[[Page 621]]

To make this determination, the PHA must consider:
    (1) The location, quality, size, unit type, and age of the contract 
unit; and
    (2) Any amenities, housing services, maintenance and utilities to be 
provided by the owner in accordance with the lease.
    (c) Owner certification of rents charged for other units. By 
accepting each monthly housing assistance payment from the PHA, the 
owner certifies that the rent to owner is not more than rent charged by 
the owner for comparable unassisted units in the premises. The owner 
must give the PHA information requested by the PHA on rents charged by 
the owner for other units in the premises or elsewhere.

[63 FR 23861, Apr. 30, 1998. Redesignated at 64 FR 26648, May 14, 1999]



Sec. 982.508  Maximum family share at initial occupancy.

    At the time the PHA approves a tenancy for initial occupancy of a 
dwelling unit by a family with tenant-based assistance under the 
program, and where the gross rent of the unit exceeds the applicable 
payment standard for the family, the family share must not exceed 40 
percent of the family's adjusted monthly income. The determination of 
adjusted monthly income must be based on verification information 
received by the PHA no earlier than 60 days before the PHA issues a 
voucher to the family.

[64 FR 59622, Nov. 3, 1999]



Sec. 982.509  Rent to owner: Effect of rent control.

    In addition to the rent reasonableness limit under this subpart, the 
amount of rent to owner also may be subject to rent control limits under 
State or local law.

[63 FR 23861, Apr. 30, 1998. Redesignated and amended at 64 FR 26648, 
May 14, 1999]



Sec. 982.510  Other fees and charges.

    (a) The cost of meals or supportive services may not be included in 
the rent to owner, and the value of meals or supportive services may not 
be included in the calculation of reasonable rent.
    (b) The lease may not require the tenant or family members to pay 
charges for meals or supportive services. Non-payment of such charges is 
not grounds for termination of tenancy.
    (c) The owner may not charge the tenant extra amounts for items 
customarily included in rent in the locality, or provided at no 
additional cost to unsubsidized tenants in the premises.

[63 FR 23861, Apr. 30, 1998. Redesignated at 64 FR 26648, May 14, 1999]



Sec. 982.514  Distribution of housing assistance payment.

    The monthly housing assistance payment is distributed as follows:
    (a) The PHA pays the owner the lesser of the housing assistance 
payment or the rent to owner.
    (b) If the housing assistance payment exceeds the rent to owner, the 
PHA may pay the balance of the housing assistance payment (``utility 
reimbursement'') either to the family or directly to the utility 
supplier to pay the utility bill on behalf of the family. If the PHA 
elects to pay the utility supplier directly, the PHA must notify the 
family of the amount paid to the utility supplier.

[63 FR 23861, Apr. 30, 1998, as amended at 64 FR 56914, Oct. 21, 1999; 
65 FR 16822, Mar. 30, 2000]



Sec. 982.515  Family share: Family responsibility.

    (a) The family share is calculated by subtracting the amount of the 
housing assistance payment from the gross rent.
    (b) The family rent to owner is calculated by subtracting the amount 
of the housing assistance payment to the owner from the rent to owner.
    (c) The PHA may not use housing assistance payments or other program 
funds (including any administrative fee reserve) to pay any part of the 
family share, including the family rent to owner. Payment of the whole 
family share is the responsibility of the family.

[63 FR 23861, Apr. 30, 1998, as amended at 64 FR 56915, Oct. 21, 1999]

[[Page 622]]



Sec. 982.516  Family income and composition: Regular and interim 
examinations.

    (a) PHA responsibility for reexamination and verification. (1) The 
PHA must conduct a reexamination of family income and composition at 
least annually.
    (2) The PHA must obtain and document in the tenant file third party 
verification of the following factors, or must document in the tenant 
file why third party verification was not available:
    (i) Reported family annual income;
    (ii) The value of assets;
    (iii) Expenses related to deductions from annual income; and
    (iv) Other factors that affect the determination of adjusted income.
    (b) When PHA conducts interim reexamination. (1) At any time, the 
PHA may conduct an interim reexamination of family income and 
composition.
    (2) At any time, the family may request an interim determination of 
family income or composition because of any changes since the last 
determination. The PHA must make the interim determination within a 
reasonable time after the family request.
    (3) Interim examinations must be conducted in accordance with 
policies in the PHA administrative plan.
    (c) Family reporting of change. The PHA must adopt policies 
prescribing when and under what conditions the family must report a 
change in family income or composition.
    (d) Effective date of reexamination. (1) The PHA must adopt policies 
prescribing how to determine the effective date of a change in the 
housing assistance payment resulting from an interim redetermination.
    (2) At the effective date of a regular or interim reexamination, the 
PHA must make appropriate adjustments in the housing assistance payment. 
(For a voucher tenancy, the housing assistance payment shall be 
calculated in accordance with Sec. 982.505. For a certificate tenancy, 
the housing assistance payment shall be calculated in accordance with 
Sec. 982.518.)
    (e) Family member income. Family income must include income of all 
family members, including family members not related by blood or 
marriage. If any new family member is added, family income must include 
any income of the additional family member. The PHA must conduct a 
reexamination to determine such additional income, and must make 
appropriate adjustments in the housing assistance payment.
    (f) Accuracy of family income data. The PHA must establish 
procedures that are appropriate and necessary to assure that income data 
provided by applicant or participant families is complete and accurate.
    (g) Execution of release and consent. (1) As a condition of 
admission to or continued assistance under the program, the PHA shall 
require the family head, and such other family members as the PHA 
designates, to execute a HUD-approved release and consent form 
(including any release and consent as required under Sec. 5.230 of this 
title) authorizing any depository or private source of income, or any 
Federal, State or local agency, to furnish or release to the PHA or HUD 
such information as the PHA or HUD determines to be necessary.
    (2) The PHA and HUD must limit the use or disclosure of information 
obtained from a family or from another source pursuant to this release 
and consent to purposes directly in connection with administration of 
the program.

(Information collection requirements contained in this section have been 
approved by the Office of Management and Budget under control number 
2577-0169.)

[63 FR 23861, Apr. 30, 1998, as amended at 64 FR 13057, Mar. 16, 1999; 
64 FR 26649, May 14, 1999; 64 FR 56915, Oct. 21, 1999; 65 FR 16822, Mar. 
30, 2000]

    Editorial Note: At 64 FR 26649, May 14, 1999, Sec. 982.516 was 
amended in paragraph (e) by removing the reference to ``and family unit 
size''; however paragraph (e) does not contain this phrase.



Sec. 982.517  Utility allowance schedule.

    (a) Maintaining schedule. (1) The PHA must maintain a utility 
allowance schedule for all tenant-paid utilities (except telephone), for 
cost of tenant-supplied refrigerators and ranges, and for other tenant-
paid housing services (e.g., trash collection (disposal of waste and 
refuse)).

[[Page 623]]

    (2) The PHA must give HUD a copy of the utility allowance schedule. 
At HUD's request, the PHA also must provide any information or 
procedures used in preparation of the schedule.
    (b) How allowances are determined. (1) The utility allowance 
schedule must be determined based on the typical cost of utilities and 
services paid by energy-conservative households that occupy housing of 
similar size and type in the same locality. In developing the schedule, 
the PHA must use normal patterns of consumption for the community as a 
whole and current utility rates.
    (2)(i) a PHA's utility allowance schedule, and the utility allowance 
for an individual family, must include the utilities and services that 
are necessary in the locality to provide housing that complies with the 
housing quality standards. However, the PHA may not provide any 
allowance for non-essential utility costs, such as costs of cable or 
satellite television.
    (ii) In the utility allowance schedule, the PHA must classify 
utilities and other housing services according to the following general 
categories: space heating; air conditioning; cooking; water heating; 
water; sewer; trash collection (disposal of waste and refuse); other 
electric; refrigerator (cost of tenant-supplied refrigerator); range 
(cost of tenant-supplied range); and other specified housing services. 
The PHA must provide a utility allowance for tenant-paid air-
conditioning costs if the majority of housing units in the market 
provide centrally air-conditioned units or there is appropriate wiring 
for tenant-installed air conditioners.
    (3) The cost of each utility and housing service category must be 
stated separately. For each of these categories, the utility allowance 
schedule must take into consideration unit size (by number of bedrooms), 
and unit types (e.g., apartment, row-house, town house, single-family 
detached, and manufactured housing) that are typical in the community.
    (4) The utility allowance schedule must be prepared and submitted in 
accordance with HUD requirements on the form prescribed by HUD.
    (c) Revisions of utility allowance schedule. (1) a PHA must review 
its schedule of utility allowances each year, and must revise its 
allowance for a utility category if there PHAs been a change of 10 
percent or more in the utility rate since the last time the utility 
allowance schedule was revised. The PHA must maintain information 
supporting its annual review of utility allowances and any revisions 
made in its utility allowance schedule.
    (2) At HUD's direction, the PHA must revise the utility allowance 
schedule to correct any errors, or as necessary to update the schedule.
    (d) Use of utility allowance schedule. (1) The PHA must use the 
appropriate utility allowance for the size of dwelling unit actually 
leased by the family (rather than the family unit size as determined 
under the PHA subsidy standards).
    (2) At reexamination, the PHA must use the PHA current utility 
allowance schedule.
    (e) Higher utility allowance as reasonable accommodation for a 
person with disabilities. On request from a family that includes a 
person with disabilities, the PHA must approve a utility allowance which 
is higher than the applicable amount on the utility allowance schedule 
if a higher utility allowance is needed as a reasonable accommodation in 
accordance with 24 CFR part 8 to make the program accessible to and 
usable by the family member with a disability.

(Information collection requirements contained in this section have been 
approved by the Office of Management and Budget under control number 
2577-0169.)



Sec. 982.518  Regular tenancy: How to calculate housing assistance payment.

    The monthly housing assistance payment equals the gross rent, minus 
the higher of:
    (a) The total tenant payment; or
    (b) The minimum rent as required by law.

[63 FR 23861, Apr. 30, 1998. Redesignated at 64 FR 26648, May 14, 1999]



Sec. 982.519  Regular tenancy: Annual adjustment of rent to owner.

    (a) When rent is adjusted. At each annual anniversary date of the 
HAP contract, the PHA must adjust the rent to

[[Page 624]]

owner at the request of the owner in accordance with this section.
    (b) Amount of annual adjustment. (1) The adjusted rent to owner 
equals the lesser of:
    (i) The pre-adjustment rent to owner multiplied by the applicable 
Section 8 annual adjustment factor, published by HUD in the Federal 
Register, that is in effect 60 days before the HAP contract anniversary;
    (ii) The reasonable rent (as most recently determined or 
redetermined by the PHA in accordance with Sec. 982.503); or
    (iii) The amount requested by the owner.
    (2) In making the annual adjustment, the pre-adjustment rent to 
owner does not include any previously approved special adjustments.
    (3) The rent to owner may be adjusted up or down in accordance with 
this section.
    (4) Notwithstanding paragraph (b)(1) of this section, the rent to 
owner for a unit must not be increased at the annual anniversary date 
unless:
    (i) The owner requests the adjustment by giving notice to the PHA; 
and
    (ii) During the year before the annual anniversary date, the owner 
has complied with all requirements of the HAP contract, including 
compliance with the HQS.
    (5) The rent to owner will only be increased for housing assistance 
payments covering months commencing on the later of:
    (i) The first day of the first month commencing on or after the 
contract anniversary date; or
    (ii) At least sixty days after the PHA receives the owner's request.
    (6) To receive an increase resulting from the annual adjustment for 
an annual anniversary date, the owner must request the increase at least 
sixty days before the next annual anniversary date.

[63 FR 23861, Apr. 30, 1998, as amended at 64 FR 13057, Mar. 16, 1999. 
Redesignated at 64 FR 26648, May 14, 1999]



Sec. 982.520  Regular tenancy: Special adjustment of rent to owner.

    (a) Substantial and general cost increases. (1) At HUD's sole 
discretion, HUD may approve a special adjustment of the rent to owner to 
reflect increases in the actual and necessary costs of owning and 
maintaining the unit because of substantial and general increases in:
    (i) Real property taxes;
    (ii) Special governmental assessments;
    (iii) Utility rates; or
    (iv) Costs of utilities not covered by regulated rates.
    (2) An PHA may make a special adjustment of the rent to owner only 
if the adjustment has been approved by HUD. The owner does not have any 
right to receive a special adjustment.
    (b) Reasonable rent. The adjusted rent may not exceed the reasonable 
rent. The owner may not receive a special adjustment if the adjusted 
rent would exceed the reasonable rent.
    (c) Term of special adjustment. (1) The PHA may withdraw or limit 
the term of any special adjustment.
    (2) If a special adjustment is approved to cover temporary or one-
time costs, the special adjustment is only a temporary or one-time 
increase of the rent to owner.

[63 FR 23861, Apr. 30, 1998. Redesignated at 64 FR 26648, May 14, 1999]



Sec. 982.521  Rent to owner in subsidized project.

    (a) Applicability to subsidized project. This section applies to a 
program tenancy in any of the following types of federally subsidized 
project:
    (1) An insured or non-insured Section 236 project;
    (2) A Section 202 project;
    (3) A Section 221(d)(3) below market interest rate (BMIR) project; 
or
    (4) A Section 515 project of the Rural Development Administration.
    (b) How rent to owner is determined. The rent to owner is the 
subsidized rent as determined in accordance with requirements for the 
applicable federal program listed in paragraph (a) of this section. This 
determination is not subject to the prohibition against increasing the 
rent to owner during the initial lease term (see Sec. 982.309).
    (c) Certificate tenancy--Rent adjustment. Rent to owner for a 
certificate tenancy is not subject to provisions governing annual 
adjustment (Sec. 982.519)

[[Page 625]]

or special adjustment (Sec. 982.520) of rent to owner.

[65 FR 16822, Mar. 30, 2000]



   Subpart L_Family Obligations; Denial and Termination of Assistance

    Source: 60 FR 34695, July 3, 1995, unless otherwise noted.



Sec. 982.551  Obligations of participant.

    (a) Purpose. This section states the obligations of a participant 
family under the program.
    (b) Supplying required information--(1) The family must supply any 
information that the PHA or HUD determines is necessary in the 
administration of the program, including submission of required evidence 
of citizenship or eligible immigration status (as provided by 24 CFR 
part 5). ``Information'' includes any requested certification, release 
or other documentation.
    (2) The family must supply any information requested by the PHA or 
HUD for use in a regularly scheduled reexamination or interim 
reexamination of family income and composition in accordance with HUD 
requirements.
    (3) The family must disclose and verify social security numbers (as 
provided by part 5, subpart B, of this title) and must sign and submit 
consent forms for obtaining information in accordance with part 5, 
subpart B, of this title.
    (4) Any information supplied by the family must be true and 
complete.
    (c) HQS breach caused by family. The family is responsible for an 
HQS breach caused by the family as described in Sec. 982.404(b).
    (d) Allowing PHA inspection. The family must allow the PHA to 
inspect the unit at reasonable times and after reasonable notice.
    (e) Violation of lease. The family may not commit any serious or 
repeated violation of the lease.
    (f) Family notice of move or lease termination. The family must 
notify the PHA and the owner before the family moves out of the unit, or 
terminates the lease on notice to the owner. See Sec. 982.314(d).
    (g) Owner eviction notice. The family must promptly give the PHA a 
copy of any owner eviction notice.
    (h) Use and occupancy of unit.--(1) The family must use the assisted 
unit for residence by the family. The unit must be the family's only 
residence.
    (2) The composition of the assisted family residing in the unit must 
be approved by the PHA. The family must promptly inform the PHA of the 
birth, adoption or court-awarded custody of a child. The family must 
request PHA approval to add any other family member as an occupant of 
the unit. No other person [i.e., nobody but members of the assisted 
family] may reside in the unit (except for a foster child or live-in 
aide as provided in paragraph (h)(4) of this section).
    (3) The family must promptly notify the PHA if any family member no 
longer resides in the unit.
    (4) If the PHA has given approval, a foster child or a live-in-aide 
may reside in the unit. The PHA has the discretion to adopt reasonable 
policies concerning residence by a foster child or a live-in-aide, and 
defining when PHA consent may be given or denied.
    (5) Members of the household may engage in legal profitmaking 
activities in the unit, but only if such activities are incidental to 
primary use of the unit for residence by members of the family.
    (6) The family must not sublease or let the unit.
    (7) The family must not assign the lease or transfer the unit.
    (i) Absence from unit. The family must supply any information or 
certification requested by the PHA to verify that the family is living 
in the unit, or relating to family absence from the unit, including any 
PHA-requested information or certification on the purposes of family 
absences. The family must cooperate with the PHA for this purpose. The 
family must promptly notify the PHA of absence from the unit.
    (j) Interest in unit. The family must not own or have any interest 
in the unit.
    (k) Fraud and other program violation. The members of the family 
must not commit fraud, bribery or any other corrupt or criminal act in 
connection with the programs.

[[Page 626]]

    (l) Crime by household members. The members of the household may not 
engage in drug-related criminal activity or violent criminal activity or 
other criminal activity that threatens the health, safety or right to 
peaceful enjoyment of other residents and persons residing in the 
immediate vicinity of the premises (see Sec. 982.553).
    (m) Alcohol abuse by household members. The members of the household 
must not abuse alcohol in a way that threatens the health, safety or 
right to peaceful enjoyment of other residents and persons residing in 
the immediate vicinity of the premises.
    (n) Other housing assistance. An assisted family, or members of the 
family, may not receive Section 8 tenant-based assistance while 
receiving another housing subsidy, for the same unit or for a different 
unit, under any duplicative (as determined by HUD or in accordance with 
HUD requirements) federal, State or local housing assistance program.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34695, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995; 61 
FR 11119, Mar. 18, 1996; 61 FR 13627, Mar. 27, 1996; 61 FR 27163, May 
30, 1996; 64 FR 26650, May 14, 1999; 66 FR 28805, May 24, 2001]



Sec. 982.552  PHA denial or termination of assistance for family.

    (a) Action or inaction by family. (1) a PHA may deny assistance for 
an applicant or terminate assistance for a participant under the 
programs because of the family's action or failure to act as described 
in this section or Sec. 982.553. The provisions of this section do not 
affect denial or termination of assistance for grounds other than action 
or failure to act by the family.
    (2) Denial of assistance for an applicant may include any or all of 
the following: denying listing on the PHA waiting list, denying or 
withdrawing a voucher, refusing to enter into a HAP contract or approve 
a lease, and refusing to process or provide assistance under portability 
procedures.
    (3) Termination of assistance for a participant may include any or 
all of the following: refusing to enter into a HAP contract or approve a 
lease, terminating housing assistance payments under an outstanding HAP 
contract, and refusing to process or provide assistance under 
portability procedures.
    (4) This section does not limit or affect exercise of the PHA rights 
and remedies against the owner under the HAP contract, including 
termination, suspension or reduction of housing assistance payments, or 
termination of the HAP contract.
    (b) Requirement to deny admission or terminate assistance. (1) For 
provisions on denial of admission and termination of assistance for 
illegal drug use, other criminal activity, and alcohol abuse that would 
threaten other residents, see Sec. 982.553.
    (2) The PHA must terminate program assistance for a family evicted 
from housing assisted under the program for serious violation of the 
lease.
    (3) The PHA must deny admission to the program for an applicant, or 
terminate program assistance for a participant, if any member of the 
family fails to sign and submit consent forms for obtaining information 
in accordance with part 5, subparts B and F of this title.
    (4) The family must submit required evidence of citizenship or 
eligible immigration status. See part 5 of this title for a statement of 
circumstances in which the PHA must deny admission or terminate program 
assistance because a family member does not establish citizenship or 
eligible immigration status, and the applicable informal hearing 
procedures.
    (c) Authority to deny admission or terminate assistance. (1) Grounds 
for denial or termination of assistance. The PHA may at any time deny 
program assistance for an applicant, or terminate program assistance for 
a participant, for any of the following grounds:
    (i) If the family violates any family obligations under the program 
(see Sec. 982.551). See Sec. 982.553 concerning denial or termination 
of assistance for crime by family members.
    (ii) If any member of the family has been evicted from federally 
assisted housing in the last five years;
    (iii) If a PHA has ever terminated assistance under the program for 
any member of the family.
    (iv) If any member of the family has committed fraud, bribery, or 
any other

[[Page 627]]

corrupt or criminal act in connection with any Federal housing program 
(see also Sec. 982.553(a)(1));
    (v) If the family currently owes rent or other amounts to the PHA or 
to another PHA in connection with Section 8 or public housing assistance 
under the 1937 Act.
    (vi) If the family has not reimbursed any PHA for amounts paid to an 
owner under a HAP contract for rent, damages to the unit, or other 
amounts owed by the family under the lease.
    (vii) If the family breaches an agreement with the PHA to pay 
amounts owed to a PHA, or amounts paid to an owner by a PHA. (The PHA, 
at its discretion, may offer a family the opportunity to enter an 
agreement to pay amounts owed to a PHA or amounts paid to an owner by a 
PHA. The PHA may prescribe the terms of the agreement.)
    (viii) If a family participating in the FSS program fails to comply, 
without good cause, with the family's FSS contract of participation.
    (ix) If the family has engaged in or threatened abusive or violent 
behavior toward PHA personnel.
    (x) If a welfare-to-work (WTW) family fails, willfully and 
persistently, to fulfill its obligations under the welfare-to-work 
voucher program.
    (xi) If the family has been engaged in criminal activity or alcohol 
abuse as described in Sec. 982.553.
    (2) Consideration of circumstances. In determining whether to deny 
or terminate assistance because of action or failure to act by members 
of the family:
    (i) The PHA may consider all relevant circumstances such as the 
seriousness of the case, the extent of participation or culpability of 
individual family members, mitigating circumstances related to the 
disability of a family member, and the effects of denial or termination 
of assistance on other family members who were not involved in the 
action or failure.
    (ii) The PHA may impose, as a condition of continued assistance for 
other family members, a requirement that other family members who 
participated in or were culpable for the action or failure will not 
reside in the unit. The PHA may permit the other members of a 
participant family to continue receiving assistance.
    (iii) In determining whether to deny admission or terminate 
assistance for illegal use of drugs or alcohol abuse by a household 
member who is no longer engaged in such behavior, the PHA consider 
whether such household member is participating in or has successfully 
completed a supervised drug or alcohol rehabilitation program, or has 
otherwise been rehabilitated successfully (42 U.S.C. 13661). For this 
purpose, the PHA may require the applicant or tenant to submit evidence 
of the household member's current participation in, or successful 
completion of, a supervised drug or alcohol rehabilitation program or 
evidence of otherwise having been rehabilitated successfully.
    (iv) If the family includes a person with disabilities, the PHA 
decision concerning such action is subject to consideration of 
reasonable accommodation in accordance with part 8 of this title.
    (v) Nondiscrimination limitation. The PHA's admission and eviction 
actions must be consistent with fair housing and equal opportunity 
provisions of Sec. 5.105 of this title.
    (d) Information for family. The PHA must give the family a written 
description of:
    (1) Family obligations under the program.
    (2) The grounds on which the PHA may deny or terminate assistance 
because of family action or failure to act.
    (3) The PHA informal hearing procedures.
    (e) Applicant screening. The PHA may at any time deny program 
assistance for an applicant in accordance with the PHA policy, as stated 
in the PHA administrative plan, on screening of applicants for family 
behavior or suitability for tenancy.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34695, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995; 61 
FR 13627, Mar. 27, 1996; 63 FR 23865, Apr. 30, 1998; 64 FR 26650, May 
14, 1999; 64 FR 49659, Sept. 14, 1999; 64 FR 56915, Oct. 21, 1999; 65 FR 
16823, Mar. 30, 2000; 66 FR 28805, May 24, 2001]

[[Page 628]]



Sec. 982.553  Denial of admission and termination of assistance for 
criminals and alcohol abusers.

    (a) Denial of admission. (1) Prohibiting admission of drug 
criminals.
    (i) The PHA must prohibit admission to the program of an applicant 
for three years from the date of eviction if a household member has been 
evicted from federally assisted housing for drug-related criminal 
activity. However, the PHA may admit the household if the PHA 
determines:
    (A) That the evicted household member who engaged in drug-related 
criminal activity has successfully completed a supervised drug 
rehabilitation program approved by the PHA; or
    (B) That the circumstances leading to eviction no longer exist (for 
example, the criminal household member has died or is imprisoned).
    (ii) The PHA must establish standards that prohibit admission if:
    (A) The PHA determines that any household member is currently 
engaging in illegal use of a drug;
    (B) The PHA determines that it has reasonable cause to believe that 
a household member's illegal drug use or a pattern of illegal drug use 
may threaten the health, safety, or right to peaceful enjoyment of the 
premises by other residents; or
    (C) Any household member has ever been convicted of drug-related 
criminal activity for manufacture or production of methamphetamine on 
the premises of federally assisted housing.
    (2) Prohibiting admission of other criminals--(i) Mandatory 
prohibition. The PHA must establish standards that prohibit admission to 
the program if any member of the household is subject to a lifetime 
registration requirement under a State sex offender registration 
program. In this screening of applicants, the PHA must perform criminal 
history background checks necessary to determine whether any household 
member is subject to a lifetime sex offender registration requirement in 
the State where the housing is located and in other States where the 
household members are known to have resided.
    (ii) Permissive prohibitions. (A) The PHA may prohibit admission of 
a household to the program if the PHA determines that any household 
member is currently engaged in, or has engaged in during a reasonable 
time before the admission:
    (1) Drug-related criminal activity;
    (2) Violent criminal activity;
    (3) Other criminal activity which may threaten the health, safety, 
or right to peaceful enjoyment of the premises by other residents or 
persons residing in the immediate vicinity; or
    (4) Other criminal activity which may threaten the health or safety 
of the owner, property management staff, or persons performing a 
contract administration function or responsibility on behalf of the PHA 
(including a PHA employee or a PHA contractor, subcontractor or agent).
    (B) The PHA may establish a period before the admission decision 
during which an applicant must not to have engaged in the activities 
specified in paragraph (a)(2)(i) of this section (``reasonable time'').
    (C) If the PHA previously denied admission to an applicant because a 
member of the household engaged in criminal activity, the PHA may 
reconsider the applicant if the PHA has sufficient evidence that the 
members of the household are not currently engaged in, and have not 
engaged in, such criminal activity during a reasonable period, as 
determined by the PHA, before the admission decision.
    (1) The PHA would have ``sufficient evidence'' if the household 
member submitted a certification that she or he is not currently engaged 
in and has not engaged in such criminal activity during the specified 
period and provided supporting information from such sources as a 
probation officer, a landlord, neighbors, social service agency workers 
and criminal records, which the PHA verified.
    (2) For purposes of this section, a household member is ``currently 
engaged in'' criminal activity if the person has engaged in the behavior 
recently enough to justify a reasonable belief that the behavior is 
current.
    (3) Prohibiting admission of alcohol abusers. The PHA must establish 
standards that prohibit admission to the program if the PHA determines 
that it has reasonable cause to believe that a household member's abuse 
or pattern of abuse of alcohol may threaten the

[[Page 629]]

health, safety, or right to peaceful enjoyment of the premises by other 
residents.
    (b) Terminating assistance--(1) Terminating assistance for drug 
criminals. (i) The PHA must establish standards that allow the PHA to 
terminate assistance for a family under the program if the PHA 
determines that:
    (A) Any household member is currently engaged in any illegal use of 
a drug; or
    (B) A pattern of illegal use of a drug by any household member 
interferes with the health, safety, or right to peaceful enjoyment of 
the premises by other residents.
    (ii) The PHA must immediately terminate assistance for a family 
under the program if the PHA determines that any member of the household 
has ever been convicted of drug-related criminal activity for 
manufacture or production of methamphetamine on the premises of 
federally assisted housing.
    (iii) The PHA must establish standards that allow the PHA to 
terminate assistance under the program for a family if the PHA 
determines that any family member has violated the family's obligation 
under Sec. 982.551 not to engage in any drug-related criminal activity.
    (2) Terminating assistance for other criminals. The PHA must 
establish standards that allow the PHA to terminate assistance under the 
program for a family if the PHA determines that any household member has 
violated the family's obligation under Sec. 982.551 not to engage in 
violent criminal activity.
    (3) Terminating assistance for alcohol abusers. The PHA must 
establish standards that allow termination of assistance for a family if 
the PHA determines that a household member's abuse or pattern of abuse 
of alcohol may threaten the health, safety, or right to peaceful 
enjoyment of the premises by other residents.
    (c) Evidence of criminal activity. The PHA may terminate assistance 
for criminal activity by a household member as authorized in this 
section if the PHA determines, based on a preponderance of the evidence, 
that the household member has engaged in the activity, regardless of 
whether the household member has been arrested or convicted for such 
activity.
    (d) Use of criminal record.--(1) Denial. If a PHA proposes to deny 
admission for criminal activity as shown by a criminal record, the PHA 
must provide the subject of the record and the applicant with a copy of 
the criminal record. The PHA must give the family an opportunity to 
dispute the accuracy and relevance of that record, in the informal 
review process in accordance with Sec. 982.554. (See part 5, subpart J 
for provision concerning access to criminal records.)
    (2) Termination of assistance. If a PHA proposes to terminate 
assistance for criminal activity as shown by a criminal record, the PHA 
must notify the household of the proposed action to be based on the 
information and must provide the subject of the record and the tenant 
with a copy of the criminal record. The PHA must give the family an 
opportunity to dispute the accuracy and relevance of that record in 
accordance with Sec. 982.555.
    (3) Cost of obtaining criminal record. The PHA may not pass along to 
the tenant the costs of a criminal records check.

[66 FR 28805, May 24, 2001]



Sec. 982.554  Informal review for applicant.

    (a) Notice to applicant. The PHA must give an applicant for 
participation prompt notice of a decision denying assistance to the 
applicant. The notice must contain a brief statement of the reasons for 
the PHA decision. The notice must also state that the applicant may 
request an informal review of the decision and must describe how to 
obtain the informal review.
    (b) Informal review process. The PHA must give an applicant an 
opportunity for an informal review of the PHA decision denying 
assistance to the applicant. The administrative plan must state the PHA 
procedures for conducting an informal review. The PHA review procedures 
must comply with the following:
    (1) The review may be conducted by any person or persons designated 
by the PHA, other than a person who made or approved the decision under 
review or a subordinate of this person.

[[Page 630]]

    (2) The applicant must be given an opportunity to present written or 
oral objections to the PHA decision.
    (3) The PHA must notify the applicant of the PHA final decision 
after the informal review, including a brief statement of the reasons 
for the final decision.
    (c) When informal review is not required. The PHA is not required to 
provide the applicant an opportunity for an informal review for any of 
the following:
    (1) Discretionary administrative determinations by the PHA.
    (2) General policy issues or class grievances.
    (3) A determination of the family unit size under the PHA subsidy 
standards.
    (4) An PHA determination not to approve an extension or suspension 
of a voucher term.
    (5) A PHA determination not to grant approval of the tenancy.
    (6) An PHA determination that a unit selected by the applicant is 
not in compliance with HQS.
    (7) An PHA determination that the unit is not in accordance with HQS 
because of the family size or composition.
    (d) Restrictions on assistance for noncitizens. The informal hearing 
provisions for the denial of assistance on the basis of ineligible 
immigration status are contained in 24 CFR part 5.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34695, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995; 61 
FR 13627, Mar. 27, 1996; 64 FR 26650, May 14, 1999]



Sec. 982.555  Informal hearing for participant.

    (a) When hearing is required.(1) a PHA must give a participant 
family an opportunity for an informal hearing to consider whether the 
following PHA decisions relating to the individual circumstances of a 
participant family are in accordance with the law, HUD regulations and 
PHA policies:
    (i) A determination of the family's annual or adjusted income, and 
the use of such income to compute the housing assistance payment.
    (ii) A determination of the appropriate utility allowance (if any) 
for tenant-paid utilities from the PHA utility allowance schedule.
    (iii) A determination of the family unit size under the PHA subsidy 
standards.
    (iv) A determination that a certificate program family is residing 
in a unit with a larger number of bedrooms than appropriate for the 
family unit size under the PHA subsidy standards, or the PHA 
determination to deny the family's request for an exception from the 
standards.
    (v) A determination to terminate assistance for a participant family 
because of the family's action or failure to act (see Sec. 982.552).
    (vi) A determination to terminate assistance because the participant 
family has been absent from the assisted unit for longer than the 
maximum period permitted under PHA policy and HUD rules.
    (2) In the cases described in paragraphs (a)(1) (iv), (v) and (vi) 
of this section, the PHA must give the opportunity for an informal 
hearing before the PHA terminates housing assistance payments for the 
family under an outstanding HAP contract.
    (b) When hearing is not required. The PHA is not required to provide 
a participant family an opportunity for an informal hearing for any of 
the following:
    (1) Discretionary administrative determinations by the PHA.
    (2) General policy issues or class grievances.
    (3) Establishment of the PHA schedule of utility allowances for 
families in the program.
    (4) a PHA determination not to approve an extension or suspension of 
a voucher term.
    (5) a PHA determination not to approve a unit or tenancy.
    (6) a PHA determination that an assisted unit is not in compliance 
with HQS. (However, the PHA must provide the opportunity for an informal 
hearing for a decision to terminate assistance for a breach of the HQS 
caused by the family as described in Sec. 982.551(c).)
    (7) a PHA determination that the unit is not in accordance with HQS 
because of the family size.
    (8) A determination by the PHA to exercise or not to exercise any 
right or

[[Page 631]]

remedy against the owner under a HAP contract.
    (c) Notice to family. (1) In the cases described in paragraphs 
(a)(1) (i), (ii) and (iii) of this section, the PHA must notify the 
family that the family may ask for an explanation of the basis of the 
PHA determination, and that if the family does not agree with the 
determination, the family may request an informal hearing on the 
decision.
    (2) In the cases described in paragraphs (a)(1) (iv), (v) and (vi) 
of this section, the PHA must give the family prompt written notice that 
the family may request a hearing. The notice must:
    (i) Contain a brief statement of reasons for the decision,
    (ii) State that if the family does not agree with the decision, the 
family may request an informal hearing on the decision, and
    (iii) State the deadline for the family to request an informal 
hearing.
    (d) Expeditious hearing process. Where a hearing for a participant 
family is required under this section, the PHA must proceed with the 
hearing in a reasonably expeditious manner upon the request of the 
family.
    (e) Hearing procedures--(1) Administrative plan. The administrative 
plan must state the PHA procedures for conducting informal hearings for 
participants.
    (2) Discovery--(i) By family. The family must be given the 
opportunity to examine before the PHA hearing any PHA documents that are 
directly relevant to the hearing. The family must be allowed to copy any 
such document at the family's expense. If the PHA does not make the 
document available for examination on request of the family, the PHA may 
not rely on the document at the hearing.
    (ii) By PHA. The PHA hearing procedures may provide that the PHA 
must be given the opportunity to examine at PHA offices before the PHA 
hearing any family documents that are directly relevant to the hearing. 
The PHA must be allowed to copy any such document at the PHA's expense. 
If the family does not make the document available for examination on 
request of the PHA, the family may not rely on the document at the 
hearing.
    (iii) Documents. The term ``documents'' includes records and 
regulations.
    (3) Representation of family. At its own expense, the family may be 
represented by a lawyer or other representative.
    (4) Hearing officer: Appointment and authority. (i) The hearing may 
be conducted by any person or persons designated by the PHA, other than 
a person who made or approved the decision under review or a subordinate 
of this person.
    (ii) The person who conducts the hearing may regulate the conduct of 
the hearing in accordance with the PHA hearing procedures.
    (5) Evidence. The PHA and the family must be given the opportunity 
to present evidence, and may question any witnesses. Evidence may be 
considered without regard to admissibility under the rules of evidence 
applicable to judicial proceedings.
    (6) Issuance of decision. The person who conducts the hearing must 
issue a written decision, stating briefly the reasons for the decision. 
Factual determinations relating to the individual circumstances of the 
family shall be based on a preponderance of the evidence presented at 
the hearing. A copy of the hearing decision shall be furnished promptly 
to the family.
    (f) Effect of decision. The PHA is not bound by a hearing decision:
    (1) Concerning a matter for which the PHA is not required to provide 
an opportunity for an informal hearing under this section, or that 
otherwise exceeds the authority of the person conducting the hearing 
under the PHA hearing procedures.
    (2) Contrary to HUD regulations or requirements, or otherwise 
contrary to federal, State, or local law.
    (3) If the PHA determines that it is not bound by a hearing 
decision, the PHA must promptly notify the family of the determination, 
and of the reasons for the determination.
    (g) Restrictions on assistance to noncitizens. The informal hearing 
provisions for the denial of assistance on the basis

[[Page 632]]

of ineligible immigration status are contained in 24 CFR part 5.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34695, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995; 61 
FR 13627, Mar. 27, 1996; 64 FR 26650, May 14, 1999; 65 FR 16823, Mar. 
30, 2000]



                     Subpart M_Special Housing Types

    Source: 63 FR 23865, Apr. 30, 1998, unless otherwise noted.



Sec. 982.601  Overview.

    (a) Special housing types. This subpart describes program 
requirements for special housing types. The following are the special 
housing types:
    (1) Single room occupancy (SRO) housing;
    (2) Congregate housing;
    (3) Group home;
    (4) Shared housing;
    (5) Manufactured home;
    (6) Cooperative housing (excluding families that are not cooperative 
members); and
    (7) Homeownership option.
    (b) PHA choice to offer special housing type. (1) The PHA may permit 
a family to use any of the following special housing types in accordance 
with requirements of the program: single room occupancy (SRO) housing, 
congregate housing, group home, shared housing, manufactured home when 
the family owns the home and leases the manufactured home space, 
cooperative housing or homeownership option.
    (2) In general, the PHA is not required to permit families 
(including families that move into the PHA program under portability 
procedures) to use any of these special housing types, and may limit the 
number of families using special housing types.
    (3) The PHA must permit use of any special housing type if needed as 
a reasonable accommodation so that the program is readily accessible to 
and usable by persons with disabilities in accordance with 24 CFR part 
8.
    (4) For occupancy of a manufactured home, see Sec. 982.620(a).
    (c) Program funding for special housing types. (1) HUD does not 
provide any additional or designated funding for special housing types, 
or for a specific special housing type (e.g, the homeownership option). 
Assistance for special housing types is paid from program funding 
available for the PHA's tenant-based program under the consolidated 
annual contributions contract.
    (2) The PHA may not set aside program funding or program slots for 
special housing types or for a specific special housing type.
    (d) Family choice of housing and housing type. The family chooses 
whether to use housing that qualifies as a special housing type under 
this subpart, or as any specific special housing type, or to use other 
eligible housing in accordance with requirements of the program. The PHA 
may not restrict the family's freedom to choose among available units in 
accordance with Sec. 982.353.
    (e) Applicability of requirements. (1) Except as modified by this 
subpart, the requirements of other subparts of this part apply to the 
special housing types.
    (2) Provisions in this subpart only apply to a specific special 
housing type. The housing type is noted in the title of each section.
    (3) Housing must meet the requirements of this subpart for a single 
special housing type specified by the family. Such housing is not 
subject to requirements for other special housing types. A single unit 
cannot be designated as more than one special housing type.

[63 FR 23865, Apr. 30, 1998, as amended at 65 FR 55162, Sept. 12, 2000; 
67 FR 64493, Oct. 18, 2002]

                       Single Room Occupancy (SRO)



Sec. 982.602  SRO: Who may reside in an SRO?

    A single person may reside in an SRO housing unit.

[64 FR 26650, May 14, 1999]



Sec. 982.603  SRO: Lease and HAP contract.

    For SRO housing, there is a separate lease and HAP contract for each 
assisted person.

[[Page 633]]



Sec. 982.604   SRO: Voucher housing assistance payment.

    (a) For a person residing in SRO housing, the payment standard is 75 
percent of the zero-bedroom payment standard amount on the PHA payment 
standard schedule. For a person residing in SRO housing in an exception 
area, the payment standard is 75 percent of the HUD-approved zero-
bedroom exception payment standard amount.
    (b) The utility allowance for an assisted person residing in SRO 
housing is 75 percent of the zero bedroom utility allowance.

[64 FR 26650, May 14, 1999]



Sec. 982.605  SRO: Housing quality standards.

    (a) HQS standards for SRO. The HQS in Sec. 982.401 apply to SRO 
housing. However, the standards in this section apply in place of Sec. 
982.401(b) (sanitary facilities), Sec. 982.401(c) (food preparation and 
refuse disposal), and Sec. 982.401(d) (space and security). Since the 
SRO units will not house children, the housing quality standards in 
Sec. 982.401(j), concerning lead-based paint, do not apply to SRO 
housing.
    (b) Performance requirements. (1) SRO housing is subject to the 
additional performance requirements in this paragraph (b).
    (2) Sanitary facilities, and space and security characteristics must 
meet local code standards for SRO housing. In the absence of applicable 
local code standards for SRO housing, the following standards apply:
    (i) Sanitary facilities. (A) At least one flush toilet that can be 
used in privacy, lavatory basin, and bathtub or shower, in proper 
operating condition, must be supplied for each six persons or fewer 
residing in the SRO housing.
    (B) If SRO units are leased only to males, flush urinals may be 
substituted for not more than one-half the required number of flush 
toilets. However, there must be at least one flush toilet in the 
building.
    (C) Every lavatory basin and bathtub or shower must be supplied at 
all times with an adequate quantity of hot and cold running water.
    (D) All of these facilities must be in proper operating condition, 
and must be adequate for personal cleanliness and the disposal of human 
waste. The facilities must utilize an approvable public or private 
disposal system.
    (E) Sanitary facilities must be reasonably accessible from a common 
hall or passageway to all persons sharing them. These facilities may not 
be located more than one floor above or below the SRO unit. Sanitary 
facilities may not be located below grade unless the SRO units are 
located on that level.
    (ii) Space and security. (A) No more than one person may reside in 
an SRO unit.
    (B) An SRO unit must contain at least one hundred ten square feet of 
floor space.
    (C) An SRO unit must contain at least four square feet of closet 
space for each resident (with an unobstructed height of at least five 
feet). If there is less closet space, space equal to the amount of the 
deficiency must be subtracted from the area of the habitable room space 
when determining the amount of floor space in the SRO unit. The SRO unit 
must contain at least one hundred ten square feet of remaining floor 
space after subtracting the amount of the deficiency in minimum closet 
space.
    (D) Exterior doors and windows accessible from outside an SRO unit 
must be lockable.
    (3) Access. (i) Access doors to an SRO unit must have locks for 
privacy in proper operating condition.
    (ii) An SRO unit must have immediate access to two or more approved 
means of exit, appropriately marked, leading to safe and open space at 
ground level, and any means of exit required by State and local law.
    (iii) The resident must be able to access an SRO unit without 
passing through any other unit.
    (4) Sprinkler system. A sprinkler system that protects all major 
spaces, hard wired smoke detectors, and such other fire and safety 
improvements as State or local law may require must be installed in each 
building. The term ``major spaces'' means hallways, large

[[Page 634]]

common areas, and other areas specified in local fire, building, or 
safety codes.

                           Congregate Housing



Sec. 982.606  Congregate housing: Who may reside in congregate housing.

    (a) An elderly person or a person with disabilities may reside in a 
congregate housing unit.
    (b)(1) If approved by the PHA, a family member or live-in aide may 
reside with the elderly person or person with disabilities.
    (2) The PHA must approve a live-in aide if needed as a reasonable 
accommodation so that the program is readily accessible to and usable by 
persons with disabilities in accordance with 24 CFR part 8. See Sec. 
982.316 concerning occupancy by a live-in aide.



Sec. 982.607  Congregate housing: Lease and HAP contract.

    For congregate housing, there is a separate lease and HAP contract 
for each assisted family.



Sec. 982.608  Congregate housing: Voucher housing assistance payment.

    (a) Unless there is a live-in aide:
    (1) For a family residing in congregate housing, the payment 
standard is the zero-bedroom payment standard amount on the PHA payment 
standard schedule. For a family residing in congregate housing in an 
exception area, the payment standard is the HUD-approved zero-bedroom 
exception payment standard amount.
    (2) However, if there are two or more rooms in the unit (not 
including kitchen or sanitary facilities), the payment standard for a 
family residing in congregate housing is the one-bedroom payment 
standard amount.
    (b) If there is a live-in aide, the live-in aide must be counted in 
determining the family unit size.

[63 FR 23865, Apr. 30, 1998, as amended at 64 FR 26650, May 14, 1999]



Sec. 982.609  Congregate housing: Housing quality standards.

    (a) HQS standards for congregate housing. The HQS in Sec. 982.401 
apply to congregate housing. However, the standards in this section 
apply in place of Sec. 982.401(c) (food preparation and refuse 
disposal). Congregate housing is not subject to the HQS acceptability 
requirement in Sec. 982.401(d)(2)(i) that the dwelling unit must have a 
kitchen area.
    (b) Food preparation and refuse disposal: Additional performance 
requirements. The following additional performance requirements apply to 
congregate housing:
    (1) The unit must contain a refrigerator of appropriate size.
    (2) There must be central kitchen and dining facilities on the 
premises. These facilities:
    (i) Must be located within the premises, and accessible to the 
residents;
    (ii) Must contain suitable space and equipment to store, prepare, 
and serve food in a sanitary manner;
    (iii) Must be used to provide a food service that is provided for 
the residents, and that is not provided by the residents; and
    (iv) Must be for the primary use of residents of the congregate 
units and be sufficient in size to accommodate the residents.
    (3) There must be adequate facilities and services for the sanitary 
disposal of food waste and refuse, including facilities for temporary 
storage where necessary.

                               Group Home



Sec. 982.610  Group home: Who may reside in a group home.

    (a) An elderly person or a person with disabilities may reside in a 
State-approved group home.
    (b)(1) If approved by the PHA, a live-in aide may reside with a 
person with disabilities.
    (2) The PHA must approve a live-in aide if needed as a reasonable 
accommodation so that the program is readily accessible to and usable by 
persons with disabilities in accordance with 24 CFR part 8. See Sec. 
982.316 concerning occupancy by a live-in aide.
    (c) Except for a live-in aide, all residents of a group home, 
whether assisted or unassisted, must be elderly persons or persons with 
disabilities.
    (d) Persons residing in a group home must not require continual 
medical or nursing care.

[[Page 635]]

    (e) Persons who are not assisted under the tenant-based program may 
reside in a group home.
    (f) No more than 12 persons may reside in a group home. This limit 
covers all persons who reside in the unit, including assisted and 
unassisted residents and any live-in aide.



Sec. 982.611  Group home: Lease and HAP contract.

    For assistance in a group home, there is a separate HAP contract and 
lease for each assisted person.



Sec. 982.612  Group home: State approval of group home.

    A group home must be licensed, certified, or otherwise approved in 
writing by the State (e.g., Department of Human Resources, Mental 
Health, Retardation, or Social Services) as a group home for elderly 
persons or persons with disabilities.



Sec. 982.613  Group home: Rent and voucher housing assistance payment.

    (a) Meaning of pro-rata portion. For a group home, the term ``pro-
rata portion'' means the ratio derived by dividing the number of persons 
in the assisted household by the total number of residents (assisted and 
unassisted) residing in the group home. The number of persons in the 
assisted household equals one assisted person plus any PHA-approved 
live-in aide.
    (b) Rent to owner: Reasonable rent limit. (1) The rent to owner for 
an assisted person may not exceed the pro-rata portion of the reasonable 
rent for the group home.
    (2) The reasonable rent for a group home is determined in accordance 
with Sec. 982.507. In determining reasonable rent for the group home, 
the PHA must consider whether sanitary facilities, and facilities for 
food preparation and service, are common facilities or private 
facilities.
    (c) Payment standard. (1) Family unit size. (i) Unless there is a 
live-in aide, the family unit size is zero or one bedroom.
    (ii) If there is a live-in aide, the live-in aide must be counted in 
determining the family unit size.
    (2) The payment standard for a person who resides in a group home is 
the lower of:
    (i) The payment standard amount on the PHA payment standard schedule 
for the family unit size; or (ii) The pro-rata portion of the payment 
standard amount on the PHA payment standard schedule for the group home 
size.
    (iii) If there is a live-in aide, the live-in aide must be counted 
in determining the family unit size.
    (d) Utility allowance. The utility allowance for each assisted 
person residing in a group home is the pro-rata portion of the utility 
allowance for the group home unit size.

[63 FR 23865, Apr. 30, 1998, as amended at 64 FR 26651, May 14, 1999]



Sec. 982.614  Group home: Housing quality standards.

    (a) Compliance with HQS. The PHA may not give approval to reside in 
a group home unless the unit, including the portion of the unit 
available for use by the assisted person under the lease, meets the 
housing quality standards.
    (b) Applicable HQS standards. (1) The HQS in Sec. 982.401 apply to 
assistance in a group home. However, the standards in this section apply 
in place of Sec. 982.401(b) (sanitary facilities), Sec. 982.401(c) 
(food preparation and refuse disposal), Sec. 982.401(d) (space and 
security), Sec. 982.401(g) (structure and materials) and Sec. 
982.401(l) (site and neighborhood).
    (2) The entire unit must comply with the HQS.
    (c) Additional performance requirements. The following additional 
performance requirements apply to a group home:
    (1) Sanitary facilities. (i) There must be a bathroom in the unit. 
The unit must contain, and an assisted resident must have ready access 
to:
    (A) A flush toilet that can be used in privacy;
    (B) A fixed basin with hot and cold running water; and
    (C) A shower or bathtub with hot and cold running water.
    (ii) All of these facilities must be in proper operating condition, 
and must be adequate for personal cleanliness and the disposal of human 
waste. The facilities must utilize an approvable public or private 
disposal system.

[[Page 636]]

    (iii) The unit may contain private or common sanitary facilities. 
However, the facilities must be sufficient in number so that they need 
not be shared by more than four residents of the group home.
    (iv) Sanitary facilities in the group home must be readily 
accessible to and usable by residents, including persons with 
disabilities.
    (2) Food preparation and service. (i) The unit must contain a 
kitchen and a dining area. There must be adequate space to store, 
prepare, and serve foods in a sanitary manner.
    (ii) Food preparation and service equipment must be in proper 
operating condition. The equipment must be adequate for the number of 
residents in the group home. The unit must contain the following 
equipment:
    (A) A stove or range, and oven;
    (B) A refrigerator; and
    (C) A kitchen sink with hot and cold running water. The sink must 
drain into an approvable public or private disposal system.
    (iii) There must be adequate facilities and services for the 
sanitary disposal of food waste and refuse, including facilities for 
temporary storage where necessary.
    (iv) The unit may contain private or common facilities for food 
preparation and service.
    (3) Space and security. (i) The unit must provide adequate space and 
security for the assisted person.
    (ii) The unit must contain a living room, kitchen, dining area, 
bathroom, and other appropriate social, recreational or community space. 
The unit must contain at least one bedroom of appropriate size for each 
two persons.
    (iii) Doors and windows that are accessible from outside the unit 
must be lockable.
    (4) Structure and material. (i) The unit must be structurally sound 
to avoid any threat to the health and safety of the residents, and to 
protect the residents from the environment.
    (ii) Ceilings, walls, and floors must not have any serious defects 
such as severe bulging or leaning, loose surface materials, severe 
buckling or noticeable movement under walking stress, missing parts or 
other significant damage. The roof structure must be firm, and the roof 
must be weathertight. The exterior or wall structure and exterior wall 
surface may not have any serious defects such as serious leaning, 
buckling, sagging, cracks or large holes, loose siding, or other serious 
damage. The condition and equipment of interior and exterior stairways, 
halls, porches, walkways, etc., must not present a danger of tripping or 
falling. Elevators must be maintained in safe operating condition.
    (iii) The group home must be accessible to and usable by a resident 
with disabilities.
    (5) Site and neighborhood. The site and neighborhood must be 
reasonably free from disturbing noises and reverberations and other 
hazards to the health, safety, and general welfare of the residents. The 
site and neighborhood may not be subject to serious adverse 
environmental conditions, natural or manmade, such as dangerous walks or 
steps, instability, flooding, poor drainage, septic tank back-ups, 
sewage hazards or mud slides, abnormal air pollution, smoke or dust, 
excessive noise, vibrations or vehicular traffic, excessive 
accumulations of trash, vermin or rodent infestation, or fire hazards. 
The unit must be located in a residential setting.

                             Shared Housing



Sec. 982.615  Shared housing: Occupancy.

    (a) Sharing a unit. An assisted family may reside in shared housing. 
In shared housing, an assisted family shares a unit with the other 
resident or residents of the unit. The unit may be a house or an 
apartment.
    (b) Who may share a dwelling unit with assisted family? (1) If 
approved by the HA, a live-in aide may reside with the family to care 
for a person with disabilities. The PHA must approve a live-in aide if 
needed as a reasonable accommodation so that the program is readily 
accessible to and usable by persons with disabilities in accordance with 
24 CFR part 8. See Sec. 982.316 concerning occupancy by a live-in aide.
    (2) Other persons who are assisted under the tenant-based program, 
or other persons who are not assisted

[[Page 637]]

under the tenant-based program, may reside in a shared housing unit.
    (3) The owner of a shared housing unit may reside in the unit. A 
resident owner may enter into a HAP contract with the PHA. However, 
housing assistance may not be paid on behalf of an owner. An assisted 
person may not be related by blood or marriage to a resident owner.



Sec. 982.616  Shared housing: Lease and HAP contract.

    For assistance in a shared housing unit, there is a separate HAP 
contract and lease for each assisted family.



Sec. 982.617  Shared housing: Rent and voucher housing assistance payment.

    (a) Meaning of pro-rata portion. For shared housing, the term ``pro-
rata portion'' means the ratio derived by dividing the number of 
bedrooms in the private space available for occupancy by a family by the 
total number of bedrooms in the unit. For example, for a family entitled 
to occupy three bedrooms in a five bedroom unit, the ratio would be 3/5.
    (b) Rent to owner: Reasonable rent. (1) The rent to owner for the 
family may not exceed the pro-rata portion of the reasonable rent for 
the shared housing dwelling unit.
    (2) The reasonable rent is determined in accordance with Sec. 
982.507.
    (c) Payment standard. The payment standard for a family that resides 
in a shared housing is the lower of:
    (1) The payment standard amount on the PHA payment standard schedule 
for the family unit size; or
    (2) The pro-rata portion of the payment standard amount on the PHA 
payment standard schedule for the size of the shared housing unit.
    (d) Utility allowance. The utility allowance for an assisted family 
residing in shared housing is the pro-rata portion of the utility 
allowance for the shared housing unit.

[63 FR 23865, Apr. 30, 1998, as amended by 64 FR 26651, May 14, 1999]



Sec. 982.618  Shared housing: Housing quality standards.

    (a) Compliance with HQS. The PHA may not give approval to reside in 
shared housing unless the entire unit, including the portion of the unit 
available for use by the assisted family under its lease, meets the 
housing quality standards.
    (b) Applicable HQS standards. The HQS in Sec. 982.401 apply to 
assistance in shared housing. However, the HQS standards in this section 
apply in place of Sec. 982.401(d) (space and security).
    (c) Facilities available for family. The facilities available for 
the use of an assisted family in shared housing under the family's lease 
must include (whether in the family's private space or in the common 
space) a living room, sanitary facilities in accordance with Sec. 
982.401(b), and food preparation and refuse disposal facilities in 
accordance with Sec. 982.401(c).
    (d) Space and security: Performance requirements. (1) The entire 
unit must provide adequate space and security for all its residents 
(whether assisted or unassisted).
    (2)(i) Each unit must contain private space for each assisted 
family, plus common space for shared use by the residents of the unit. 
Common space must be appropriate for shared use by the residents.
    (ii) The private space for each assisted family must contain at 
least one bedroom for each two persons in the family. The number of 
bedrooms in the private space of an assisted family may not be less than 
the family unit size.
    (iii) A zero or one bedroom unit may not be used for shared housing.

                               Cooperative



Sec. 982.619  Cooperative housing.

    (a) Assistance in cooperative housing. This section applies to 
rental assistance for a cooperative member residing in cooperative 
housing. However, this section does not apply to:
    (1) Assistance for a cooperative member under the homeownership 
option pursuant to Sec. Sec. 982.625 through 982.641; or
    (2) Rental assistance for a family that leases a cooperative housing 
unit from a cooperative member (such rental assistance is not a special 
housing type, and is subject to requirements in other subparts of this 
part 982).

[[Page 638]]

    (b) Rent to owner. (1) The reasonable rent for a cooperative unit is 
determined in accordance with Sec. 982.507. For cooperative housing, 
the rent to owner is the monthly carrying charge under the occupancy 
agreement/lease between the member and the cooperative.
    (2) The carrying charge consists of the amount assessed to the 
member by the cooperative for occupancy of the housing. The carrying 
charge includes the member's share of the cooperative debt service, 
operating expenses, and necessary payments to cooperative reserve funds. 
However, the carrying charge does not include down-payments or other 
payments to purchase the cooperative unit, or to amortize a loan to the 
family for this purpose.
    (3) Gross rent is the carrying charge plus any utility allowance.
    (4) For a regular tenancy under the certificate program, rent to 
owner is adjusted in accordance with Sec. 982.519 (annual adjustment) 
and Sec. 982.520 (special adjustments). For a cooperative, adjustments 
are applied to the carrying charge as determined in accordance with this 
section.
    (5) The occupancy agreement/lease and other appropriate documents 
must provide that the monthly carrying charge is subject to Section 8 
limitations on rent to owner.
    (c) Housing assistance payment. The amount of the housing assistance 
payment is determined in accordance with subpart K of this part.
    (d) Maintenance. (1) During the term of the HAP contract between the 
PHA and the cooperative, the dwelling unit and premises must be 
maintained in accordance with the HQS. If the dwelling unit and premises 
are not maintained in accordance with the HQS, the PHA may exercise all 
available remedies, regardless of whether the family or the cooperative 
is responsible for such breach of the HQS. PHA remedies for breach of 
the HQS include recovery of overpayments, abatement or other reduction 
of housing assistance payments, termination of housing assistance 
payments and termination of the HAP contract.
    (2) The PHA may not make any housing assistance payments if the 
contract unit does not meet the HQS, unless any defect is corrected 
within the period specified by the PHA and the PHA verifies the 
correction. If a defect is life-threatening, the defect must be 
corrected within no more than 24 hours. For other defects, the defect 
must be corrected within the period specified by the PHA.
    (3) The family is responsible for a breach of the HQS that is caused 
by any of the following:
    (i) The family fails to perform any maintenance for which the family 
is responsible in accordance with the terms of the cooperative occupancy 
agreement between the cooperative member and the cooperative;
    (ii) The family fails to pay for any utilities that the cooperative 
is not required to pay for, but which are to be paid by the cooperative 
member;
    (iii) The family fails to provide and maintain any appliances that 
the cooperative is not required to provide, but which are to be provided 
by the cooperative member; or
    (iv) Any member of the household or guest damages the dwelling unit 
or premises (damages beyond ordinary wear and tear).
    (4) If the family has caused a breach of the HQS for which the 
family is responsible, the PHA must take prompt and vigorous action to 
enforce such family obligations. The PHA may terminate assistance for 
violation of family obligations in accordance with Sec. 982.552.
    (5) Section 982.404 does not apply to assistance for cooperative 
housing under this section.
    (e) Live-in aide. (1) If approved by the PHA, a live-in aide may 
reside with the family to care for a person with disabilities. The PHA 
must approve a live-in aide if needed as a reasonable accommodation so 
that the program is readily accessible to and usable by persons with 
disabilities in accordance with 24 CFR part 8. See Sec. 982.316 
concerning occupancy by a live-in aide.
    (2) If there is a live-in aide, the live-in aide must be counted in 
determining the family unit size.

[63 FR 23865, Apr. 30, 1998, as amended by 64 FR 26651, May 14, 1999; 65 
FR 55162, Sept. 12, 2000]

[[Page 639]]

                            Manufactured Home



Sec. 982.620  Manufactured home: Applicability of requirements.

    (a) Assistance for resident of manufactured home. (1) A family may 
reside in a manufactured home with assistance under the program.
    (2) The PHA must permit a family to lease a manufactured home and 
space with assistance under the program.
    (3) The PHA may provide assistance for a family that owns the 
manufactured home and leases only the space. The PHA is not required to 
provide such assistance under the program.
    (b) Applicability. (1) The HQS in Sec. 982.621 always apply when 
assistance is provided to a family occupying a manufactured home (under 
paragraph (a)(2) or (a)(3) of this section).
    (2) Sections 982.622 to 982.624 only apply when assistance is 
provided to a manufactured home owner to lease a manufactured home 
space.
    (c) Live-in aide. (1) If approved by the PHA, a live-in aide may 
reside with the family to care for a person with disabilities. The PHA 
must approve a live-in aide if needed as a reasonable accommodation so 
that the program is readily accessible to and usable by persons with 
disabilities in accordance with 24 CFR part 8. See Sec. 982.316 
concerning occupancy by a live-in aide.
    (2) If there is a live-in aide, the live-in aide must be counted in 
determining the family unit size.



Sec. 982.621  Manufactured home: Housing quality standards.

    A manufactured home must meet all the HQS performance requirements 
and acceptability criteria in Sec. 982.401. A manufactured home also 
must meet the following requirements:
    (a) Performance requirement. A manufactured home must be placed on 
the site in a stable manner, and must be free from hazards such as 
sliding or wind damage.
    (b) Acceptability criteria. A manufactured home must be securely 
anchored by a tie-down device that distributes and transfers the loads 
imposed by the unit to appropriate ground anchors to resist wind 
overturning and sliding.

                     Manufactured Home Space Rental



Sec. 982.622  Manufactured home space rental: Rent to owner.

    (a) What is included. (1) Rent to owner for rental of a manufactured 
home space includes payment for maintenance and services that the owner 
must provide to the tenant under the lease for the space.
    (2) Rent to owner does not include the costs of utilities and trash 
collection for the manufactured home. However, the owner may charge the 
family a separate fee for the cost of utilities or trash collection 
provided by the owner.
    (b) Reasonable rent. (1) During the assisted tenancy, the rent to 
owner for the manufactured home space may not exceed a reasonable rent 
as determined in accordance with this section. Section 982.503 is not 
applicable.
    (2) The PHA may not approve a lease for a manufactured home space 
until the PHA determines that the initial rent to owner for the space is 
a reasonable rent. At least annually during the assisted tenancy, the 
PHA must redetermine that the current rent to owner is a reasonable 
rent.
    (3) The PHA must determine whether the rent to owner for the 
manufactured home space is a reasonable rent in comparison to rent for 
other comparable manufactured home spaces. To make this determination, 
the PHA must consider the location and size of the space, and any 
services and maintenance to be provided by the owner in accordance with 
the lease (without a fee in addition to the rent).
    (4) By accepting each monthly housing assistance payment from the 
PHA, the owner of the manufactured home space certifies that the rent to 
owner for the space is not more than rent charged by the owner for 
unassisted rental of comparable spaces in the same manufactured home 
park or elsewhere. The owner must give the PHA information, as requested 
by the PHA, on rents charged by the owner for other manufactured home 
spaces.



Sec. 982.623  Manufactured home space rental: Housing assistance payment.

    (a) Housing assistance payment: For certificate tenancy. (1) During 
the term

[[Page 640]]

of a certificate tenancy (entered prior to the merger date), the amount 
of the monthly housing assistance payment equals the lesser of the 
amounts specified in paragraphs (b)(1)(i) or (b)(1)(ii) of this section:
    (i) Manufactured home space cost minus the total tenant payment.
    (ii) The rent to owner for the manufactured home space.
    (2) ``Manufactured home space cost'' means the sum of:
    (i) The amortization cost,
    (ii) The utility allowance, and
    (iii) The rent to owner for the manufactured home space.
    (3) Amortization cost. (i) The amortization cost may include debt 
service to amortize cost (other than furniture costs) included in the 
purchase price of the manufactured home. The debt service includes the 
payment for principal and interest on the loan. The debt service amount 
must be reduced by 15 percent to exclude debt service to amortize the 
cost of furniture, unless the PHA determines that furniture was not 
included in the purchase price.
    (ii) The amount of the amortization cost is the debt service 
established at time of application to a lender for financing purchase of 
the manufactured home if monthly payments are still being made. Any 
increase in debt service due to refinancing after purchase of the home 
is not included in amortization cost.
    (iii) Debt service for set-up charges incurred by a family that 
relocates its home may be included in the monthly amortization payment 
made by the family. In addition, set-up charges incurred before the 
family became an assisted family may be included in the amortization 
cost if monthly payments are still being made to amortize such charges.
    (b) Housing assistance payment for voucher tenancy. (1) There is a 
separate fair market rent for a manufactured home space. The FMR for a 
manufactured home space is determined in accordance with Sec. 
888.113(e) of this title. The FMR for a manufactured home space is 
generally 40 percent of the published FMR for a two-bedroom unit.
    (2) The payment standard shall be determined in accordance with 
Sec. 982.505.
    (3) The PHA shall pay a monthly housing assistance payment on behalf 
of the family that is equal to the lower of:
    (i) The payment standard minus the total tenant payment; or
    (ii) The rent paid for rental of the real property on which the 
manufactured home owned by the family is located (``space rent'') minus 
the total tenant payment.
    (4) The space rent is the sum of the following as determined by the 
PHA:
    (i) Rent to owner for the manufactured home space;
    (ii) Owner maintenance and management charges for the space;
    (iii) The utility allowance for tenant-paid utilities.

[64 FR 26651, May 14, 1999; 64 FR 49659, Sept. 14, 1999; 64 FR 56915, 
Oct. 21, 1999]



Sec. 982.624  Manufactured home space rental: Utility allowance schedule.

    The PHA must establish utility allowances for manufactured home 
space rental. For the first twelve months of the initial lease term 
only, the allowances must include a reasonable amount for utility hook-
up charges payable by the family if the family actually incurs the 
expenses because of a move. Allowances for utility hook-up charges do 
not apply to a family that leases a manufactured home space in place. 
Utility allowances for manufactured home space must not cover costs 
payable by a family to cover the digging of a well or installation of a 
septic system.

                          Homeownership Option

    Source: 65 FR 55163, Sept. 12, 2000, unless otherwise noted.



Sec. 982.625  Homeownership option: General.

    (a) The homeownership option is used to assist a family residing in 
a home purchased and owned by one or more members of the family.
    (b) A family assisted under the homeownership option may be a newly 
admitted or existing participant in the program.
    (c) Forms of homeownership assistance. (1) A PHA may provide one of 
two

[[Page 641]]

forms of homeownership assistance for a family:
    (i) Monthly homeownership assistance payments; or
    (ii) A single downpayment assistance grant.
    (2) Prohibition against combining forms of homeownership assistance. 
A family may only receive one form of homeownership assistance. 
Accordingly, a family that includes a person who was an adult member of 
a family that previously received either of the two forms of 
homeownership assistance may not receive the other form of homeownership 
assistance from any PHA.
    (d) PHA choice to offer homeownership options. (1) The PHA may 
choose to offer either or both forms of homeownership assistance under 
this subpart, or choose not to offer either form of assistance. However, 
the PHA must offer either form of homeownership assistance if necessary 
as a reasonable accommodation for a person with disabilities in 
accordance with Sec. 982.601(b)(3).
    (2) It is the sole responsibility of the PHA to determine whether it 
is reasonable to implement a homeownership program as a reasonable 
accommodation. The PHA will determine what is reasonable based on the 
specific circumstances and individual needs of the person with a 
disability. The PHA may determine that it is not reasonable to offer 
homeownership assistance as a reasonable accommodation in cases where 
the PHA has otherwise opted not to implement a homeownership program.
    (e) Family choice. (1) The family chooses whether to participate in 
the homeownership option if offered by the PHA.
    (2) If the PHA offers both forms of homeownership assistance, the 
family chooses which form of homeownership assistance to receive.
    (f) The PHA must approve a live-in aide if needed as a reasonable 
accommodation so that the program is readily accessible to and useable 
by persons with disabilities in accordance with part 8 of this title. 
(See Sec. 982.316 concerning occupancy by a live-in aide.)
    (g) The PHA must have the capacity to operate a successful Section 8 
homeownership program. The PHA has the required capacity if it satisfies 
either paragraph (g)(1), (g)(2), or (g)(3) of this section.
    (1) The PHA establishes a minimum homeowner downpayment requirement 
of at least 3 percent of the purchase price for participation in its 
Section 8 homeownership program, and requires that at least one percent 
of the purchase price come from the family's personal resources;
    (2) The PHA requires that financing for purchase of a home under 
itsSection 8 homeownership program:
    (i) Be provided, insured, or guaranteed by the state or Federal 
government;
    (ii) Comply with secondary mortgage market underwriting 
requirements; or
    (iii) Comply with generally accepted private sector underwriting 
standards; or
    (3) The PHA otherwise demonstrates in its Annual Plan that it has 
the capacity, or will acquire the capacity, to successfully operate a 
Section 8 homeownership program.
    (h) Recapture of homeownership assistance. A PHA shall not impose or 
enforce any requirement for the recapture of voucher homeownership 
assistance on the sale or refinancing of a home purchased with 
assistance under the homeownership option.
    (i) Applicable requirements. The following specify what regulatory 
provisions (under the heading ``homeownership option'') are applicable 
to either or both forms of homeownership assistance (except as otherwise 
specifically provided):
    (1) Common provisions. The following provisions apply to both forms 
of homeownership assistance:
    (i) Section 982.625 (General);
    (ii) Section 982.626 (Initial requirements);
    (iii) Section 982.627 (Eligibility requirements for families);
    (iv) Section 982.628 (Eligible units);
    (v) Section 982.629 (Additional PHA requirements for family search 
and purchase);
    (vi) Section 982.630 (Homeownership counseling);
    (vii) Section 982.631 (Home inspections, contract of sale, and PHA 
disapproval of seller);

[[Page 642]]

    (viii) Section 982.632 (Financing purchase of home; affordability of 
purchase);
    (ix) Section 982.636 (Portability);
    (x) Section 982.638 (Denial or termination of assistance for 
family); and
    (xi) Section 982.641 (Applicability of other requirements).
    (2) Monthly homeownership assistance payments. The following 
provisions only apply to homeownership assistance in the form of monthly 
homeownership assistance payments:
    (i) Section 982.633 (Continued assistance requirements; family 
obligations);
    (ii) Section 982.634 (Maximum term of homeownership assistance);
    (iii) Section 982.635 (Amount and distribution of monthly 
homeownership assistance payment);
    (iv) Section 982.637 (Move with continued tenant-based assistance); 
and
    (v) Section 982.639 (Administrative fees).
    (3) Downpayment assistance grant. The following provision only 
applies to homeownership assistance in the form of a downpayment 
assistance grant: Section 982.643 (Downpayment assistance grants).

[65 FR 55163, Sept. 12, 2000, as amended at 67 FR 64493, Oct. 18, 2002]



Sec. 982.626  Homeownership option: Initial requirements.

    (a) List of initial requirements. Before commencing homeownership 
assistance for a family, the PHA must determine that all of the 
following initial requirements have been satisfied:
    (1) The family is qualified to receive homeownership assistance (see 
Sec. 982.627);
    (2) The unit is eligible (see Sec. 982.628); and
    (3) The family has satisfactorily completed the PHA program of 
required pre-assistance homeownership counseling (see Sec. 982.630).
    (b) Additional PHA requirements. Unless otherwise provided in this 
part, the PHA may limit homeownership assistance to families or purposes 
defined by the PHA, and may prescribe additional requirements for 
commencement of homeownership assistance for a family. Any such limits 
or additional requirements must be described in the PHA administrative 
plan.
    (c) Environmental requirements. The PHA is responsible for complying 
with the authorities listed in Sec. 58.6 of this title requiring the 
purchaser to obtain and maintain flood insurance for units in special 
flood hazard areas, prohibiting assistance for acquiring units in the 
coastal barriers resource system, and requiring notification to the 
purchaser of units in airport runway clear zones and airfield clear 
zones.



Sec. 982.627  Homeownership option: Eligibility requirements for families.

    (a) Determination whether family is qualified. The PHA may not 
provide homeownership assistance for a family unless the PHA determines 
that the family satisfies all of the following initial requirements at 
commencement of homeownership assistance for the family:
    (1) The family has been admitted to the Section 8 Housing Choice 
Voucher program, in accordance with subpart E of this part.
    (2) The family satisfies any first-time homeowner requirements 
(described in paragraph (b) of this section).
    (3) The family satisfies the minimum income requirement (described 
in paragraph (c) of this section).
    (4) The family satisfies the employment requirements (described in 
paragraph (d) of this section).
    (5) The family has not defaulted on a mortgage securing debt to 
purchase a home under the homeownership option (see paragraph (e) of 
this section).
    (6) Except for cooperative members who have acquired cooperative 
membership shares prior to commencement of homeownership assistance, no 
family member has a present ownership interest in a residence at the 
commencement of homeownership assistance for the purchase of any home.
    (7) Except for cooperative members who have acquired cooperative 
membership shares prior to the commencement of homeownership assistance, 
the family has entered a contract of sale in accordance with Sec. 
982.631(c).
    (8) The family also satisfies any other initial requirements 
established by the PHA (see Sec. 982.626(b)). Any such additional 
requirements must be described in the PHA administrative plan.

[[Page 643]]

    (b) First-time homeowner requirements. At commencement of 
homeownership assistance for the family, the family must be any of the 
following:
    (1) A first-time homeowner (defined at Sec. 982.4);
    (2) A cooperative member (defined at Sec. 982.4); or
    (3) A family of which a family member is a person with disabilities, 
and use of the homeownership option is needed as a reasonable 
accommodation so that the program is readily accessible to and usable by 
such person, in accordance with part 8 of this title.
    (c) Minimum income requirements. (1) At commencement of monthly 
homeownership assistance payments for the family, or at the time of a 
downpayment assistance grant for the family, the family must demonstrate 
that the annual income, as determined by the PHA in accordance with 
Sec. 5.609 of this title, of the adult family members who will own the 
home at commencement of homeownership assistance is not less than:
    (i) In the case of a disabled family (as defined in Sec. 5.403(b) 
of this title), the monthly Federal Supplemental Security Income (SSI) 
benefit for an individual living alone (or paying his or her share of 
food and housing costs) multiplied by twelve; or
    (ii) In the case of other families, the Federal minimum wage 
multiplied by 2,000 hours.
    (2)(i) Except in the case of an elderly family or a disabled family 
(see the definitions of these terms at Sec. 5.403(b) of this title), 
the PHA shall not count any welfare assistance received by the family in 
determining annual income under this section.
    (ii) The disregard of welfare assistance income under paragraph 
(c)(2)(i) of this section only affects the determination of minimum 
annual income used to determine if a family initially qualifies for 
commencement of homeownership assistance in accordance with this 
section, but does not affect:
    (A) The determination of income-eligibility for admission to the 
voucher
    program;
    (B) Calculation of the amount of the family's total tenant payment 
(gross family contribution); or
    (C) Calculation of the amount of homeownership assistance payments 
on behalf of the family.
    (iii) In the case of an elderly or disabled family, the PHA shall 
include welfare assistance for the adult family members who will own the 
home in determining if the family meets the minimum income requirement.
    (3) A PHA may establish a minimum income standard that is higher 
than those described in paragraph (c)(1) of this section for either or 
both types of families. However, a family that meets the applicable HUD 
minimum income requirement described in paragraph (c)(1) of this 
section, but not the higher standard established by the PHA shall be 
considered to satisfy the minimum income requirement if:
    (i) The family demonstrates that it has been pre-qualified or pre-
approved for financing;
    (ii) The pre-qualified or pre-approved financing meets any PHA 
established requirements under Sec. 982.632 for financing the purchase 
of the home (including qualifications of lenders and terms of 
financing); and
    (iii) The pre-qualified or pre-approved financing amount is 
sufficient to purchase housing that meets HQS in the PHA's jurisdiction.
    (d) Employment requirements. (1) Except as provided in paragraph 
(d)(2) of this section, the family must demonstrate that one or more 
adult members of the family who will own the home at commencement of 
homeownership assistance:
    (i) Is currently employed on a full-time basis (the term ``full-time 
employment'' means not less than an average of 30 hours per week); and
    (ii) Has been continuously so employed during the year before 
commencement of homeownership assistance for the family.
    (2) The PHA shall have discretion to determine whether and to what 
extent interruptions are considered to break continuity of employment 
during the year. The PHA may count successive employment during the 
year. The PHA may count self-employment in a business.
    (3) The employment requirement does not apply to an elderly family 
or a disabled family (see the definitions of

[[Page 644]]

these terms at Sec. 5.403(b) of this title). Furthermore, if a family, 
other than an elderly family or a disabled family, includes a person 
with disabilities, the PHA shall grant an exemption from the employment 
requirement if the PHA determines that an exemption is needed as a 
reasonable accommodation so that the program is readily accessible to 
and usable by persons with disabilities in accordance with part 8 of 
this title.
    (4) A PHA may not establish an employment requirement in addition to 
the employment standard established by this paragraph.
    (e) Prohibition against assistance to family that has defaulted. The 
PHA shall not commence homeownership assistance for a family that 
includes an individual who was an adult member of a family at the time 
when such family received homeownership assistance and defaulted on a 
mortgage securing debt incurred to purchase the home.

[65 FR 55163, Sept. 12, 2000, as amended at 67 FR 64493, Oct. 18, 2002]



Sec. 982.628  Homeownership option: Eligible units.

    (a) Initial requirements applicable to the unit. The PHA must 
determine that the unit satisfies all of the following requirements:
    (1) The unit is eligible. (See Sec. 982.352. Paragraphs (a)(6), 
(a)(7) and (b) of Sec. 982.352 do not apply.)
    (2) The unit is either under construction or already existing at the 
time the family enters into the contract of sale.
    (3) The unit is either a one-unit property (including a manufactured 
home) or a single dwelling unit in a cooperative or condominium.
    (4) The unit has been inspected by a PHA inspector and by an 
independent inspector designated by the family (see Sec. 982.631).
    (5) The unit satisfies the HQS (see Sec. 982.401 and Sec. 
982.631).
    (b) Purchase of home where family will not own fee title to the real 
property. Homeownership assistance may be provided for the purchase of a 
home where the family will not own fee title to the real property on 
which the home is located, but only if:
    (1) The home is located on a permanent foundation; and
    (2) The family has the right to occupy the home site for at least 
forty years.
    (c) PHA disapproval of seller. The PHA may not commence 
homeownership assistance for occupancy of a home if the PHA has been 
informed (by HUD or otherwise) that the seller of the home is debarred, 
suspended, or subject to a limited denial of participation under part 24 
of this title.
    (d) PHA-owned units. Homeownership assistance may be provided for 
the purchase of a unit that is owned by the PHA that administers the 
assistance under the consolidated ACC (including a unit owned by an 
entity substantially controlled by the PHA), only if all of the 
following conditions are satisfied:
    (1) The PHA must inform the family, both orally and in writing, that 
the family has the right to purchase any eligible unit and a PHA-owned 
unit is freely selected by the family without PHA pressure or steering;
    (2) The unit is not ineligible housing;
    (3) The PHA must obtain the services of an independent agency, in 
accordance with Sec. 982.352(b)(1)(iv)(B) and (C), to perform the 
following PHA functions:
    (i) Inspection of the unit for compliance with the HQS, in 
accordance with Sec. 982.631(a);
    (ii) Review of the independent inspection report, in accordance with 
Sec. 982.631(b)(4);
    (iii) Review of the contract of sale, in accordance with Sec. 
982.631(c); and
    (iv) Determination of the reasonableness of the sales price and any 
PHA provided financing, in accordance with Sec. 982.632 and other 
supplementary guidance established by HUD.

[65 FR 55163, Sept. 12, 2000, as amended at 67 FR 64494, Oct. 18, 2002; 
67 FR 65865, Oct. 28, 2002; 67 FR 67522, Nov. 6, 2002]



Sec. 982.629  Homeownership option: Additional PHA requirements for 
family search and purchase.

    (a) The PHA may establish the maximum time for a family to locate a 
home, and to purchase the home.
    (b) The PHA may require periodic family reports on the family's 
progress in finding and purchasing a home.

[[Page 645]]

    (c) If the family is unable to purchase a home within the maximum 
time established by the PHA, the PHA may issue the family a voucher to 
lease a unit or place the family's name on the waiting list for a 
voucher.



Sec. 982.630  Homeownership option: Homeownership counseling.

    (a) Before commencement of homeownership assistance for a family, 
the family must attend and satisfactorily complete the pre-assistance 
homeownership and housing counseling program required by the PHA (pre-
assistance counseling).
    (b) Suggested topics for the PHA-required pre-assistance counseling 
program include:
    (1) Home maintenance (including care of the grounds);
    (2) Budgeting and money management;
    (3) Credit counseling;
    (4) How to negotiate the purchase price of a home;
    (5) How to obtain homeownership financing and loan preapprovals, 
including a description of types of financing that may be available, and 
the pros and cons of different types of financing;
    (6) How to find a home, including information about homeownership 
opportunities, schools, and transportation in the PHA jurisdiction;
    (7) Advantages of purchasing a home in an area that does not have a 
high concentration of low-income families and how to locate homes in 
such areas;
    (8) Information on fair housing, including fair housing lending and 
local fair housing enforcement agencies; and
    (9) Information about the Real Estate Settlement Procedures Act (12 
U.S.C. 2601 et seq.) (RESPA), state and Federal truth-in-lending laws, 
and how to identify and avoid loans with oppressive terms and 
conditions.
    (c) The PHA may adapt the subjects covered in pre-assistance 
counseling (as listed in paragraph (b) of this section) to local 
circumstances and the needs of individual families.
    (d) The PHA may also offer additional counseling after commencement 
of homeownership assistance (ongoing counseling). If the PHA offers a 
program of ongoing counseling for participants in the homeownership 
option, the PHA shall have discretion to determine whether the family is 
required to participate in the ongoing counseling.
    (e) If the PHA is not using a HUD-approved housing counseling agency 
to provide the counseling for families participating in the 
homeownership option, the PHA should ensure that its counseling program 
is consistent with the homeownership counseling provided under HUD's 
Housing Counseling program.



Sec. 982.631  Homeownership option: Home inspections, contract of sale, 
and PHA disapproval of seller.

    (a) HQS inspection by PHA. The PHA may not commence monthly 
homeownership assistance payments or provide a downpayment assistance 
grant for the family until the PHA has inspected the unit and has 
determined that the unit passes HQS.
    (b) Independent inspection. (1) The unit must also be inspected by 
an independent professional inspector selected by and paid by the 
family.
    (2) The independent inspection must cover major building systems and 
components, including foundation and structure, housing interior and 
exterior, and the roofing, plumbing, electrical, and heating systems. 
The independent inspector must be qualified to report on property 
conditions, including major building systems and components.
    (3) The PHA may not require the family to use an independent 
inspector selected by the PHA. The independent inspector may not be a 
PHA employee or contractor, or other person under control of the PHA. 
However, the PHA may establish standards for qualification of inspectors 
selected by families under the homeownership option.
    (4) The independent inspector must provide a copy of the inspection 
report both to the family and to the PHA. The PHA may not commence 
monthly homeownership assistance payments, or provide a downpayment 
assistance grant for the family, until the PHA has reviewed the 
inspection report of the independent inspector. Even if the unit 
otherwise complies with the HQS (and may qualify for assistance under 
the PHA's tenant-based rental voucher program), the PHA shall have 
discretion

[[Page 646]]

to disapprove the unit for assistance under the homeownership option 
because of information in the inspection report.
    (c) Contract of sale. (1) Before commencement of monthly 
homeownership assistance payments or receipt of a downpayment assistance 
grant, a member or members of the family must enter into a contract of 
sale with the seller of the unit to be acquired by the family. The 
family must give the PHA a copy of the contract of sale (see also Sec. 
982.627(a)(7)).
    (2) The contract of sale must:
    (i) Specify the price and other terms of sale by the seller to the 
purchaser.
    (ii) Provide that the purchaser will arrange for a pre-purchase 
inspection of the dwelling unit by an independent inspector selected by 
the purchaser.
    (iii) Provide that the purchaser is not obligated to purchase the 
unit
    unless the inspection is satisfactory to the purchaser.
    (iv) Provide that the purchaser is not obligated to pay for any 
necessary repairs.
    (v) Contain a certification from the seller that the seller has not 
been debarred, suspended, or subject to a limited denial of 
participation under part 24 of this title.
    (d) PHA disapproval of seller. In its administrative discretion, the 
PHA may deny approval of a seller for any reason provided for 
disapproval of an owner in Sec. 982.306(c).

[65 FR 55163, Sept. 12, 2000, as amended at 67 FR 64494, Oct. 18, 2002]



Sec. 982.632  Homeownership option: Financing purchase of home; 
affordability of purchase.

    (a) The PHA may establish requirements for financing purchase of a 
home to be assisted under the homeownership option. Such PHA 
requirements may include requirements concerning qualification of 
lenders (for example, prohibition of seller financing or case-by-case 
approval of seller financing), or concerning terms of financing (for 
example, a prohibition of balloon payment mortgages, establishment of a 
minimum homeowner equity requirement from personal resources, or 
provisions required to protect borrowers against high cost loans or 
predatory loans). A PHA may not require that families acquire financing 
from one or more specified lenders, thereby restricting the family's 
ability to secure favorable financing terms.
    (b) If the purchase of the home is financed with FHA mortgage 
insurance, such financing is subject to FHA mortgage insurance 
requirements.
    (c) The PHA may establish requirements or other restrictions 
concerning debt secured by the home.
    (d) The PHA may review lender qualifications and the loan terms 
before authorizing homeownership assistance. The PHA may disapprove 
proposed financing, refinancing or other debt if the PHA determines that 
the debt is unaffordable, or if the PHA determines that the lender or 
the loan terms do not meet PHA qualifications. In making this 
determination, the PHA may take into account other family expenses, such 
as child care, unreimbursed medical expenses, homeownership expenses, 
and other family expenses as determined by the PHA.
    (e) All PHA financing or affordability requirements must be 
described in the PHA administrative plan.

[65 FR 55163, Sept. 12, 2000, as amended at 66 FR 33613, June 22, 2001]



Sec. 982.633  Homeownership option: Continued assistance requirements; 
Family obligations.

    (a) Occupancy of home. Homeownership assistance may only be paid 
while the family is residing in the home. If the family moves out of the 
home, the PHA may not continue homeownership assistance after the month 
when the family moves out. The family or lender is not required to 
refund to the PHA the homeownership assistance for the month when the 
family moves out.
    (b) Family obligations. The family must comply with the following 
obligations.
    (1) Ongoing counseling. To the extent required by the PHA, the 
family must attend and complete ongoing homeownership and housing 
counseling.
    (2) Compliance with mortgage. The family must comply with the terms 
of any mortgage securing debt incurred to purchase the home (or any 
refinancing of such debt).

[[Page 647]]

    (3) Prohibition against conveyance or transfer of home. (i) So long 
as the family is receiving homeownership assistance, use and occupancy 
of the home is subject to Sec. 982.551(h) and (i).
    (ii) The family may grant a mortgage on the home for debt incurred 
to finance purchase of the home or any refinancing of such debt.
    (iii) Upon death of a family member who holds, in whole or in part, 
title to the home or ownership of cooperative membership shares for the 
home, homeownership assistance may continue pending settlement of the 
decedent's estate, notwithstanding transfer of title by operation of law 
to the decedent's executor or legal representative, so long as the home 
is solely occupied by remaining family members in accordance with Sec. 
982.551(h).
    (4) Supplying required information. (i) The family must supply 
required information to the PHA in accordance with Sec. 982.551(b).
    (ii) In addition to other required information, the family must 
supply any information as required by the PHA or HUD concerning:
    (A) Any mortgage or other debt incurred to purchase the home, and 
any refinancing of such debt (including information needed to determine 
whether the family has defaulted on the debt, and the nature of any such 
default), and information on any satisfaction or payment of the mortgage 
debt;
    (B) Any sale or other transfer of any interest in the home; or
    (C) The family's homeownership expenses.
    (5) Notice of move-out. The family must notify the PHA before the 
family moves out of the home.
    (6) Notice of mortgage default. The family must notify the PHA if 
the family defaults on a mortgage securing any debt incurred to purchase 
the home.
    (7) Prohibition on ownership interest on second residence. During 
the time the family receives homeownership assistance under this 
subpart, no family member may have any ownership interest in any other 
residential property.
    (8) Additional PHA requirements. The PHA may establish additional 
requirements for continuation of homeownership assistance for the family 
(for example, a requirement for post-purchase homeownership counseling 
or for periodic unit inspections while the family is receiving 
homeownership assistance). The family must comply with any such 
requirements.
    (9) Other family obligations. The family must comply with the 
obligations of a participant family described in Sec. 982.551. However, 
the following provisions do not apply to assistance under the 
homeownership option: Sec. 982.551(c), (d), (e), (f), (g) and (j).
    (c) Statement of homeowner obligations. Before commencement of 
homeownership assistance, the family must execute a statement of family 
obligations in the form prescribed by HUD. In the statement, the family 
agrees to comply with all family obligations under the homeownership 
option.



Sec. 982.634  Homeownership option: Maximum term of homeownership assistance.

    (a) Maximum term of assistance. Except in the case of a family that 
qualifies as an elderly or disabled family (see paragraph (c) of this 
section), the family members described in paragraph (b) of this section 
shall not receive homeownership assistance for more than:
    (1) Fifteen years, if the initial mortgage incurred to finance 
purchase of the home has a term of 20 years or longer; or
    (2) Ten years, in all other cases.
    (b) Applicability of maximum term. The maximum term described in 
paragraph (a) of this section applies to any member of the family who:
    (1) Has an ownership interest in the unit during the time that 
homeownership payments are made; or
    (2) Is the spouse of any member of the household who has an 
ownership interest in the unit during the time homeownership payments 
are made.
    (c) Exception for elderly and disabled families. (1) As noted in 
paragraph (a) of this section, the maximum term of assistance does not 
apply to elderly and disabled families.
    (2) In the case of an elderly family, the exception only applies if 
the family qualifies as an elderly family at the start of homeownership 
assistance. In the case of a disabled family, the exception applies if 
at any time during

[[Page 648]]

receipt of homeownership assistance the family qualifies as a disabled 
family.
    (3) If, during the course of homeownership assistance, the family 
ceases to qualify as a disabled or elderly family, the maximum term 
becomes applicable from the date homeownership assistance commenced. 
However, such a family must be provided at least 6 months of 
homeownership assistance after the maximum term becomes applicable 
(provided the family is otherwise eligible to receive homeownership 
assistance in accordance with this part).
    (d) Assistance for different homes or PHAs. If the family has 
received such assistance for different homes, or from different PHAs, 
the total of such assistance terms is subject to the maximum term 
described in paragraph (a) of this section.



Sec. 982.635  Homeownership option: Amount and distribution of monthly 
homeownership assistance payment.

    (a) Amount of monthly homeownership assistance payment. While the 
family is residing in the home, the PHA shall pay a monthly 
homeownership assistance payment on behalf of the family that is equal 
to the lower of:
    (1) The payment standard minus the total tenant payment; or
    (2) The family's monthly homeownership expenses minus the total 
tenant payment.
    (b) Payment standard for family. (1) The payment standard for a 
family is the lower of:
    (i) The payment standard for the family unit size; or
    (ii) The payment standard for the size of the home.
    (2) If the home is located in an exception payment standard area, 
the PHA must use the appropriate payment standard for the exception 
payment standard area.
    (3) The payment standard for a family is the greater of:
    (i) The payment standard (as determined in accordance with 
paragraphs (b)(1) and (b)(2) of this section) at the commencement of 
homeownership assistance for occupancy of the home; or
    (ii) The payment standard (as determined in accordance with 
paragraphs (b)(1) and (b)(2) of this section) at the most recent regular 
reexamination of family income and composition since the commencement of 
homeownership assistance for occupancy of the home.
    (4) The PHA must use the same payment standard schedule, payment 
standard amounts, and subsidy standards pursuant to Sec. Sec. 982.402 
and 982.503 for the homeownership option as for the rental voucher 
program.
    (c) Determination of homeownership expenses. (1) The PHA shall adopt 
policies for determining the amount of homeownership expenses to be 
allowed by the PHA in accordance with HUD requirements.
    (2) Homeownership expenses for a homeowner (other than a cooperative 
member) may only include amounts allowed by the PHA to cover:
    (i) Principal and interest on initial mortgage debt, any refinancing 
of such debt, and any mortgage insurance premium incurred to finance 
purchase of the home;
    (ii) Real estate taxes and public assessments on the home;
    (iii) Home insurance;
    (iv) The PHA allowance for maintenance expenses;
    (v) The PHA allowance for costs of major repairs and replacements;
    (vi) The PHA utility allowance for the home;
    (vii) Principal and interest on mortgage debt incurred to finance 
costs for major repairs, replacements or improvements for the home. If a 
member of the family is a person with disabilities, such debt may 
include debt incurred by the family to finance costs needed to make the 
home accessible for such person, if the PHA determines that allowance of 
such costs as homeownership expenses is needed as a reasonable 
accommodation so that the homeownership option is readily accessible to 
and usable by such person, in accordance with part 8 of this title; and
    (viii) Land lease payments (where a family does not own fee title to 
the real property on which the home is located; see Sec. 982.628(b)).
    (3) Homeownership expenses for a cooperative member may only include 
amounts allowed by the PHA to cover:

[[Page 649]]

    (i) The cooperative charge under the cooperative occupancy agreement 
including payment for real estate taxes and public assessments on the 
home;
    (ii) Principal and interest on initial debt incurred to finance 
purchase of cooperative membership shares and any refinancing of such 
debt;
    (iii) Home insurance;
    (iv) The PHA allowance for maintenance expenses;
    (v) The PHA allowance for costs of major repairs and replacements;
    (vi) The PHA utility allowance for the home; and
    (vii) Principal and interest on debt incurred to finance major 
repairs, replacements or improvements for the home. If a member of the 
family is a person with disabilities, such debt may include debt 
incurred by the family to finance costs needed to make the home 
accessible for such person, if the PHA determines that allowance of such 
costs as homeownership expenses is needed as a reasonable accommodation 
so that the homeownership option is readily accessible to and usable by 
such person, in accordance with part 8 of this title.
    (4) If the home is a cooperative or condominium unit, homeownership 
expenses may also include cooperative or condominium operating charges 
or maintenance fees assessed by the condominium or cooperative homeowner 
association.
    (d) Payment to lender or family. The PHA must pay homeownership 
assistance payments either:
    (1) Directly to the family or;
    (2) At the discretion of the PHA, to a lender on behalf of the 
family. If the assistance payment exceeds the amount due to the lender, 
the PHA must pay the excess directly to the family.
    (e) Automatic termination of homeownership assistance. Homeownership 
assistance for a family terminates automatically 180 calendar days after 
the last homeownership assistance payment on behalf of the family. 
However, a PHA has the discretion to grant relief from this requirement 
in those cases where automatic termination would result in extreme 
hardship for the family.

[65 FR 55163, Sept. 12, 2000, as amended at 67 FR 64494, Oct. 18, 2002]



Sec. 982.636  Homeownership option: Portability.

    (a) General. A family may qualify to move outside the initial PHA 
jurisdiction with continued homeownership assistance under the voucher 
program in accordance with this section.
    (b) Portability of homeownership assistance. Subject to Sec. 
982.353(b) and (c), Sec. 982.552, and Sec. 982.553, a family 
determined eligible for homeownership assistance by the initial PHA may 
purchase a unit outside of the initial PHA's jurisdiction, if the 
receiving PHA is administering a voucher homeownership program and is 
accepting new homeownership families.
    (c) Applicability of Housing Choice Voucher program portability 
procedures. In general, the portability procedures described in 
Sec. Sec. 982.353 and 982.355 apply to the homeownership option and the 
administrative responsibilities of the initial and receiving PHA are not 
altered except that some administrative functions (e.g, issuance of a 
voucher or execution of a tenancy addendum) do not apply to the 
homeownership option.
    (d) Family and PHA responsibilities. The family must attend the 
briefing and counseling sessions required by the receiving PHA. The 
receiving PHA will determine whether the financing for, and the physical 
condition of the unit, are acceptable. The receiving PHA must promptly 
notify the initial PHA if the family has purchased an eligible unit 
under the program, or if the family is unable to purchase a home within 
the maximum time established by the PHA.
    (e) Continued assistance under Sec. 982.637. Such continued 
assistance under portability procedures is subject to Sec. 982.637.



Sec. 982.637  Homeownership option: Move with continued tenant-based 
assistance.

    (a) Move to new unit. (1) A family receiving homeownership 
assistance may move to a new unit with continued tenant-based assistance 
in accordance

[[Page 650]]

with this section. The family may move either with voucher rental 
assistance (in accordance with rental assistance program requirements) 
or with voucher homeownership assistance (in accordance with 
homeownership option program requirements).
    (2) The PHA may not commence continued tenant-based assistance for 
occupancy of the new unit so long as any family member owns any title or 
other interest in the prior home.
    (3) The PHA may establish policies that prohibit more than one move 
by the family during any one year period.
    (b) Requirements for continuation of homeownership assistance. The 
PHA must determine that all initial requirements listed in Sec. 982.626 
have been satisfied if a family that has received homeownership 
assistance wants to move to a new unit with continued homeownership 
assistance. However, the following requirements do not apply:
    (1) The requirement for pre-assistance counseling (Sec. 982.630) is 
not applicable. However, the PHA may require that the family complete 
additional counseling (before or after moving to a new unit with 
continued assistance under the homeownership option).
    (2) The requirement that a family must be a first-time homeowner 
(Sec. 982.627) is not applicable.
    (c) When PHA may deny permission to move with continued assistance. 
The PHA may deny permission to move to a new unit with continued voucher 
assistance as follows:
    (1) Lack of funding to provide continued assistance. The PHA may 
deny permission to move with continued rental or homeownership 
assistance if the PHA determines that it does not have sufficient 
funding to provide continued assistance.
    (2) Termination or denial of assistance under Sec. 982.638. At any 
time, the PHA may deny permission to move with continued rental or 
homeownership assistance in accordance with Sec. 982.638.



Sec. 982.638  Homeownership option: Denial or termination of assistance 
for family.

    (a) General. The PHA shall terminate homeownership assistance for 
the family, and shall deny voucher rental assistance for the family, in 
accordance with this section.
    (b) Denial or termination of assistance under basic voucher program. 
At any time, the PHA may deny or terminate homeownership assistance in 
accordance with Sec. 982.552 (Grounds for denial or termination of 
assistance) or Sec. 982.553 (Crime by family members).
    (c) Failure to comply with family obligations. The PHA may deny or 
terminate assistance for violation of participant obligations described 
in Sec. 982.551 or Sec. 982.633.
    (d) Mortgage default. The PHA must terminate voucher homeownership 
assistance for any member of family receiving homeownership assistance 
that is dispossessed from the home pursuant to a judgment or order of 
foreclosure on any mortgage (whether FHA-insured or non-FHA) securing 
debt incurred to purchase the home, or any refinancing of such debt. The 
PHA, in its discretion, may permit the family to move to a new unit with 
continued voucher rental assistance. However, the PHA must deny such 
permission, if:
    (1) The family defaulted on an FHA-insured mortgage; and
    (2) The family fails to demonstrate that:
    (i) The family has conveyed, or will convey, title to the home, as 
required by HUD, to HUD or HUD's designee; and
    (ii) The family has moved, or will move, from the home within the 
period established or approved by HUD.

[65 FR 55163, Sept. 12, 2000, as amended at 66 FR 33613, June 22, 2001]



Sec. 982.639  Homeownership option: Administrative fees.

    The ongoing administrative fee described in Sec. 982.152(b) is paid 
to the PHA for each month that homeownership assistance is paid by the 
PHA on behalf of the family.



Sec. 982.641  Homeownership option: Applicability of other requirements.

    (a) General. The following types of provisions (located in other 
subparts of this part) do not apply to assistance under the 
homeownership option:
    (1) Any provisions concerning the Section 8 owner or the HAP 
contract between the PHA and owner;

[[Page 651]]

    (2) Any provisions concerning the assisted tenancy or the lease 
between the family and the owner;
    (3) Any provisions concerning PHA approval of the assisted tenancy;
    (4) Any provisions concerning rent to owner or reasonable rent; and
    (5) Any provisions concerning the issuance or term of voucher.
    (b) Subpart G requirements. The following provisions of subpart G of 
this part do not apply to assistance under the homeownership option:
    (1) Section 982.302 (Issuance of voucher; Requesting PHA approval of 
assisted tenancy);
    (2) Section 982.303 (Term of voucher);
    (3) Section 982.305 (PHA approval of assisted tenancy);
    (4) Section 982.306 (PHA disapproval of owner) (except that a PHA 
may disapprove a seller for any reason described in paragraph (c), see 
Sec. 982.631(d)).
    (5) Section 982.307 (Tenant screening);
    (6) Section 982.308 (Lease and tenancy);
    (7) Section 982.309 (Term of assisted tenancy);
    (8) Section 982.310 (Owner termination of tenancy);
    (9) Section 982.311 (When assistance is paid) (except that Sec. 
982.311(c)(3) is applicable to assistance under the homeownership 
option);
    (10) Section 982.313 (Security deposit: Amounts owed by tenant); and
    (11) Section 982.314 (Move with continued tenant-based assistance).
    (c) Subpart H requirements. The following provisions of subpart H of 
this part do not apply to assistance under the homeownership option:
    (1) Section 982.352(a)(6) (Prohibition of owner-occupied assisted 
unit);
    (2) Section 982.352(b) (PHA-owned housing); and
    (3) Those provisions of Sec. 982.353(b)(1),(2), and (3) (Where 
family can lease a unit with tenant-based assistance) and Sec. 982.355 
(Portability: Administration by receiving PHA) that are inapplicable per 
Sec. 982.636;
    (d) Subpart I requirements. The following provisions of subpart I of 
this part do not apply to assistance under the homeownership option:
    (1) Section 982.403 (Terminating HAP contract when unit is too 
small);
    (2) Section 982.404 (Maintenance: Owner and family responsibility; 
PHA remedies); and
    (3) Section 982.405 (PHA initial and periodic unit inspection).
    (e) Subpart J requirements. The requirements of subpart J of this 
part (Housing Assistance Payments Contract and Owner Responsibility) 
(Sec. Sec. 982.451-456) do not apply to assistance under the 
homeownership option.
    (f) Subpart K requirements. Except for those sections listed below, 
the requirements of subpart K of this part (Rent and Housing Assistance 
Payment) (Sec. Sec. 982.501-521) do not apply to assistance under the 
homeownership option:
    (1) Section 982.503 (Voucher tenancy: Payment standard amount and 
schedule);
    (2) Section 982.516 (Family income and composition: Regular and 
interim reexaminations); and
    (3) Section 982.517 (Utility allowance schedule).
    (g) Subpart L requirements. The following provisions of subpart L of 
this part do not apply to assistance under the homeownership option:
    (1) Section 982.551(c) (HQS breach caused by family);
    (2) Section 982.551(d) (Allowing PHA inspection);
    (3) Section 982.551(e) (Violation of lease);
    (4) Section 982.551(g) (Owner eviction notice); and
    (5) Section 982.551(j) (Interest in unit).
    (h) Subpart M requirements. The following provisions of subpart M of 
this part do not apply to assistance under the homeownership option:
    (1) Sections 982.602-982.619; and
    (2) Sections 982.622-982.624.

[65 FR 55163, Sept. 12, 2000, as amended at 67 FR 64494, Oct. 18, 2002]



Sec. 982.642  Homeownership option: Pilot program for homeownership 
assistance for disabled families.

    (a) General. This section implements the pilot program authorized by 
section 302 of the American Homeownership and Economic Opportunity Act 
of 2000. Under the pilot program, a PHA may provide homeownership 
assistance to a disabled family residing in a home

[[Page 652]]

purchased and owned by one or more members of the family. A PHA that 
administers tenant-based assistance has the choice whether to offer 
homeownership assistance under the pilot program (whether or not the PHA 
has also decided to offer the homeownership option).
    (b) Applicability of homeownership option requirements. Except as 
provided in this section, all of the regulations applicable to the 
homeownership option (as described in Sec. Sec. 982.625 through 
982.641) are also applicable to the pilot program.
    (c) Initial eligibility requirements. Before commencing 
homeownership assistance under the pilot program for a family, the PHA 
must determine that all of the following initial requirements have been 
satisfied:
    (1) The family is a disabled family (as defined in Sec. 5.403 of 
this title);
    (2) The family annual income does not exceed 99 percent of the 
median income for the area;
    (3) The family is not a current homeowner;
    (4) The family must close on the purchase of the home during the 
period starting on July 23, 2001 and ending on July 23, 2004; and
    (5) The family meets the initial requirements described in Sec. 
982.626; however, the following initial requirements do not apply to a 
family seeking to participate in the pilot program:
    (i) The income eligibility requirements of Sec. 982.201(b)(1);
    (ii) The first-time homeowner requirements of Sec. 982.627(b); and
    (iii) The mortgage default requirements of Sec. 982.627(e), if the 
PHA determines that the default is due to catastrophic medical reasons 
or due to the impact of a federally declared major disaster or 
emergency.
    (d) Amount and distribution of homeownership assistance payments. 
(1) While the family is residing in the home, the PHA shall calculate a 
monthly homeownership assistance payment on behalf of the family in 
accordance with Sec. 982.635 and this section.
    (2) A family that is a low income family (as defined at 24 CFR 
5.603(b)) as determined by HUD shall receive the full amount of the 
monthly homeownership assistance payment calculated under Sec. 982.635.
    (3) A family whose annual income is greater than the low income 
family ceiling but does not exceed 89 percent of the median income for 
the area as determined by HUD shall receive a monthly homeownership 
assistance payment equal to 66 percent of the amount calculated under 
Sec. 982.635.
    (4) A family whose annual income is greater than the 89 percent 
ceiling but does not exceed 99 percent of the median income for the area 
as determined by HUD shall receive a monthly homeownership assistance 
payment equal to 33 percent of the amount calculated under Sec. 
982.635.
    (5) A family whose annual income is greater than 99 percent of the 
median income for the area shall not receive homeownership assistance 
under the pilot program.
    (e) Assistance payments to lender. The PHA must make homeownership 
assistance payments to a lender on behalf of the disabled family. If the 
assistance payment exceeds the amount due to the lender, the PHA must 
pay the excess directly to the family. The provisions of Sec. 
982.635(d), which permit the PHA to make monthly homeownership 
assistance payments directly to the family, do not apply to the pilot 
program.
    (f) Mortgage defaults. The requirements of Sec. 982.638(d) 
regarding mortgage defaults are applicable to the pilot program. 
However, notwithstanding Sec. 982.638(d), the PHA may, in its 
discretion, permit a family that has defaulted on its mortgage to move 
to a new unit with continued voucher homeownership assistance if the PHA 
determines that the default is due to catastrophic medical reasons or 
due to the impact of a federally declared major disaster or emergency. 
The requirements of Sec. Sec. 982.627(a)(5) and 982.627(e) do not apply 
to such a family.

[66 FR 33613, June 22, 2001]



Sec. 982.643  Homeownership option: Downpayment assistance grants.

    (a) General. (1) A PHA may provide a single downpayment assistance 
grant

[[Page 653]]

for a participant that has received tenant-based or project-based rental 
assistance in the Housing Choice Voucher Program.
    (2) The downpayment assistance grant must be applied toward the 
downpayment required in connection with the purchase of the home and/or 
reasonable and customary closing costs in connection with the purchase 
of the home.
    (3) If the PHA permits the downpayment grant to be applied to 
closing costs, the PHA must define what fees and charges constitute 
reasonable and customary closing costs. However, if the purchase of a 
home is financed with FHA mortgage insurance, such financing is subject 
to FHA mortgage insurance requirements, including any requirements 
concerning closing costs (see Sec. 982.632(b) of this part regarding 
the applicability of FHA requirements to voucher homeownership 
assistance and Sec. 203.27 of this title regarding allowable fees, 
charges and discounts for FHA-insured mortgages).
    (b) Maximum downpayment grant. A downpayment assistance grant may 
not exceed twelve times the difference between the payment standard and 
the total tenant payment.
    (c) Payment of downpayment grant. The downpayment assistance grant 
shall be paid at the closing of the family's purchase of the home.
    (d) Administrative fee. For each downpayment assistance grant made 
by the PHA, HUD will pay the PHA a one-time administrative fee in 
accordance with Sec. 982.152(a)(1)(iii).
    (e) Return to tenant-based assistance. A family that has received a 
downpayment assistance grant may apply for and receive tenant-based 
rental assistance, in accordance with program requirements and PHA 
policies. However, the PHA may not commence tenant-based rental 
assistance for occupancy of the new unit so long as any member of the 
family owns any title or other interest in the home purchased with 
homeownership assistance. Further, eighteen months must have passed 
since the family's receipt of the downpayment assistance grant.
    (f) Implementation of downpayment assistance grants. A PHA may not 
offer downpayment assistance under this paragraph until HUD publishes a 
notice in the Federal Register.

[67 FR 64494, Oct. 18, 2002]



PART 983_SECTION 8 PROJECT-BASED CERTIFICATE PROGRAM--Table of Contents




                      Subpart A_General Information

Sec.
983.1 Purpose and applicability.
983.2 Additional definitions.
983.3 Information to be submitted to HUD by the HA concerning its plan 
          to attach assistance to units.
983.4 HUD review of HA plans to attach assistance to units.
983.5 Physical condition standards; physical inspection requirements.
983.6 Site and neighborhood standards.
983.7 Eligible and ineligible properties and HA-owned units.
983.8 Rehabilitation: Minimum expenditure requirement.
983.9 Prohibition against new construction or rehabilitation with U.S. 
          Housing Act of 1937 assistance and use of flexible subsidy; 
          pledge of Agreement or HAP contract.
983.10 Displacement, relocation, and acquisition.
983.11 Other Federal requirements.
983.12 Program accounts and records.
983.13 Special housing types.

           Subpart B_Owner Application Submission to Agreement

983.51 HA unit selection policy, advertising, and owner application 
          requirements.
983.52 Rehabilitation: Initial inspection and determination of unit 
          eligibility.
983.53 Rehabilitation: HUD field office review of applications.
983.54 Rehabilitation: Work write-ups.
983.55 New construction: HA evaluation and technical processing.
983.56 New construction: HUD field office review of applications.
983.57 New construction: Working drawings and specifications.

    Subpart C_Agreement and New Construction or Rehabilitation Period

983.101 Agreement to enter into HAP contract, and contract rents in 
          Agreement.
983.102 Owner selection of contractor.
983.103 New construction or rehabilitation period.
983.104 New construction or rehabilitation completion.

[[Page 654]]

             Subpart D_Housing Assistance Payments Contract

983.151 Housing assistance payments contract (HAP contract).
983.152 Reduction of number of units covered by HAP contract.

                          Subpart E_Management

983.201 Responsibilities of the HA.
983.202 Responsibilities of the owner.
983.203 Family participation.
983.204 Maintenance, operation and inspections.
983.205 Overcrowded and underoccupied units.
983.206 Assisted tenancy and termination of tenancy.
983.207 Informal review or hearing.

              Subpart F_Rent and Housing Assistance Payment

983.251 Applicability.
983.252 Limits on initial rent to owner.
983.253 Initial rent: Who approves.
983.254 Annual adjustment of rent to owner.
983.255 Special adjustment of rent to owner.
983.256 Reasonable rent.
983.257 Other subsidy: Effect on rent to owner.
983.258 Rent to owner: Effect of rent control.
983.259 Correction of rent.
983.260 Housing assistance payment: Amount and distribution.
983.261 Family share: Family responsibility to pay.
983.262 Other fees and charges.

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

    Source: 60 FR 34717, July 3, 1995, unless otherwise noted.



                      Subpart A_General Information



Sec. 983.1  Purpose and applicability.

    (a) This part 983 applies to the Section 8 Project-based Certificate 
(PBC) program.
    (b)(1) Except as otherwise expressly modified or excluded by this 
part 983, provisions of 24 CFR part 982 apply to the PBC program.
    (2) The following provisions of 24 CFR part 982 do not apply to the 
PBC program:
    (i) Provisions on tenant-based assistance, on issuance or use of a 
voucher or certificate; and on portability;
    (ii) Provisions on voucher tenancy or over-FMR tenancy;
    (iii) In subpart D, Sec. 982.158(e) (retention of lease, HAP 
contract and family application);
    (iv) In subpart E, Sec. 982.202(b)(3) (where family will live); 
Sec. 982.204(d) (family size); Sec. 982.205(a) (waiting lists);
    (v) Subpart G, except that the following provisions of subpart G are 
applicable to the PBC Program: Sec. 982.308 (lease); Sec. 982.311(a), 
(b), (c) and (d)(1) (when assistance is paid); Sec. 982.312 (absence 
from unit); and Sec. 982.313 (security deposit);
    (vi) Subpart H (where family can live and move);
    (vii) In subpart I of this part, Sec. 982.401(j) (lead-based paint 
requirements); Sec. 982.402(a)(3), Sec. 982.402(c) and (d) (Subsidy 
standards); and Sec. 982.403 (Terminating HAP contract when unit is too 
small);
    (viii) In subpart J, Sec. 982.451(a), Sec. 982.451(b)(2) (term of 
HAP contract same as lease); Sec. 982.454 (termination of HAP contract 
because of insufficient funding); Sec. 982.455 (termination of HAP 
contract; termination notice);
    (ix) Subpart K, except that the following provisions of Subpart K 
are applicable to the PBC Program: Sec. 982.504 (for determination of 
the FMR/exception rent limit); Sec. 982.516 (family income and 
composition; regular and interim examinations), Sec. 982.517 (utility 
allowance schedule);
    (x) In subpart M, all provisions authorizing assistance for shared 
housing (including Sec. 982.615 through Sec. 982.618); or assistance 
for a family occupying a manufactured home (including Sec. 982.620 
through Sec. 982.624).
    (3) This part does not apply to the voucher program, or to an over-
FMR tenancy under the certificate program. Every tenancy assisted in the 
PBC program is a regular tenancy under the certificate program.

[63 FR 23870, Apr. 30, 1998, as amended at 64 FR 50230, Sept. 15, 1999; 
65 FR 16819, 16823, Mar. 30, 2000]



Sec. 983.2  Additional definitions.

    The following definitions apply to assistance subject to this part 
983, in addition to the definitions in 24 CFR 982.4:
    Agreement to enter into housing assistance payments contract 
(``Agreement''). A written agreement between the owner

[[Page 655]]

and the HA that, upon satisfactory completion of the new construction or 
the rehabilitation in accordance with requirements specified in the 
Agreement, the HA will enter into a HAP contract with the owner.
    15-percent limit. Fifteen percent of the total number of budgeted 
units for an HA's Section 8 certificate program.
    Funding source. The ACC funding authority from which the HAP 
contract is to be funded. Each funding increment identified in the ACC 
is a separate, potential funding source.
    Percent limit. The applicable maximum number of budgeted units for 
an HA's certificate program that may be project-based. (The applicable 
percent limit is either the 15-percent limit or the 30-percent limit.)
    Project-based Certificate (PBC) program. A Section 8 program 
administered by an HA pursuant to 24 CFR part 983.
    Repair or replacement of a major building system or component. The 
complete electrical rewiring of a unit; the installation of new plumbing 
supply or waste pipes in a unit; the installation of a new heating 
distribution system, including piping and ductwork, or the installation 
of a new boiler or furnace; the installation of a new roof; or the 
replacement or major repair of exterior structural elements which are 
essential to achieve a stable general condition with no threat of 
further deterioration.
    State certified appraiser. Any individual who satisfies the 
requirements for certification as a certified general appraiser in a 
State that has adopted criteria that currently meet or exceed the 
minimum certification criteria issued by the Appraiser Qualifications 
Board of the Appraisal Foundation. The State criteria must include a 
requirement that the individual have achieved a satisfactory grade upon 
a State-administered examination consistent with and equivalent to the 
Uniform State Certification Examination issued or endorsed by the 
Appraiser Qualifications Board of the Appraisal Foundation. Furthermore, 
if the Appraisal Foundation has issued a finding that the policies, 
practices, or procedures of the state are inconsistent with the 
Financial Institutions Reform, Recovery, and Enforcement Act of 1989, an 
individual must comply with any additional standards for state certified 
appraisers imposed by HUD under 24 CFR 267.11(c)(1).
    30-Percent limit. Thirty percent of the total number of budgeted 
units for a HA's Section 8 certificate program.

[60 FR 34717, July 3, 1995, as amended at 63 FR 23870, Apr. 30, 1998]



Sec. 983.3  Information to be submitted to HUD by the HA concerning 
its plan to attach assistance to units.

    (a) Requirements. An HA may attach certificate assistance to units 
in accordance with this part 983 if:
    (1) The number of units to be project-based does not exceed the 
applicable percent limit.
    (2) The number of units to be project-based are not under a tenant-
based or project-based HAP contract or otherwise committed (e.g., 
certificates issued to families searching for housing or units under an 
Agreement).
    (b) Percent limit. The applicable percent limit is either the 15-
percent limit or the 30-percent limit. The 30-percent limit is only 
applicable if:
    (1) There are no project-based new construction units in the HA's 
certificate program;
    (2) The additional 15 percent of project-based units (in excess of 
the 15-percent limit) is for the rehabilitation of units in projects 
assisted under a State program that permits owners to prepay State-
assisted or subsidized mortgages; and
    (3) The additional 15 percent of project-based units is necessary to 
provide incentives for project owners to preserve the projects for 
occupancy by low and moderate income families for the term of the HAP 
contract, and assist low-income tenants to afford any rent increases.
    (c) HA notification to HUD of intent to attach assistance to units. 
Before implementing a PBC program, the HA must submit the following 
information to the HUD field office for review:
    (1) The total number of units for which the HA is requesting 
approval to attach assistance;
    (2) The number of budgeted certificate units;
    (3) The number of certificate units available to be project-based; 
i.e., the

[[Page 656]]

number of budgeted certificate units that are not under a tenant-based 
or project-based HAP contract or otherwise committed (e.g., certificates 
issued to families searching for housing or units under an Agreement).
    (d) Amount of assistance. The HA must ensure that the amount of 
assistance that is attached to units is within the amounts available 
under the ACC.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34717, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995; 63 
FR 23870, Apr. 30, 1998]



Sec. 983.4  HUD review of HA plans to attach assistance to units.

    (a) Notice to HA. (1) If the requirements of Sec. 983.3 are 
satisfied, the field office must authorize the HA to proceed in 
accordance with this part 983.
    (2) If the submission is approved, the field office must notify the 
HA that the HA may implement a PBC program subject to the requirements 
of this part 983, including the requirements for approval by the HUD 
field office of the HA unit selection policy and advertisement, and 
competitive selection of eligible units. The approval letter must 
specify the maximum number of units for which the HA may execute 
Agreements.
    (3) If any of the requirements of Sec. 983.3 are not satisfied, the 
field office must not approve the HA submission. The field office must 
notify the HA of the reasons for disapproval.
    (b) [Reserved]



Sec. 983.5  Physical condition standards; physical inspection requirements.

    (a) General. Housing used in this program must be maintained and 
inspected in accordance with the requirements in 24 CFR part 5, subpart 
G.
    (b) Space and security. In addition to the standards in 24 CFR part 
5, subpart G, the dwelling unit must have a living room, a kitchen area, 
and a bathroom. The dwelling unit must have at least one bedroom or 
living/sleeping room for each two persons.
    (c) The Lead-Based Paint Poisoning Prevention Act (42 U.S.C. 4821-
4846), the Residential Lead-Based Paint Hazard Reduction Act of 1992 (42 
U.S.C. 4851-4856), and implementing regulations at part 35, subparts A, 
B, H, and R of this title apply to units assisted under this part.

[63 FR 46580, Sept. 1, 1998, as amended at 64 FR 50230, Sept. 15, 1999]



Sec. 983.6  Site and neighborhood standards.

    (a) Rehabilitation site and neighborhood standards. In addition to 
meeting the standards required in Sec. 982.401(l) of this chapter, the 
proposed sites for rehabilitation units must meet the following site and 
neighborhood standards:
    (1) Be adequate in size, exposure and contour to accommodate the 
number and type of units proposed; adequate utilities and streets must 
be available to service the site. (The existence of a private disposal 
system and private sanitary water supply for the site, approved in 
accordance with law, may be considered adequate utilities.)
    (2) Be suitable from the standpoint of facilitating and furthering 
full compliance with the applicable provisions of Title VI of the Civil 
Rights Act of 1964, Title VIII of the Civil Rights Act of 1968, E.O. 
11063, and HUD regulations issued pursuant thereto.
    (3) Promote greater choice of housing opportunities and avoid undue 
concentration of assisted persons in areas containing a high proportion 
of low-income persons.
    (4) Be accessible to social, recreational, educational, commercial, 
and health facilities and services, and other municipal facilities and 
services that are at least equivalent to those typically found in 
neighborhoods consisting largely of unassisted, standard housing of 
similar market rents.
    (5) Be so located that travel time and cost via public 
transportation or private automobile from the neighborhood to places of 
employment providing a range of jobs for lower-income workers is not 
excessive. (While it is important that housing for the elderly not be 
totally isolated from employment opportunities, this requirement need 
not be adhered to rigidly for such projects.)
    (b) New construction site and neighborhood standards. The proposed 
sites for

[[Page 657]]

new construction units must be approved by the HUD field office as 
meeting the following site and neighborhood standards:
    (1) The site must be adequate in size, exposure, and contour to 
accommodate the number and type of units proposed, and adequate 
utilities (water, sewer, gas, and electricity) and streets must be 
available to service the site.
    (2) The site and neighborhood must be suitable from the standpoint 
of facilitating and furthering full compliance with the applicable 
provisions of title VI of the Civil Rights Act of 1964, the Fair Housing 
Act, Executive Order 11063, and implementing HUD regulations.
    (3)(i) The site must not be located in an area of minority 
concentration, except as permitted under paragraph (b)(3)(ii) of this 
section, and must not be located in a racially mixed area if the project 
will cause a significant increase in the proportion of minority to non-
minority residents in the area.
    (ii) A project may be located in an area of minority concentration 
only if:
    (A) Sufficient, comparable opportunities exist for housing for 
minority families, in the income range to be served by the proposed 
project, outside areas of minority concentration (see paragraph 
(b)(3)(iii) of this section for further guidance on this criterion); or
    (B) The project is necessary to meet overriding housing needs that 
cannot be met in that housing market area (see paragraph (b)(3)(iv) of 
this section for further guidance on this criterion).
    (iii)(A) ``Sufficient'' does not require that in every locality 
there be an equal number of assisted units within and outside of areas 
of minority concentration. Rather, application of this standard should 
produce a reasonable distribution of assisted units each year, that, 
over a period of several years, will approach an appropriate balance of 
housing choices within and outside areas of minority concentration. An 
appropriate balance in any jurisdiction must be determined in light of 
local conditions affecting the range of housing choices available for 
low-income minority families and in relation to the racial mix of the 
locality's population.
    (B) Units may be considered ``comparable opportunities'' if they 
have the same household type (elderly, disabled, family, large family) 
and tenure type (owner/renter); require approximately the same tenant 
contribution towards rent; serve the same income group; are located in 
the same housing market; and are in standard condition.
    (C) Application of this sufficient, comparable opportunities 
standard involves assessing the overall impact of HUD-assisted housing 
on the availability of housing choices for low-income minority families 
in and outside areas of minority concentration, and must take into 
account the extent to which the following factors are present, along 
with other factors relevant to housing choice:
    (1) A significant number of assisted housing units are available 
outside areas of minority concentration.
    (2) There is significant integration of assisted housing projects 
constructed or rehabilitated in the past 10 years, relative to the 
racial mix of the eligible population.
    (3) There are racially integrated neighborhoods in the locality.
    (4) Programs are operated by the locality to assist minority 
families that wish to find housing outside areas of minority 
concentration.
    (5) Minority families have benefited from local activities (e.g., 
acquisition and write-down of sites, tax relief programs for homeowners, 
acquisitions of units for use as assisted housing units) undertaken to 
expand choice for minority families outside of areas of minority 
concentration.
    (6) A significant proportion of minority households has been 
successful in finding units in non-minority areas under the Section 8 
certificate and voucher programs.
    (7) Comparable housing opportunities have been made available 
outside areas of minority concentration through other programs.
    (iv) Application of the ``overriding housing needs'' criterion, for 
example, permits approval of sites that are an integral part of an 
overall local strategy for the preservation or restoration of the 
immediate neighborhood and of sites in a neighborhood experiencing 
significant private investment that is

[[Page 658]]

demonstrably changing the economic character of the area (a 
``revitalizing area''). An ``overriding housing need,'' however, may not 
serve as the basis for determining that a site is acceptable if the only 
reason the need cannot otherwise be feasibly met is that discrimination 
on the basis of race, color, religion, sex, national origin, age, 
familial status or disability renders sites outside areas of minority 
concentration unavailable or if the use of this standard in recent years 
has had the effect of circumventing the obligation to provide housing 
choice.
    (4) The site must promote greater choice of housing opportunities 
and avoid undue concentration of assisted persons in areas containing a 
high proportion of low-income persons.
    (5) The neighborhood must not be one which is seriously detrimental 
to family life or in which substandard dwellings or other undesirable 
conditions predominate, unless there is actively in progress a concerted 
program to remedy the undesirable conditions.
    (6) The housing must be accessible to social, recreational, 
educational, commercial, and health facilities and services, and other 
municipal facilities and services that are at least equivalent to those 
typically found in neighborhoods consisting largely of unassisted, 
standard housing of similar market rents.
    (7) Except for new construction housing designed for elderly 
persons, travel time and cost via public transportation or private 
automobile, from the neighborhood to places of employment providing a 
range of jobs for lower-income workers, must not be excessive.



Sec. 983.7  Eligible and ineligible properties and HA-owned units.

    (a) Section 982.352 of this chapter, Eligible Housing, does not 
apply. Newly constructed and existing structures of various types may be 
appropriate for attaching assistance to the units under this part 983, 
including single-family housing and multifamily structures.
    (b) An HA may not attach or pay PBC assistance to units in the 
following types of housing:
    (1) Housing for which the construction is started before Agreement 
execution;
    (2) Housing for which the rehabilitation is started before Agreement 
execution;
    (3) Shared housing; nursing homes; and facilities providing 
continual psychiatric, medical, nursing services, board and care or 
intermediate care;
    (4) Units within the grounds of penal, reformatory, medical, mental, 
and similar public or private institutions;
    (5) Housing located in the Coastal Barrier Resources System 
designated under the Coastal Barrier Resources Act;
    (6) Housing located in an area that has been identified by the 
Federal Emergency Management Agency (FEMA) as having special flood 
hazards, unless:
    (i)(A) The community in which the area is situated is participating 
in the National Flood Insurance Program (see 44 CFR parts 59 through 
79); or
    (B) Less than a year has passed since FEMA notification regarding 
such hazards; and
    (ii) The HA will ensure that flood insurance on the structure is 
obtained in compliance with section 102(a) of the Flood Disaster 
Protection Act of 1973 (42 U.S.C. 4001 et seq.);
    (7) College or other school dormitories; or
    (8) A manufactured home.
    (c) An HA may not attach or pay PBC assistance to units in any of 
the following types of subsidized housing:
    (1) Public housing;
    (2) A unit subsidized by any other form of Section 8 assistance 
(tenant-based or project-based);
    (3) A unit subsidized with any local or State rent subsidy;
    (4) A Section 236 project (insured or noninsured); or a unit 
subsidized with Section 236 rental assistance payments;
    (5) A Rural Development Administration Section 515 project;
    (6) A unit subsidized with rental assistance payments under Section 
521 of the Housing Act of 1949 (a Rural Development Administration 
Program);
    (7) Housing assisted under former Section 23 of the United States 
Housing Act of 1937 (before amendment by the Housing and Community 
Development Act of 1974);
    (8) A Section 221(d)(3) project;
    (9) A project with a Section 202 loan;

[[Page 659]]

    (10) A Section 202 project for non-elderly persons with disabilities 
(Section 162 assistance);
    (11) Section 202 supportive housing for the elderly;
    (12) Section 811 supportive housing for persons with disabilities;
    (13) A Section 101 rent supplement project;
    (14) A unit subsidized with tenant-based assistance under the HOME 
program; or
    (15) Any unit with any other duplicative Federal State, or local 
housing subsidy, as determined by HUD. For this purpose, ``housing 
subsidy'' does not include the housing component of a welfare payment, a 
social security payment received by the family, or a rent reduction 
because of a tax credit.
    (d) An HA may attach assistance under this part 983 to a highrise 
elevator project for families with children only if HUD determines there 
is no practical alternative. HUD may make this determination for an HA's 
project-based assistance, in whole or in part, and need not review each 
project on a case-by-case basis.
    (e) Assistance may not be attached to a unit that is occupied by an 
owner; however, cooperatives are considered to be rental housing for 
purposes of this part 983.
    (f)(1) HA-owned unit means a unit (other than public housing) that 
is owned by the HA which administers the assistance under this part 983 
pursuant to an ACC between HUD and the HA (including a unit owned by an 
entity substantially controlled by the HA).
    (2) An HA-owned unit may only be assisted under the project-based 
certificate program if:
    (i) The HA-owned unit is not ineligible housing under this section.
    (ii) The HUD field office selects the HA-owned unit pursuant to the 
competitive ranking and rating process specified in the HA's HUD-
approved unit selection policy (see Sec. 983.51).
    (iii) The HUD field office establishes the initial contract rents.
    (iv) The HUD field office has conducted all HA reviews required 
under this part before execution of the Agreement.
    (3) Any adjustment of the contract rent for an HA-owned unit must be 
approved in advance by the HUD field office.
    (4) As owner of an HA-owned unit, the HA is subject to all of the 
same program requirements that apply to other owners in the program.
    (5) HUD headquarters establishes the amount of the administrative 
fee for an HA-owned unit. The HA will earn a lower ongoing 
administrative fee for an HA-owned unit than for a unit not owned by the 
HA, and no fee for the cost to help a family experiencing difficulty in 
renting appropriate housing.
    (6) HA-owned units are subject to the same requirements as units 
that are not HA-owned, including the ineligibility of units that are 
currently public or Indian housing and units constructed or 
rehabilitated with other assistance under the U.S. Housing Act of 1937.

[60 FR 34717, July 3, 1995, as amended at 63 FR 23870, Apr. 30, 1998]



Sec. 983.8  Rehabilitation: Minimum expenditure requirement.

    (a) To qualify as rehabilitation under this part 983, existing 
structures must require a minimum expenditure of $1000 per assisted 
unit, including the unit's prorated share of work to be accomplished on 
common areas or systems, in order to:
    (1) Upgrade the property to decent, safe, and sanitary condition to 
comply with the housing quality standards or other standards approved by 
HUD, from a condition below those standards;
    (2) Repair or replace major building systems or components in danger 
of failure within two years from the date of the initial HA inspection;
    (3) Convert or merge units to provide housing for large families; or
    (4) For up to seven percent of the units to be assisted, make 
accessibility improvements to the property necessary to meet the 
requirements of Section 504 of the Rehabilitation Act of 1973 and the 
Fair Housing Amendments Act of 1988.
    (b) In determining the minimum expenditure of $1000 per assisted 
unit, the HA must include the prorated cost of common improvements in 
the costs of the individual units.

[[Page 660]]



Sec. 983.9  Prohibition against new construction or rehabilitation with 

U.S. Housing Act of 1937 assistance and use of flexible subsidy; pledge 
of Agreement or HAP contract.

    (a) Assistance may not be attached to any unit which was in the five 
years before execution of the Agreement, or will be, constructed or 
rehabilitated with other assistance under the U.S. Housing Act of 1937 
(e.g., public housing (development or modernization), rental 
rehabilitation grants under 24 CFR part 511, housing development grants 
under 24 CFR part 850, or other Section 8 programs). In addition, a unit 
to which assistance is to be attached under this part 983 may not be 
rehabilitated with flexible subsidy assistance under part 219 of this 
title. HUD may approve attachment of assistance to a unit that was 
rehabilitated with public housing modernization funds before conveyance 
to a resident management corporation under section 21 of the U.S. 
Housing Act of 1937 (42 U.S.C. 1437s) if attachment of project-based 
assistance would further the purposes of the sale of the public housing 
project to the corporation.
    (b) If an owner is proposing to pledge the Agreement or HAP contract 
as security for financing, the owner must submit the financing documents 
to the HA. In determining the approvability of a pledge arrangement, the 
HA must review the documents submitted by the owner to ensure that the 
financing documents do not modify the Agreement or HAP contract, and do 
not contain any requirements inconsistent with the Agreement or HAP 
contract. Any pledge of the Agreement or HAP contract must be limited to 
amounts payable under the HAP contract in accordance with the terms of 
the HAP contract.



Sec. 983.10  Displacement, relocation, and acquisition.

    (a) Minimizing displacement. (1) Consistent with the other goals and 
objectives of this part, an owner must assure that it has taken all 
reasonable steps to minimize the displacement of persons (households, 
businesses, nonprofit organizations, and farms) as a result of a 
rehabilitation project assisted under this part.
    (2) Whenever a building or complex is rehabilitated and some, but 
not all, of the rehabilitated units will be assisted upon completion of 
the rehabilitation, the relocation requirements described in this 
section cover the occupants of each rehabilitated unit, whether or not 
Section 8 assistance will be provided for the unit.
    (b) Temporary relocation. The following policies cover residential 
tenants who will not be required to move permanently but who must 
relocate temporarily for the project. Such tenants must be provided:
    (1) Reimbursement for all reasonable out-of-pocket expenses incurred 
in connection with the temporary relocation, including the cost of 
moving to and from the temporary housing and any increase in monthly 
rent/utility costs;
    (2) Appropriate advisory services, including reasonable advance 
written notice of:
    (i) The date and approximate duration of the temporary relocation;
    (ii) The location of the suitable, decent, safe and sanitary 
dwelling to be made available for the temporary period;
    (iii) The terms under which the tenant may lease and occupy a 
suitable, decent, safe, and sanitary dwelling in the project upon 
completion of the project; and
    (iv) The assistance required under paragraph (b)(1) of this section.
    (c) Relocation assistance for displaced persons. A ``displaced 
person'' (defined in paragraph (g) of this section) must be provided 
relocation assistance at the levels described in, and in accordance with 
the requirements of, the Uniform Relocation Assistance and Real Property 
Acquisition Policies Act of 1970, as amended (URA) (42 U.S.C. 4201-4655) 
and implementing regulations at 49 CFR part 24. A ``displaced person'' 
must be advised of his/her rights under the Fair Housing Act (42 U.S.C. 
3600-3620), and, if the representative comparable replacement dwelling 
used to establish the amount of the replacement housing payment to be 
provided to a minority is located in an area of minority concentration, 
such person must also be given, if possible, referrals to comparable and 
suitable, decent,

[[Page 661]]

safe, and sanitary replacement dwellings not located in such areas.
    (d) Real property acquisition requirements. The acquisition of real 
property for a project is subject to the URA and the requirements of 49 
CFR part 24, subpart B.
    (e) Appeals. A person who disagrees with the HA's determination 
concerning whether the person qualifies as a ``displaced person,'' or 
the amount of relocation assistance for which the person is eligible, 
may file a written appeal of that determination with the HA. A person 
who is dissatisfied with the HA's determination on the appeal may submit 
a written request for review of that determination to the HUD field 
office responsible for administering the URA requirements in the 
jurisdiction.
    (f) Responsibility of HA. (1) The HA must provide assurance of 
compliance as required by 49 CFR part 24 that it will comply with the 
URA, the regulations at 49 CFR part 24, and the requirements of this 
section, and must ensure such compliance notwithstanding any third 
party's contractual obligation to the HA to comply with these 
provisions.
    (2) The cost of required relocation assistance may be paid for with 
funds provided by the owner, or with local public funds, or with funds 
available from other sources. The cost of HA advisory services for 
temporary relocation of tenants may be paid from preliminary fees or 
ongoing administrative fees.
    (3) The HA must maintain records in sufficient detail to demonstrate 
compliance with the provisions of this section. The HA must maintain 
data on the race, ethnicity, gender, and disability of displaced 
persons.
    (g) Definition of displaced person. (1) For purposes of this 
section, the term displaced person means a person (household, business, 
nonprofit organization, or farm) that moves from real property, or moves 
personal property from real property, permanently, as a direct result of 
acquisition, rehabilitation, or demolition for a project assisted under 
this part. The term ``displaced person'' includes, but may not be 
limited to:
    (i) A person who moves permanently from the real property after 
receiving a notice from the owner requiring such move, if the move 
occurs on or after the date of the submission of the owner application 
to the HA;
    (ii) A person who moves permanently before the submission of the 
owner application to the HA, if the HA or HUD determines that the 
displacement resulted directly from acquisition, rehabilitation, or 
demolition for the assisted project; or
    (iii) A tenant-occupant of a dwelling unit who moves from the 
building or complex, permanently, after execution of the Agreement 
between the owner and the HA, if the move occurs before the tenant is 
provided written notice offering the opportunity to lease and occupy a 
suitable, decent, safe, and sanitary dwelling in the same building or 
complex under reasonable terms and conditions, upon completion of the 
project. Such reasonable terms and conditions include a monthly rent and 
estimated average monthly utility costs that do not exceed the greater 
of:
    (A) The tenant's monthly rent before execution of the Agreement and 
estimated average monthly utility costs; or
    (B) The total tenant payment, as determined under 24 CFR 5.613, if 
the tenant is low-income, or 30 percent of gross household income, if 
the tenant is not low-income; or
    (iv) A tenant-occupant of a dwelling who is required to relocate 
temporarily, but does not return to the building or complex, if either:
    (A) The tenant is not offered payment for all reasonable out-of-
pocket expenses incurred in connection with the temporary relocation, 
including the cost of moving to and from the temporarily occupied unit 
and any increased housing costs; or
    (B) Other conditions of the temporary relocation are not reasonable; 
or
    (v) A tenant-occupant of a dwelling who moves from the building or 
complex permanently after he or she has been required to move to another 
dwelling unit in the same building or complex in order to carry out the 
rehabilitation or construction, if either:
    (A) The tenant is not offered reimbursement for all reasonable out-
of-

[[Page 662]]

pocket expenses incurred in connection with the move; or
    (B) Other conditions of the move are not reasonable; or
    (2) Notwithstanding the provisions of paragraph (g)(1) of this 
section, a person does not qualify as a ``displaced person'' (and is not 
eligible for relocation assistance under the URA or this section), if:
    (i) The person has been evicted for serious or repeated violation of 
the terms and conditions of the lease or occupancy agreement, violation 
of applicable Federal, State or local law, or other good cause, and the 
HA determines that the eviction was not undertaken for the purpose of 
evading the obligation to provide relocation assistance;
    (ii) The person moved into the property after the submission of the 
owner application to the HA and, before signing a lease and commencing 
occupancy, was provided written notice of the owner application, its 
possible impact on the person (e.g., the person may be displaced, 
temporarily relocated, or suffer a rent increase) and the fact that the 
person would not qualify as a ``displaced person'' (or for any 
assistance provided under this section) if the owner application is 
approved;
    (iii) The person is ineligible under 49 CFR 24.2(g)(2); or
    (iv) HUD determines that the person was not displaced as a direct 
result of acquisition, rehabilitation, or demolition for the project.
    (3) The HA may request, at any time, HUD's determination of whether 
a displacement is or would be covered by this section.
    (h) Definition of initiation of negotiations. For purposes of 
determining the formula for computing a replacement housing payment to 
be provided to a residential tenant displaced as a direct result of 
privately undertaken rehabilitation or demolition of the real property, 
the term ``initiation of negotiations'' means the execution of the 
Agreement between the owner and the HA.

[60 FR 34717, July 3, 1995, as amended at 63 FR 23871, Apr. 30, 1998]



Sec. 983.11  Other Federal requirements.

    (a) Equal Opportunity and related requirements. Participation in 
this program requires compliance with the Equal Opportunity requirements 
specified in Sec. 982.53 of this chapter including Section 504 of the 
Rehabilitation Act of 1973 (24 CFR part 8) and the Fair Housing 
Amendments Act of 1988 (24 CFR part 100).
    (b) Environmental requirements. Activities under this part 983 are 
subject to HUD environmental regulations at 24 CFR part 58. An HA may 
not attach assistance to a unit unless, before the HA enters into an 
Agreement to provide project-based assistance for the unit:
    (1) The unit of general local government within which the project is 
located that exercises land use responsibility or, as determined by HUD, 
the county or State has completed the environmental review required by 
24 CFR part 58 and provided to the HA for submission to HUD the 
completed request for release of funds and certification; and
    (2) HUD has approved the request for release of funds.
    (c) Other Federal requirements. The following requirements must be 
met, if applicable:
    (1) Clean Air Act and Federal Water Pollution Control Act;
    (2) Flood Disaster Protection Act of 1973;
    (3) Section 3 of the Housing and Urban Development Act of 1968 (12 
U.S.C. 1701u) and the regulations in 24 CFR part 135;
    (4) Executive Order 11246, Equal Employment Opportunity (for all 
construction contracts of over $10,000);
    (5) Executive Order 11625, Prescribing Additional Arrangements for 
Developing and Coordinating a National Program for Minority Business 
Enterprises;
    (6) Executive Orders 12432, Minority Business Enterprise 
Development, and 12138, Creating a National Women's Business Enterprise 
Policy; and
    (7) Payment of not less than the wages prevailing in the locality, 
as predetermined by the Secretary of Labor pursuant to the Davis-Bacon 
Act, to all laborers and mechanics employed in the construction or 
rehabilitation of the project under an Agreement covering nine or more 
assisted units, and compliance with the Contract Work

[[Page 663]]

Hours and Safety Standards Act, Department of Labor regulations in 29 
CFR part 5, and other Federal laws and regulations pertaining to labor 
standards applicable to such an Agreement.
    (8) The provisions of part 24 of this title relating to the 
employment, engagement of services, awarding contracts, or funding of 
any contractors or subcontractors during any period of debarment, 
suspension, or placement in ineligibility status.



Sec. 983.12  Program accounts and records.

    (a) During the term of each assisted lease, and for at least three 
years thereafter, the HA must keep:
    (1) A copy of the executed lease; and
    (2) The application from the family.
    (b) During the HAP contract term, and for at least three years 
thereafter, the HA must keep a copy of:
    (1) The HAP contract; and
    (2) Records to document the basis for determination of the initial 
rent to owner, and for the HA determination that rent to owner is a 
reasonable rent (initially and during the term of the HAP contract).

[63 FR 23871, Apr. 30, 1998]



Sec. 983.13  Special housing types.

    (a) Applicability. For applicability of rules on special housing 
types at 24 CFR part 982, subpart M, see Sec. 983.1(b)(2)(x). In the 
PBC program, the HA may not provide assistance for shared housing or for 
manufactured homes.
    (b) Group homes. A group home may include one or more group home 
units. There must be a single PBC HAP contract for units in the group 
home. A separate lease is executed for each elderly person or person 
with disabilities who resides in a group home.

[63 FR 23871, Apr. 30, 1998]



           Subpart B_Owner Application Submission to Agreement



Sec. 983.51  HA unit selection policy, advertising, and owner application 
requirements.

    (a) General. The HA must adopt a written policy establishing 
competitive procedures for owner submission of applications and for HA 
selection of units to which assistance is to be attached and must submit 
the policy to the HUD field office for review and approval. The HA must 
select units in accordance with its approved selection policy. The HA's 
written selection policy must comply with the requirements of paragraph 
(b) of this section.
    (b) Advertising requirements. The HA must advertise in a newspaper 
of general circulation that the HA will accept applications for 
assistance under this part 983 for specific projects. The advertisement 
must be approved by the HUD field office and may not be published until 
after the later of HUD authorization to implement a project-based 
program or ACC execution. The advertisement must: be published once a 
week for three consecutive weeks; specify an application deadline of at 
least 30 days after the date the advertisement is last published; 
specify the number of units the HA estimates it will be able to assist 
under the funding the HA is making available for this purpose; and state 
that only applications submitted in response to the advertisement will 
be considered.
    (c) Selection policy requirements. The HA's written selection policy 
must identify, and specify the weight to be given to, the factors the HA 
will use to rank and select applications. These factors must include 
consideration of: site; design; previous experience of the owner and 
other participants in development, marketing, and management; and 
feasibility of the project as a whole (including likelihood of financing 
and marketability). The HA may add other factors, such as responsiveness 
to local objectives specified by the HA.
    (d) Owner application. The owner's application submitted to the HA 
must contain the following:
    (1) A description of the housing to be constructed or rehabilitated, 
including the number of units by size (square footage), bedroom count, 
bathroom count, sketches of the proposed new construction or 
rehabilitation, unit plans, listing of amenities and services, and 
estimated date of completion. For rehabilitation, the description must 
describe the property as is, and must also describe the proposed 
rehabilitation;

[[Page 664]]

    (2) Evidence of site control, and for new construction 
identification and description of the proposed site, site plan and 
neighborhood;
    (3) Evidence that the proposed new construction or rehabilitation is 
permitted by current zoning ordinances or regulations or evidence to 
indicate that the needed rezoning is likely and will not delay the 
project;
    (4) The proposed contract rent per unit, including an indication of 
which utilities, services, and equipment are included in the rent and 
which are not included. For those utilities that are not included in the 
rent, an estimate of the average monthly cost for each unit type for the 
first year of occupancy;
    (5) A statement identifying:
    (i) The number of persons (families, individuals, businesses and 
nonprofit organizations) occupying the property on the date of the 
submission of the application;
    (ii) The number of persons to be displaced, temporarily relocated or 
moved permanently within the building or complex;
    (iii) The estimated cost of relocation payments and services, and 
the sources of funding; and
    (iv) The organization(s) that will carry out the relocation 
activities;
    (v) The identity of the owner and other project principals and the 
names of officers and principal members, shareholders, investors, and 
other parties having a substantial interest; certification showing that 
the above-mentioned parties are not on the U.S. General Services 
Administration list of parties excluded from Federal procurement and 
nonprocurement programs; a disclosure of any possible conflict of 
interest by any of these parties that would be a violation of the 
Agreement or the HAP contract; and information on the qualifications and 
experience of the principal participants. Information concerning any 
participant who is not known at the time of the owner's submission must 
be provided to the HA as soon as the participant is known;
    (vi) The owner's plan for managing and maintaining the units;
    (vii) Evidence of financing or lender interest and the proposed 
terms of financing;
    (viii) The proposed term of the HAP contract; and
    (ix) Such other information as the HA believes necessary.
    (e) Resident management corporation competitive selection exception. 
An HA may select units to which assistance is to be attached, without 
advertising under paragraph (b) of this section and without applying the 
selection factors otherwise required by paragraph (c) of this section, 
if attachment of project-based assistance would further the purposes of 
the sale of a public housing project to a resident management 
corporation under section 21 of the U.S. Housing Act of 1937 (42 U.S.C. 
1437s).

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34717, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995; 63 
FR 23871, Apr. 30, 1998]



Sec. 983.52  Rehabilitation: Initial inspection and determination of unit 
eligibility.

    (a) Before selecting a unit or executing an Agreement, the HA must 
determine that the application is responsive to and in compliance with 
the HA's written selection criteria and procedures, and is otherwise in 
conformity with HUD program regulations and requirements. The HA must 
inspect the property to determine that rehabilitation has not begun and 
that the property meets the $1000 per assisted unit rehabilitation 
requirement under Sec. 983.8 of this chapter. If the property meets 
this rehabilitation requirement, the HA must determine the specific work 
items that are needed to bring each unit to be assisted up to the 
housing quality standards specified in Sec. 983.5 (or other standards 
as approved in the HA's application), to complete any other repairs 
needed to meet the $1000 per assisted unit rehabilitation requirement 
and, in the case of projects of five or more units, any work items 
necessary to meet the accessibility requirements of Section 504 of the 
Rehabilitation Act of 1973.
    (b) Before selecting a unit or executing an Agreement, the HA must 
also consider whether the property is eligible housing under Sec. 
983.7; meets the other Federal requirements in Sec. 983.11

[[Page 665]]

and the site and neighborhood standards cross-referenced in Sec. 983.6; 
and will be rehabilitated with other than assistance under the U.S. 
Housing Act of 1937 in accordance with Sec. 983.9. The HA must also 
determine the number of current tenants that are low-income families. An 
HA may not select a unit, or enter into an Agreement with respect to a 
unit, if the unit is occupied by persons who are not eligible for 
participation in the program.
    (c) Before executing an Agreement, the HA must contract with a State 
certified general appraiser and establish the rents in accordance with 
Sec. 983.202, or seek and obtain the HUD-determined initial contract 
rents for any HA owned or controlled units or projects financed with a 
HUD insured or coinsured multifamily mortgage; obtain subsidy layering 
contract rent reviews from HUD or a Housing Credit Agency; obtain 
environmental clearance in accordance with Sec. 983.11; submit a 
certification to the HUD field office stating that the unit or units 
were selected in accordance with the HA's approved unit selection 
policy; and receive approval from the HUD field office to execute an 
Agreement pursuant to the reviews required in Sec. 983.53.
    (d) When the HA administering the ACC or an entity substantially 
controlled by the HA administering the ACC has submitted an application, 
the HUD field office will select the owner applications. The HA must 
submit to the HUD field office all owner applications in response to the 
advertisement.
    (e) The HUD field office may terminate the Agreement or HAP contract 
upon at least 30 days written notice to the owner by the HUD field 
office if the HUD field office determines at any time that the units 
were not selected in accordance with the HA's approved written selection 
policy or that the units did not initially meet the HUD eligibility 
requirements.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34717, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995; 63 
FR 23871, Apr. 30, 1998]



Sec. 983.53  Rehabilitation: HUD field office review of applications.

    (a) The HUD field office must establish initial contract rents for 
any HA owned units or projects financed with a HUD insured or coinsured 
multifamily mortgage. HUD (or a Housing Credit Agency) must also conduct 
subsidy layering contract rent reviews.
    (b) When the HA administering the ACC or an entity substantially 
controlled by the HA administering the ACC has submitted an application, 
the HA must submit to the HUD field office all owner applications in 
response to the advertisement. The HUD field office must review the 
owner applications and make the final selections based on the criteria 
in the HA selection policy approved by the HUD field office.



Sec. 983.54  Rehabilitation: Work write-ups.

    The owner must prepare work write-ups and, where determined 
necessary by the HA, specifications and plans. The HA has flexibility to 
determine the appropriate documentation to be submitted by the owner 
based on the nature of the identified rehabilitation. The work write-ups 
must address the specific work items identified by the HA under Sec. 
983.52.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34717, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995]



Sec. 983.55  New construction: HA evaluation and technical processing.

    (a) Before selecting a unit or executing an Agreement, the HA must 
determine that the application is responsive to and in compliance with 
the HA's written selection criteria and procedures, and is otherwise in 
conformity with HUD program regulations and requirements. For example, 
the owner must submit with the application evidence of site control and 
the certification required by Sec. 983.51(d)(5)(v). The HA must 
determine that construction (foundation work) has not begun. The HA must 
determine that the proposed initial gross rents are within the fair 
market rent limitation under Sec. 983.202. The HA must also consider 
whether the

[[Page 666]]

property is eligible housing within the meaning of Sec. 983.7; meets 
the other Federal requirements in Sec. 983.11 and the site and 
neighborhood standards in Sec. 983.6; will be constructed with other 
than assistance under the U.S. Housing Act of 1937 in accordance with 
Sec. 983.9; and, in the case of projects of four or more units, whether 
any work items necessary to meet the accessibility requirements of 
Section 504 of the Rehabilitation Act of 1973 and the Fair Housing 
Amendments Act of 1988 will be completed.
    (b) Before executing an Agreement, the HA must contract with a State 
certified general appraiser and establish the rents in accordance with 
Sec. 983.202 or seek and obtain the HUD-determined initial contract 
rents for any HA owned or controlled units or projects financed with a 
HUD insured or coinsured multifamily mortgage; seek and obtain subsidy 
layering contract rent reviews from HUD or a Housing Credit Agency; seek 
and obtain environmental clearance in accordance with Sec. 983.11; and 
receive approval from the HUD field office to execute an Agreement 
pursuant to the reviews required in Sec. 983.56.
    (c) If the HA administering the ACC or an entity substantially 
controlled by the HA administering the ACC has submitted an application, 
the HA must submit to the HUD field office all owner applications in 
response to the advertisement. The HUD field office will select the 
owner applications to be funded from the applications received in 
response to the HA advertisement.
    (d) If there are no HA-owned or controlled applicants, the HA must 
submit to the HUD field office for the site and neighborhood review only 
those applications determined by the HA to be eligible for further 
processing pursuant to paragraph (a) of this section, and must submit a 
certification to the HUD field office stating that the unit or units 
were selected in accordance with the HA's approved unit selection 
policy. The HA's submission must not exceed the number of uncommitted 
units for which the HA is authorized to project-base assistance in 
connection with new construction. If the number of units contained in 
applications the HA has determined to be eligible for further processing 
exceeds the number for which the HA is authorized to project-base 
assistance, the HA may submit only the top-ranked applications.
    (e) The HUD field office may terminate the Agreement or HAP contract 
upon at least 30 days written notice to the owner by HUD if the HUD 
field office determines that the units were not selected in accordance 
with the HA's approved written selection policy or that the units did 
not initially meet the HUD eligibility requirements.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34717, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995; 63 
FR 23871, Apr. 30, 1998]



Sec. 983.56  New construction: HUD field office review of applications.

    (a) The HUD field office must review the owner applications 
submitted by an HA to determine compliance with requirements concerning 
the site and neighborhood standards in Sec. 983.6.
    (b) The HUD field office must establish initial contract rents for 
any HA owned units or projects financed with a HUD insured or coinsured 
multifamily mortgage. HUD (or a Housing Credit Agency) must also conduct 
subsidy layering contract rent reviews.
    (c) When the HA administering the ACC or an entity substantially 
controlled by the HA administering the ACC has submitted an application, 
the HA must submit to the HUD field office all owner applications in 
response to the advertisement. The HUD field office must review the 
owner applications and make the final selections based on the criteria 
in the HA selection policy approved by the HUD field office.



Sec. 983.57  New construction: Working drawings and specifications.

    Before an Agreement is executed for new construction units, the 
owner must submit the design architect's certification that the proposed 
new construction reflected in the working drawings and specifications 
complies with housing quality standards, local

[[Page 667]]

codes and ordinances, and zoning requirements.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34717, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995]



    Subpart C_Agreement and New Construction or Rehabilitation Period



Sec. 983.101  Agreement to enter into HAP contract, and contract rents 
in Agreement.

    (a) Agreement. The HA must enter into an Agreement with the owner in 
the form prescribed by HUD for assistance provided under this part 983. 
The Agreement must be executed before the start of any new construction 
or rehabilitation. Under the Agreement, the owner agrees to construct 
the units in accordance with the HA-approved working drawings and 
specifications or to rehabilitate the units in accordance with the HA-
approved work write-ups.
    (b) Contract rents in Agreement. The Agreement must list the initial 
contract rents that will apply to the units after they are constructed 
or rehabilitated. The amounts of the contract rents that are listed in 
the Agreement or, if applicable, as lowered under Sec. 983.103(c), must 
be the initial contract rents upon execution of the HAP contract. These 
initial contract rents may only be increased if:
    (1) The project is financed with a HUD insured or coinsured 
multifamily mortgage;
    (2) The initial contract rents listed in the Agreement were based on 
the amount determined by HUD to be necessary to amortize the insured or 
coinsured mortgage; and
    (3) The HUD field office approves a cost increase prior to closing. 
In such a case, the HUD field office may redetermine the initial 
contract rents in accordance with Sec. 983.202 except that the field 
office may use the comparable rents originally used in processing the 
insured or coinsured mortgage in lieu of the amount determined in 
accordance with Sec. 983.202.

[60 FR 34717, July 3, 1995, as amended at 63 FR 23871, Apr. 30, 1998]



Sec. 983.102  Owner selection of contractor.

    The owner is responsible for selecting a competent contractor to 
undertake the new construction or rehabilitation work under the 
Agreement. The owner may not award contracts to, otherwise engage the 
services of, or fund any contractor or subcontractor, to perform such 
work, that fails to provide a certification that neither it nor its 
principals is presently debarred, suspended, or placed in ineligibility 
status under 24 CFR part 24, or is on the list of ineligible contractors 
or subcontractors established and maintained by the Comptroller General 
under 29 CFR part 5. The HA must promote opportunities for minority 
contractors to participate in the program.



Sec. 983.103  New construction or rehabilitation period.

    (a) Timely performance of work. After the Agreement has been 
executed, the owner must promptly proceed with the construction or 
rehabilitation work as provided in the Agreement. In the event the work 
is not so commenced, diligently continued, or completed, the HA may 
terminate the Agreement or take other appropriate action.
    (b) Inspections. The HA must inspect during construction or 
rehabilitation to ensure that work is proceeding on schedule and is 
being accomplished in accordance with the terms of the Agreement. The 
inspection must be carried out to ensure that the work meets the types 
of materials specified in the work write-ups or working drawings and 
specifications, and meets typical levels of workmanship in the area.
    (c) Changes. The owner must obtain prior HA approval for any changes 
from the work specified in the Agreement that would alter the design or 
the quality of the required new construction or rehabilitation. The HA 
may disapprove any changes requested by the owner. HA approval of 
changes may be conditioned on establishing lower initial contract rents 
in the amount determined by the HA (or the HUD field office for HA owned 
units or projects financed with a HUD insured or coinsured multifamily 
mortgage). If the owner makes any changes without prior HA approval, the 
HA may lower

[[Page 668]]

the initial contract rents in the amount determined by the HA (or the 
HUD field office for HA owned units or projects financed with a HUD 
insured or coinsured multifamily mortgage), and may require the owner to 
remedy any deficiencies, prior to, and as a condition for, acceptance of 
the units. Initial contract rents, however, must not be increased 
because of any change from the work specified in the Agreement as 
originally executed. When a HUD insured or a HUD coinsured multifamily 
mortgage is used to finance new construction or rehabilitation of the 
units to which assistance is to be attached under this part 983, the HUD 
field office may lower the initial contract rents to reflect any 
reduction in the amount necessary to amortize the insured or coinsured 
mortgage.
    (d) Notification of vacancies. At least 60 days before the scheduled 
completion of the new construction or rehabilitation, the owner must 
notify the HA of any units expected to be vacant on the anticipated 
effective date of the HAP contract. The HA must refer to the owner 
appropriate-sized families from the HA waiting list. When the HAP 
contract is executed, the owner must notify the HA which units are 
vacant. (See also Sec. 983.253).

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34717, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995; 63 
FR 23871, Apr. 30, 1998]



Sec. 983.104  New construction or rehabilitation completion.

    (a) Notification of completion. The owner must notify the HA when 
the work is completed and submit to the HA the evidence of completion 
described in paragraph (b) of this section.
    (b) Evidence of completion. To demonstrate completion of the work 
the owner must furnish the HA with:
    (1) A certificate of occupancy or other official approvals as 
required by the locality.
    (2) A certification by the owner that:
    (i) The work has been completed in accordance with the requirements 
of the Agreement;
    (ii) There are no defects or deficiencies in the work except for 
items of delayed completion which are minor or which are incomplete 
because of weather conditions and, in any case, do not preclude or 
affect occupancy;
    (iii) The unit(s) has been constructed or rehabilitated in 
accordance with the applicable zoning, building, housing and other 
codes, ordinances or regulations, as modified by any waivers obtained 
from the appropriate officials;
    (iv) Units are in compliance with the lead-based paint requirements 
in part 35, subparts A, B, H, and R of this title; and
    (v) The owner has complied with any applicable labor standards 
requirements in the Agreement.
    (3) For projects where a HUD field office construction inspection is 
not required during construction, a certification from the inspecting 
architect stating that the units have been constructed in accordance 
with the certified working drawings and specifications, housing quality 
standards, local codes and ordinances, and zoning requirements.
    (c) Review and inspections. The HA must review the evidence of 
completion for compliance with paragraph (b) of this section. The HA 
also must inspect the unit(s) to be assisted to determine that the 
unit(s) has been completed in accordance with the Agreement, including 
meeting the housing quality standards or other standards approved by the 
HUD field office for the program. If the inspection discloses defects or 
deficiencies, the inspector must report these in detail.
    (d) Acceptance. (1) If the HA determines from the review and 
inspection that the unit(s) has been completed in accordance with the 
Agreement, the HA must accept the unit(s).
    (2) If there are any items of delayed completion that are minor 
items or that are incomplete because of weather conditions, and in any 
case that do not preclude or affect occupancy, and all other 
requirements of the Agreement have been met, the HA may accept the 
unit(s). The HA must require the owner to deposit in escrow with the HA 
funds in an amount the HA determines to be sufficient to ensure 
completion of the delayed items. The HA and owner must also execute a 
written agreement, specifying the schedule for completion of these 
items. If the items are not

[[Page 669]]

completed within the agreed time period, the HA may terminate the HAP 
contract or exercise other rights under the HAP contract.
    (3) If other deficiencies exist, the HA must determine whether and 
to what extent the deficiencies are correctable and whether a time 
extension is warranted, and HUD must determine whether the contract 
rents should be reduced.
    (4) Otherwise, the unit(s) may not be accepted, and the owner must 
be notified with a statement of the reasons for nonacceptance.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34717, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995; 64 
FR 50230, Sept. 15, 1999]



             Subpart D_Housing Assistance Payments Contract



Sec. 983.151  Housing assistance payments contract (HAP contract).

    (a) Required form. The HA must enter into a HAP contract with the 
owner in the form prescribed by HUD for assistance provided under this 
part 983.
    (b) Term of HAP contract. (1) The initial HAP contract term may not 
be less than one year nor more than five years, and may not extend 
beyond the ACC expiration date for the funding source from which the HAP 
contract is to be funded.
    (2) The contract authority for the funding source must exceed the 
estimated annual housing assistance payments for all tenant-based and 
project-based HAP contracts funded from the funding source.
    (3) Within these limitations, the HA has the sole discretion to 
determine the HAP contract term.
    (c) Renewal of HAP contracts. With HUD field office approval and at 
the sole option of the HA, HAs may renew expiring HAP contracts for such 
period or periods as the HUD field office determines appropriate to 
achieve long-term affordability of the assisted housing, provided that 
the term does not extend beyond the ACC expiration date for the funding 
source. HAs must identify the funding source for renewals; different 
funding sources may be used for the initial term and renewal terms of 
the HAP contract. In addition to assessing whether the HAP contract 
should be renewed to achieve long term affordability, HUD will review an 
HA's renewal request to determine that the requirements listed in Sec. 
983.3(a) will be satisfied, and to determine if a rent reduction is 
warranted pursuant to 24 CFR part 12. The owner and owner's successors 
in interest must accept all HAP contract renewals agreed to by the HA 
and approved by HUD.
    (d) Time of execution. The HA must execute the HAP contract if the 
HA accepts the unit(s) under Sec. 983.104. The effective date of the 
HAP contract may not be earlier than the date of HA inspection and 
acceptance of the unit(s).
    (e) Units under lease. After commencement of the HAP contract term, 
the HA must make the monthly housing assistance payments in accordance 
with the HAP contract for each unit occupied under lease by a family.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34717, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995; 63 
FR 23871, Apr. 30, 1998]



Sec. 983.152  Reduction of number of units covered by HAP contract.

    (a) Limitation on leasing to ineligible families. Owners must lease 
all assisted units under HAP contract to eligible families. Leasing of 
vacant, assisted units to ineligible tenants is a violation of the HAP 
contract and grounds for all available legal remedies, including 
suspension or debarment from HUD programs and reduction of the number of 
units under the HAP contract, as set forth in paragraph (b) of this 
section. Once the HA has determined that a violation exists, the HA must 
notify the HUD field office of its determination and the suggested 
remedies. At the direction of the HUD field office, the HA must take the 
appropriate action.
    (b) Reduction for failure to lease to eligible families. If, at any 
time beginning 180 calendar days after the effective date of the HAP 
contract, the owner fails for a period of 180 continuous calendar days 
to have the assisted units leased to families receiving housing 
assistance or to families who were eligible when they initially leased 
the unit

[[Page 670]]

but are no longer receiving housing assistance, the HA may, on at least 
30 calendar days notice, reduce the number of units covered by the HAP 
contract. The HA may reduce the number of units to the number of units 
actually leased or available for leasing by eligible families plus 10 
percent (rounded up). If the owner has only one unit under HAP contract 
and if one year has elapsed since the date of the last housing 
assistance payment, the HAP contract may be terminated with the consent 
of the owner.
    (c) Restoration. The HA will agree to an amendment of the HAP 
contract to provide for subsequent restoration of any reduction made 
pursuant to paragraph (b) of this section if:
    (1) The HA determines that the restoration is justified by demand,
    (2) The owner otherwise has a record of compliance with obligations 
under the HAP contract; and
    (3) Contract authority is available.



                          Subpart E_Management



Sec. 983.201  Responsibilities of the HA.

    The HA must:
    (a) Inspect the project before, during and upon completion of new 
construction or rehabilitation; and
    (b) Ensure that the amount of assistance that is attached to units 
is within the amounts available under the ACC.

[63 FR 23871, Apr. 30, 1998]



Sec. 983.202  Responsibilities of the owner.

    Section 982.452 of this chapter, Owner responsibilities, applies. 
The owner is also responsible for performing all of the owner 
responsibilities under the Agreement and the HAP contract, providing the 
HA with a copy of any termination of tenancy notification, and offering 
vacant, accessible units to a Family with one or more members with a 
disability requiring accessibility features of the vacant unit and 
occupying an assisted unit not having such features.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34717, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995; 63 
FR 23871, Apr. 30, 1998]



Sec. 983.203  Family participation.

    Subpart E of part 982 of this chapter, Selection for Tenant-based 
Program, does not apply, except as it is expressly made applicable by 
this section.
    (a) HA selection for participation. (1) The following provisions 
apply to this part: Sec. Sec. 982.201, 982.202 except paragraph (b)(3), 
982.203, 982.204 except paragraph (a) and (d), 982.205 except paragraph 
(a), 982.206, 982.207.
    (2) For purposes of this part, a family becomes a participant when 
the family and owner execute a lease for a unit with project-based 
assistance.
    (3) An HA may use the tenant-based waiting list, a merged waiting 
list, or a separate PBC waiting list for admission to the PBC program. 
If the HA opts to have a separate PBC waiting list, the HA may use a 
single waiting list for all PBC projects, or may use a separate PBC 
waiting list for an area not smaller than a county or municipality.
    (4) Except for special admissions and admissions pursuant to 
paragraph (c)(3) of this section, participants must be selected from the 
HA waiting list. The HA must select participants from the waiting list 
in accordance with admission policies in the HA administrative plan.
    (5) HAs authorized to use the 30-percent limit to prevent 
prepayments under State mortgage programs must not count families 
selected to occupy units in these State-assisted or subsidized projects 
against the local preference limit.
    (6) The selection of eligible in-place families does not count 
against the local preference limit.
    (b) HA determination of eligibility of in-place families. Before an 
HA selects a specific unit to which assistance is to be attached, the HA 
must determine whether the unit is occupied, and if occupied, whether 
the unit's occupants are eligible for assistance. If the unit is 
occupied by an eligible family (including a single person) and the HA 
selects the unit, the family must be afforded the opportunity to lease 
that unit or another appropriately sized, project-based assisted unit in 
the project without requiring the family to be placed on the waiting 
list. An HA may not select a unit, or enter into an Agreement

[[Page 671]]

with respect to a unit, if the unit is occupied by persons who are not 
eligible for participation in the program.
    (c) Filling vacant units. (1) When the owner notifies the HA of 
vacancies in the units to which assistance is attached, the HA will 
refer to the owner one or more families of the appropriate size on its 
waiting list. A family that refuses the offer of a unit assisted under 
this part 983 keeps its place on the waiting list.
    (2) The owner must rent all vacant units to eligible families 
referred by the HA from its waiting list. The HA must determine 
eligibility for participation in accordance with HUD requirements.
    (3) If the HA does not refer a sufficient number of interested 
applicants on the HA waiting list to the owner within 30 days of the 
owner's notification to the HA of a vacancy, the owner may advertise for 
or solicit applications from eligible very low-income families, or, if 
authorized by the HA in accordance with HUD requirements, low-income 
families. The owner must refer these families to the HA to determine 
eligibility.
    (4)(i) The owner is responsible for screening and selection of 
tenants. The owner must adopt written tenant selection procedures that 
are consistent with the purpose of improving housing opportunities for 
very low-income families, and reasonably related to program eligibility 
and an applicant's ability to perform the lease obligations.
    (ii)(A) An owner must promptly notify in writing any rejected 
applicant of the grounds for any rejection.
    (B) If the owner rejects an applicant family who believes that the 
rejection was the result of unlawful discrimination, the family may 
request the assistance of the HA in resolving the issue. The family may 
also file a discrimination complaint with the HUD field office or 
exercise other rights provided by law.
    (d) Briefing of families. When a family is selected to occupy a 
project-based unit, the PHA must provide the family with information 
concerning the tenant rent and any applicable utility allowance and a 
copy of the lead hazard information pamphlet, as required by part 35, 
subpart A of this title. The family must also, either in group or 
individual sessions, be provided with a full explanation of the 
following:
    (1) Family and owner responsibilities under the lease and HAP 
contract;
    (2) Information on Federal, State, and local equal opportunity laws;
    (3) The fact that the subsidy is tied to the unit, that the family 
must occupy a unit constructed or rehabilitated under the program, and 
that a family that moves from the unit does not have any right to 
continued assistance;
    (4) The likelihood of the family receiving a certificate after the 
HAP contract expires;
    (5) The family's options under the program, if the family is 
required to move because of a change in family size or composition;
    (6) Information on the HA's procedures for conducting informal 
hearings for participants, including a description of the circumstances 
in which the HA is required to provide the opportunity for an informal 
hearing (under Sec. 983.207), and of the procedures for requesting a 
hearing.
    (e) Continued assistance for a family when the HAP contract is 
terminated. If the HAP contract for the unit expires or if the HA 
terminates the HAP contract for the unit:
    (1) The HA must issue the assisted family in occupancy of a unit a 
certificate of family participation for assistance under the HA's 
certificate program unless the HA has determined that it does not have 
sufficient funding for continued assistance for the family, or unless 
the HA denies issuance of a certificate in accordance with Sec. 982.552 
of this chapter.
    (2) If the unit is not occupied by an assisted family, then the 
available funds under the ACC that were previously committed for support 
of the project-based assistance for the unit must be used for the HA's 
certificate program.
    (f) Amount of rent payable by family to owner. The amount of rent 
payable by the Family to the owner must be the Tenant Rent.
    (g) Lease requirements. (1) The lease between the family and the 
owner must be in accordance with Sec. 983.206 and any

[[Page 672]]

other applicable HUD regulations and requirements. The lease must 
include all provisions required by HUD and must not include any of the 
provisions prohibited by HUD.
    (2) When offering an accessible unit to an applicant not having 
disabilities requiring the accessibility features of the unit, the owner 
may require the applicant to agree (and may incorporate this agreement 
in the Lease) to move to a non-accessible unit when available.

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34717, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995; 61 
FR 9048, Mar. 6, 1996; 61 FR 27163, May 30, 1996; 63 FR 23871, Apr. 30, 
1998; 64 FR 50230, Sept. 15, 1999]



Sec. 983.204  Maintenance, operation and inspections.

    (a) Section 982.404 of this chapter, Maintenance: Owner and family 
responsibility; HA remedies, pertaining to owner responsibilities and HA 
remedies, does not apply. Section 982.405 of this chapter, HA periodic 
unit inspection, and Sec. 982.406 of this chapter, Enforcement of HQS, 
do not apply.
    (b) Maintenance and operation. The owner must provide all the 
services, maintenance and utilities as agreed under the HAP contract, 
subject to abatement of housing assistance payments or other applicable 
remedies if the owner fails to meet these obligations.
    (c) Periodic inspection. In addition to the inspections required 
prior to execution of the HAP contract, the HA must inspect or cause to 
be inspected each dwelling unit under HAP contract at least annually and 
at such other times as may be necessary to assure that the owner is 
meeting the obligations to maintain the unit in decent, safe and 
sanitary condition and to provide the agreed upon utilities and other 
services. The HA must take into account complaints and any other 
information coming to its attention in scheduling inspections.
    (d) Units not decent, safe and sanitary. If the HA notifies the 
owner that the unit(s) under HAP contract are not being maintained in 
decent, safe and sanitary condition and the owner fails to take 
corrective action within the time prescribed in the notice, the HA may 
exercise any of its rights or remedies under the HAP contract, including 
abatement of housing assistance payments (even if the family continues 
in occupancy), termination of the HAP contract on the affected unit(s) 
and termination of assistance to the family in accordance with Sec. 
982.552 of this chapter.
    (e) Enforcement of HQS. 24 CFR part 982 and this part 983 do not 
create any right of the family, or any party other than HUD or the HA, 
to require enforcement of the HQS requirement by HUD or the HA, or to 
assert any claim against HUD or the HA, for damages, injunction or other 
relief, for alleged failure to enforce the HQS.

[60 FR 34717, July 3, 1995, as amended at 63 FR 23871, Apr. 30, 1998]



Sec. 983.205  Overcrowded and underoccupied units.

    (a) 24 CFR 982.403, Terminating HAP contract: When unit is too big 
or too small, does not apply.
    (b) If the HA determines that a contract unit is not decent, safe, 
and sanitary because of an increase in family size that causes the unit 
to be overcrowded or that a contract unit is larger than appropriate for 
the size of the family in occupancy under the HA's subsidy standards, 
housing assistance payments with respect to the unit may not be 
terminated for this reason. The owner, however, must offer the family a 
suitable alternative unit if one is available and the family shall be 
required to move. If the owner does not have available a suitable unit 
within the family's ability to pay the rent, the HA (if it has 
sufficient funding) must offer Section 8 assistance to the family or 
otherwise assist the family in locating other standard housing in the 
HA's jurisdiction within the family's ability to pay, and require the 
family to move to such a unit as soon as possible. The family must not 
be forced to move, nor shall housing assistance payments under the HAP 
contract be terminated for the reasons specified in this paragraph, 
unless the family rejects, without good reason, the offer of a unit that 
the HA judges to be acceptable.

[60 FR 34717, July 3, 1995. Redesignated and amended at 63 FR 23871, 
Apr. 30, 1998]

[[Page 673]]



Sec. 983.206  Assisted tenancy and termination of tenancy.

    (a) Section 982.309 of this chapter, Term of assisted tenancy, and 
Sec. 982.310 of this chapter, Owner termination of tenancy, do not 
apply.
    (b) Term of lease. The term of a lease, including a new lease or a 
lease amendment, executed by the owner and the family must be for at 
least one year, or the remaining term of the HAP contract if the 
remaining term of the HAP contract is less than one year.
    (c) Move from unit. The family must notify the HA and the owner 
before the family moves out of the unit.
    (d) Termination of tenancy. (1) Subpart A of part 247 of this title, 
Eviction from Certain Subsidized and HUD-Owned Projects, applies, except 
Sec. 247.4(d) of this title.
    (2) The lease may contain a provision permitting the family to 
terminate the lease on not more than 60 days advance written notice to 
the owner. In the case of a lease term for more than one year, the lease 
must contain a provision permitting the family to terminate the lease on 
such notice after the first year of the term.
    (3) The owner may offer the family a new lease for execution by the 
family for a term beginning at any time after the first year of the term 
of the lease. The owner must give the family written notice of the offer 
at least 60 days before the proposed commencement date of the new lease 
term. The offer may specify a reasonable time for acceptance by the 
family. Failure by the family to accept the offer of a new lease in 
accordance with this paragraph shall be ``other good cause'' for 
termination of tenancy (under Sec. 247.3(a)(3) of this title).

(Approved by the Office of Management and Budget under control number 
2577-0169)

[60 FR 34717, July 3, 1995, as amended at 60 FR 45661, Sept. 1, 1995. 
Redesignated at 63 FR 23871, Apr. 30, 1998]



Sec. 983.207  Informal review or hearing.

    24 CFR 982.554 (Informal review for applicants) and 24 CFR 982.555 
(Informal hearing for participants) are applicable.

[63 FR 23871, Apr. 30, 1998]



              Subpart F_Rent and Housing Assistance Payment

    Source: 63 FR 23871, Apr. 30, 1998, unless otherwise noted.



Sec. 983.251  Applicability.

    (a) This subpart describes how to determine the amount of the rent 
to owner and the housing assistance payment in the PBC program.
    (b) In subpart K of 24 CFR part 982 (rent and housing assistance 
payment for tenant-based program), the following are the only sections 
that apply to the PBC program under this Part: Sec. 982.504 (for 
determination of the FMR/exception rent limit); Sec. 982.516 (regular 
and interim examinations of family income and composition); and Sec. 
982.517 (utility allowance schedule).



Sec. 983.252  Limits on initial rent to owner.

    (a) Reasonable rent. The initial rent to owner for a unit may not 
exceed the reasonable rent as determined by the HA in accordance with 
Sec. 983.256.
    (b) FMR/exception rent limit. The initial gross rent for a unit 
(rent to owner plus utility allowance) may not exceed the FMR/exception 
rent limit on the date the Agreement is executed. The FMR/exception rent 
limit is determined by the HA in accordance with 24 CFR 982.504.



Sec. 983.253  Initial rent: Who approves.

    (a) For units that are not HUD-insured or HA-owned. The HA approves 
the initial rent to owners for PBC units that are not financed with a 
HUD-insured multifamily mortgage, and are not owned by the HA.
    (b) For units that are insured or HA-owned. For HA-owned PBC units 
or PBC units financed with a HUD insured multifamily mortgage, the 
initial rents must be approved by HUD.



Sec. 983.254  Annual adjustment of rent to owner.

    (a) Owner request for adjustment and compliance with contract. At 
each annual anniversary date of the HAP contract, the HA must adjust the 
rent to owner in accordance with the following requirements:

[[Page 674]]

    (1) The owner must request a rent increase (including a 
comparability study to determine the amount of such increase) by written 
notice to the HA at least 120 days before the HAP contract anniversary. 
The request must be submitted in the form and manner required by the HA.
    (2) The HA may not increase the rent at the annual anniversary 
unless:
    (i) The owner requested the increase by the 120 day deadline; and
    (ii) During the year before the contract anniversary, the owner 
complied with all requirements of the HAP contract, including compliance 
with the HQS for all contract units.
    (b) Amount of annual adjustment. (1) The adjusted rent to owner 
equals the lesser of:
    (i) The pre-adjustment rent to owner multiplied by the applicable 
Section 8 annual adjustment factor published by HUD in the Federal 
Register;
    (ii) The reasonable rent as determined by the HA in accordance with 
Sec. 983.256; or
    (iii) The rent requested by owner.
    (2) For a HAP contract under an Agreement executed on or after June 
1, 1998, the applicable factor is the published annual adjustment factor 
in effect 60 days before the HAP contract anniversary. For a HAP 
contract under an Agreement executed before June 1, 1998, the applicable 
factor is the published annual adjustment factor in effect on the 
contract anniversary date.
    (3) In making the annual adjustment, the pre-adjustment rent to 
owner does not include any previously approved special adjustments.
    (4) The rent to owner may be adjusted up or down in accordance with 
this section.
    (c) Rent adjustments for HA-owned units. For HA-owned PBC units, the 
HA must request HUD approval of the annual adjustment. The HA may not 
increase the rent at the annual anniversary until and unless HUD has 
reviewed the HA comparability study, and has approved the adjustment.
    (d) Initial rent. Except as necessary to correct errors in 
establishing the initial rent in accordance with HUD requirements, the 
adjusted rent to owner must not be less than the initial rent.

(Information collection requirements in this section have been approved 
by the Office of Management and Budget under control number 2577-0169.)



Sec. 983.255  Special adjustment of rent to owner.

    (a) HUD discretion. (1) At HUD's sole discretion, HUD may approve a 
special adjustment of the rent to owner. An HA may only make a special 
adjustment of the rent to owner if the adjustment has been approved by 
HUD.
    (2) The owner does not have any right to receive a special 
adjustment.
    (b) Purpose of special adjustment. A special adjustment may only be 
approved to reflect increases in the actual and necessary costs of 
owning and maintaining the contract units because of substantial and 
general increases in:
    (1) Real property taxes;
    (2) Special governmental assessments;
    (3) Utility rates; or
    (4) Costs of utilities not covered by regulated rates.
    (c) Limits on special adjustment. (1) A special adjustment may only 
be approved if and to the extent the owner demonstrates that cost 
increases are not adequately compensated by application of the published 
annual adjustment factor at the contract anniversary (see Sec. 
983.254). The owner must demonstrate that the rent to owner is not 
sufficient for proper operation of the housing.
    (2) The adjusted rent may not exceed the reasonable rent as 
determined by a comparability study in accordance with Sec. 983.256.
    (d) Financial information. The owner must submit financial 
information, as requested by the HA, that supports the grant or 
continuance of a special adjustment. For HAP contracts of more than 
twenty units, such financial information must be audited.
    (e) Term of special adjustment. (1) The HA may withdraw or limit the 
term of any special adjustment.
    (2) If a special adjustment is approved to cover temporary or one-
time costs, the special adjustment is only a

[[Page 675]]

temporary or one-time increase of the rent to owner.

(Information collection requirements in this section have been approved 
by the Office of Management and Budget under control number 2577-0169.)



Sec. 983.256  Reasonable rent.

    (a) Requirement. (1) The HA may not enter an agreement to enter into 
housing assistance payments contract until the HA determines that the 
initial rent to owner under the HAP contract is a reasonable rent.
    (2) During the term of a HAP contract, the rent to owner may not 
exceed the reasonable rent as determined by the HA.
    (3) At least annually during the HAP contract term, the HA must 
redetermine that the current rent to owner does not exceed a reasonable 
rent.
    (b) Comparability. The HA must determine whether the rent to owner 
is a reasonable rent in comparison to rent for other comparable 
unassisted units. To make this determination, the HA must consider:
    (1) The location, quality, size, unit type, and age of the contract 
unit; and
    (2) Any amenities, housing services, maintenance and utilities to be 
provided by the owner in accordance with the lease.
    (c) Appraisal--(1) Determining initial rent. (i) To determine that 
the initial rent to owner is reasonable, the HA must use a qualified 
State-certified appraiser who has no direct or indirect interest in the 
property or otherwise.
    (ii) For each unit type, the appraiser must submit a completed 
comparability analysis on Form HUD-92273 (Estimates of Market Rent by 
Comparison--the form is available at the Department of Housing and Urban 
Development, HUD Custom Service Center, 451 7th Street, SW, Room B-100, 
Washington, DC 20410) for HA review and approval. The appraisal must use 
at least three comparable units in the private unassisted market.
    (iii) The HA must certify to HUD that the initial rent to owner for 
a unit does not exceed the reasonable rent.
    (2) Annual Adjustment: Comparability study. (i) In determining the 
annual adjustment of rent to owner (in accordance with Sec. 983.254), 
the adjusted rent to owner must not exceed a reasonable rent as 
determined by an HA ``comparability study.''
    (ii) The comparability study is an analysis of rents charged for 
comparable units. The HA comparability study must determine the 
reasonable rent for the contract units as compared with rents for 
comparable unassisted units. The adjusted rent for a contract unit may 
not exceed the reasonable rent as shown by the comparability study.
    (iii) The comparability study must include a completed comparability 
analysis for each unit type on Form HUD-92273 (Estimates of Market Rent 
by Comparison). The comparability study may be prepared by HA staff or 
by another qualified appraiser. The appraiser may not have any direct or 
indirect interest in the property or otherwise.
    (iv) The comparability study must show how the reasonable rent was 
determined, including major differences between the contract units and 
comparable unassisted units.
    (v) If the owner requests a rent increase by the 120 day deadline 
(in accordance with Sec. 983.254(a)), the HA must submit a 
comparability study to the owner at least 60 days before the HAP 
contract anniversary. If the HA does not submit the comparability study 
to the owner by this deadline, an increase of rent by application of the 
annual adjustment factor (in accordance with Sec. 983.254(b)) is not 
subject to the reasonable rent limit.
    (d) Owner certification of rents charged for other units. By 
accepting each monthly housing assistance payment from the HA, the owner 
certifies that the rent to owner is not more than rent charged by the 
owner for comparable unassisted units in the premises. The owner must 
give the HA information requested by the HA on rents charged by the 
owner for other units in the premises or elsewhere.

(Information collection requirements in this section have been approved 
by the Office of Management and Budget under control number 2577-0169.)

[[Page 676]]



Sec. 983.257  Other subsidy: Effect on rent to owner.

    (a) HOME. For units assisted under the HOME program, rents are 
subject to requirements of the HOME program (24 CFR 92.252).
    (b) Combining subsidy. The HA may only approve or assist a project 
in accordance with HUD regulations and guidelines designed to ensure 
that participants do not receive excessive compensation by combining HUD 
program assistance with assistance from other Federal, State or local 
agencies, or with low income housing tax credits. (See 42 U.S.C. 3545(d) 
and section 3545 note.)
    (c) Other subsidy: HA discretion to reduce rent. The HA may reduce 
the initial rent to owner because of other governmental subsidies, 
including tax credit or tax exemption, grants or other subsidized 
financing.
    (d) Prohibition of other subsidy. For provisions prohibiting PBC 
assistance to units in certain types of subsidized housing, see Sec. 
983.7(c).



Sec. 983.258  Rent to owner: Effect of rent control.

    In addition to the rent reasonableness limit, and other rent limits 
under this rule, the amount of rent to owner also may be subject to rent 
control limits under State or local law.



Sec. 983.259  Correction of rent.

    At any time during the life of the HAP contract, the HA may revise 
the rent to owner to correct any errors in establishing or adjusting 
rent to owner in accordance with HUD requirements. The HA may recover 
any excess payment from the owner.



Sec. 983.260  Housing assistance payment: Amount and distribution.

    (a) Amount. The monthly housing assistance payment equals the gross 
rent, minus the higher of:
    (1) The total tenant payment; or
    (2) The minimum rent as required by law.
    (b) Distribution. The monthly housing assistance payment is 
distributed as follows:
    (1) The HA pays the owner the lesser of the housing assistance 
payment or the rent to owner.
    (2) If the housing assistance payment exceeds the rent to owner, the 
HA may pay the balance of the housing assistance payment either to the 
family or directly to the utility supplier to pay the utility bill.



Sec. 983.261  Family share: Family responsibility to pay.

    (a) The family share is calculated by subtracting the amount of the 
housing assistance payment from the gross rent.
    (b) The HA may not use housing assistance payments or other program 
funds (including any administrative fee reserve) to pay any part of the 
family share. Payment of the family share is the responsibility of the 
family.



Sec. 983.262  Other fees and charges.

    (a) The cost of meals or supportive services may not be included in 
the rent to owner, and the value of meals or supportive services may not 
be included in the calculation of reasonable rent.
    (b) The lease may not require the tenant or family members to pay 
charges for meals or supportive services. Non-payment of such charges is 
not grounds for termination of tenancy.
    (c) The owner may not charge the tenant extra amounts for items 
customarily included in rent in the locality or provided at no 
additional cost to the unsubsidized tenants in the premises.



PART 984_SECTION 8 AND PUBLIC HOUSING FAMILY SELF-SUFFICIENCY 
PROGRAM--Table of Contents




                            Subpart A_General

Sec.
984.101 Purpose, scope, and applicability.
984.102 Program objectives.
984.103 Definitions.
984.104 Basic requirements of the FSS program.
984.105 Minimum program size.

          Subpart B_Program Development and Approval Procedures

984.201 Action Plan.
984.202 Program Coordinating Committee (PCC).
984.203 FSS family selection procedures.

[[Page 677]]

984.204 On-site facilities.

                       Subpart C_Program Operation

984.301 Program implementation.
984.302 Administrative fees.
984.303 Contract of participation.
984.304 Total tenant payment, family rent, and increases in family 
          income.
984.305 FSS account.
984.306 Section 8 residency and portability requirements.

                           Subpart D_Reporting

984.401 Reporting.

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

    Source: 61 FR 8815, Mar. 5, 1996, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 984 appear at 65 FR 
16731, Mar. 29, 2000.



                            Subpart A_General



Sec. 984.101  Purpose, scope, and applicability.

    (a) Purpose. (1) The purpose of the Family Self-Sufficiency (FSS) 
program is to promote the development of local strategies to coordinate 
the use of public housing assistance and housing assistance under the 
Section 8 rental certificate and rental voucher programs with public and 
private resources, to enable families eligible to receive assistance 
under these programs to achieve economic independence and self-
sufficiency.
    (2) The purpose of this part is to implement the policies and 
procedures applicable to operation of a local FSS program, as 
established under section 23 of the 1937 Act (42 U.S.C. 1437u), under 
HUD's rental voucher, rental certificate, and public housing programs.
    (b) Scope. (1) Each PHA that received funding for public housing 
units under the FY 1991 and FY 1992 FSS incentive award competitions 
must operate a public housing FSS program.
    (2) Each PHA that received funding for Section 8 rental certificates 
or rental vouchers under the combined FY 1991/1992 FSS incentive award 
competition must operate a Section 8 FSS program.
    (3) Unless the PHA receives an exemption under Sec. 984.105:
    (i) Each PHA for which HUD reserved funding (budget authority) for 
additional rental certificates or rental vouchers in FY 1993 through 
October 20, 1998 must operate a Section 8 FSS program.
    (ii) Each PHA for which HUD reserved funding (budget authority) to 
acquire or construct additional public housing units in FY 1993 through 
October 20, 1998 must operate a public housing FSS program.
    (c) Applicability. This part applies to:
    (1) The public housing program, and
    (2) The Section 8 certificate and voucher programs.

[61 FR 8815, Mar. 5, 1996, as amended at 65 FR 16731, Mar. 29, 2000]



Sec. 984.102  Program objectives.

    The objective of the FSS program is to reduce the dependency of low-
income families on welfare assistance and on Section 8, public, or any 
Federal, State, or local rent or homeownership subsidies. Under the FSS 
program, low-income families are provided opportunities for education, 
job training, counseling, and other forms of social service assistance, 
while living in assisted housing, so that they may obtain the education, 
employment, and business and social skills necessary to achieve self-
sufficiency, as defined in Sec. 984.103 of this subpart A. The 
Department will measure the success of a local FSS program not only by 
the number of families who achieve self-sufficiency, but also by the 
number of FSS families who, as a result of participation in the program, 
have family members who obtain their first job, or who obtain higher 
paying jobs; no longer need benefits received under one or more welfare 
programs; obtain a high school diploma or higher education degree; or 
accomplish similar goals that will assist the family in obtaining 
economic independence.

[61 FR 8815, Mar. 5, 1966, as amended at 65 FR 16731, Mar. 29, 2000]



Sec. 984.103  Definitions.

    (a) The terms 1937 Act, Fair Market Rent, HUD, Public Housing, 
Public Housing Agency (PHA), Secretary, and Section 8, as used in this 
part, are defined in part 5 of this title.

[[Page 678]]

    (b) As used in this part:
    Certification means a written assertion based on supporting 
evidence, provided by the FSS family or the PHA, as may be required 
under this part, and which:
    (1) Shall be maintained by the PHA in the case of the family's 
certification, or by HUD in the case of the PHA's certification;
    (2) Shall be made available for inspection by HUD, the PHA, and the 
public, as appropriate; and
    (3) Shall be deemed to be accurate for purposes of this part, unless 
the Secretary or the PHA, as applicable, determines otherwise after 
inspecting the evidence and providing due notice and opportunity for 
comment.
    Chief executive officer (CEO). The CEO of a unit of general local 
government means the elected official or the legally designated 
official, who has the primary responsibility for the conduct of that 
entity's governmental affairs. The CEO for an Indian tribe is the tribal 
governing official.
    Contract of participation means a contract in a form approved by 
HUD, entered into between a participating family and a PHA operating an 
FSS program that sets forth the terms and conditions governing 
participation in the FSS program. The contract of participation includes 
all individual training and services plans entered into between the PHA 
and all members of the family who will participate in the FSS program, 
and which plans are attached to the contract of participation as 
exhibits. For additional detail, see Sec. 984.303 of this subpart A.
    Earned income means income or earnings included in annual income 
from wages, tips, salaries, other employee compensation, and self-
employment. Earned income does not include any pension or annuity, 
transfer payments, any cash or in-kind benefits, or funds deposited in 
or accrued interest on the FSS escrow account established by a PHA on 
behalf of a participating family.
    Effective date of contract of participation means the first day of 
the month following the month in which the FSS family and the PHA 
entered into the contract of participation.
    Eligible families means:
    (1) For the public housing FSS program, current residents of public 
housing. Eligible families also include current residents of public 
housing who are participants in local public housing self-sufficiency 
programs; and
    (2) For Section 8 FSS program, current Section 8 rental certificate 
or rental voucher program participants, including participants in the 
Project Self-Sufficiency or Operation Bootstrap or other local self-
sufficiency programs.
    Enrollment means the date that the FSS family entered into the 
contract of participation with the PHA.
    Family Self-Sufficiency program or FSS program means the program 
established by a PHA within its jurisdiction to promote self-sufficiency 
among participating families, including the provision of supportive 
services to these families, as authorized by section 23 of the 1937 Act.
    FSS account means the FSS escrow account authorized by section 23 of 
the 1937 Act, and as provided by Sec. 984.305 of this subpart A.
    FSS credit means the amount credited by the PHA to the participating 
family's FSS account.
    FSS family or participating family means a family that resides in 
public housing or receives assistance under the rental certificate or 
rental voucher programs, and that elects to participate in the FSS 
program, and whose designated head of the family has signed the contract 
of participation.
    FSS related service program means any program, publicly or privately 
sponsored, that offers the kinds of supportive services described in the 
definition of ``supportive services'' set forth in this Sec. 984.103.
    FSS slots refer to the total number of public housing units or the 
total number of rental certificates or rental vouchers that comprise the 
minimum size of a PHA's respective public housing FSS program or Section 
8 FSS program.
    FY means Federal Fiscal Year (starting with October 1, and ending 
September 30, and designated by the calendar year in which it ends).
    Head of FSS family means the adult member of the FSS family who is 
the head of the household for purposes of

[[Page 679]]

determining income eligibility and rent.
    Housing subsidies means assistance to meet the costs and expenses of 
temporary shelter, rental housing or homeownership, including rent, 
mortgage or utility payments.
    Individual training and services plan means a written plan that is 
prepared for the head of the FSS family, and each adult member of the 
FSS family who elects to participate in the FSS program, by the PHA in 
consultation with the family member, and which sets forth:
    (1) The supportive services to be provided to the family member;
    (2) The activities to be completed by that family member; and
    (3) The agreed upon completion dates for the services and 
activities. Each individual training and services plan must be signed by 
the PHA and the participating family member, and is attached to, and 
incorporated as part of the contract of participation. An individual 
training and services plan must be prepared for the head of the FSS 
family.
    JOBS Program means the Job Opportunities and Basic Skills Training 
Program authorized under part F of title IV of the Social Security Act 
(42 U.S.C. 402(a)(19)).
    JTPA means the Job Training Partnership Act (29 U.S.C. 1579(a)).
    Low-income family. As defined in part 5 of this title.
    Participating family. See definition for ``FSS family'' in this 
section.
    Program Coordinating Committee or PCC is the committee described in 
Sec. 984.202 of this part.
    Public housing means housing assisted under the 1937 Act, excluding 
housing assisted under Section 8 of the 1937 Act.
    Self-sufficiency means that an FSS family is no longer receiving 
Section 8, public or Indian housing assistance, or any Federal, State, 
or local rent or homeownership subsidies or welfare assistance. 
Achievement of self-sufficiency, although an FSS program objective, is 
not a condition for receipt of the FSS account funds. (See Sec. 984.305 
of this part.)
    Supportive services means those appropriate services that a PHA will 
make available, or cause to be made available to an FSS family under a 
contract of participation, and may include:
    (1) Child care--child care of a type that provides sufficient hours 
of operation and serves an appropriate range of ages;
    (2) Transportation--transportation necessary to enable a 
participating family to receive available services, or to commute to 
their places of employment;
    (3) Education-- remedial education; education for completion of 
secondary or post secondary schooling;
    (4) Employment--job training, preparation, and counseling; job 
development and placement; and follow-up assistance after job placement 
and completion of the contract of participation;
    (5) Personal welfare--substance/alcohol abuse treatment and 
counseling;
    (6) Household skills and management--training in homemaking and 
parenting skills; household management; and money management;
    (7) Counseling--counseling in the areas of:
    (i) The responsibilities of homeownership;
    (ii) Opportunities available for affordable rental and homeownership 
in the private housing market, including information on an individual's 
rights under the Fair Housing Act; and
    (iii) Money management; and
    (8) Other services--any other services and resources, including case 
management, reasonable accommodations for individuals with disabilities, 
that the PHA may determine to be appropriate in assisting FSS families 
to achieve economic independence and self-sufficiency.
    Unit size or size of unit refers to the number of bedrooms in a 
dwelling unit.
    Very low-income family. See definitions in 24 CFR 813.102 and 
913.102.
    Welfare assistance means (for purposes of the FSS program only) 
income assistance from Federal or State welfare programs, and includes 
only cash maintenance payments designed to meet a family's ongoing basic 
needs. Welfare assistance does not include:
    (1) Nonrecurrent, short-term benefits that:
    (i) Are designed to deal with a specific crisis situation or episode 
of need;

[[Page 680]]

    (ii) Are not intended to meet recurrent or ongoing needs; and
    (iii) Will not extend beyond four months.
    (2) Work subsidies (i.e., payments to employers or third parties to 
help cover the costs of employee wages, benefits, supervision, and 
training);
    (3) Supportive services such as child care and transportation 
provided to families who are employed;
    (4) Refundable earned income tax credits;
    (5) Contributions to, and distributions from, Individual Development 
Accounts under TANF;
    (6) Services such as counseling, case management, peer support, 
child care information and referral, transitional services, job 
retention, job advancement and other employment-related services that do 
not provide basic income support;
    (7) Transportation benefits provided under a Job Access or Reverse 
Commute project, pursuant to section 404(k) of the Social Security Act, 
to an individual who is not otherwise receiving assistance;
    (8) Amounts solely directed to meeting housing expenses;
    (9) Amounts for health care;
    (10) Food stamps and emergency rental and utilities assistance; and
    (11) SSI, SSDI, or Social Security.

[61 FR 8815, Mar. 5, 1996, as amended at 65 FR 16731, Mar. 29, 2000]



Sec. 984.104  Basic requirements of the FSS program.

    An FSS program established under this part shall be operated in 
conformity with:
    (a) The regulations of this part, and for a Section 8 FSS program, 
the rental certificate and rental voucher regulations, codified in 24 
CFR parts 882, 887, and 982 respectively, and for a public housing FSS 
program, the applicable public housing regulations, including the 
regulations in 24 CFR parts 913, 960, and 966;
    (b) An Action Plan, as described in Sec. 984.201, and provide 
comprehensive supportive services as defined in Sec. 984.103; and
    (c) An FSS program established under this part shall be operated in 
compliance with the nondiscrimination and equal opportunity requirements 
set forth in 24 CFR part 5, with the exception of Executive Orders 
11246, 11625, 12432, and 12138.



Sec. 984.105  Minimum program size.

    (a) FSS program size. (1) Minimum program size requirement. A PHA 
must operate an FSS program of the minimum program size determined in 
accordance with paragraph (b) of this section.
    (2) Exception or reduction of minimum program size. Paragraph (c) of 
this section states when HUD may grant an exception to the minimum 
program size requirement, and paragraph (d) states when the minimum 
program size may be reduced.
    (3) Option to operate larger FSS program. A PHA may choose to 
operate an FSS program of a larger size than the minimum.
    (b) How to determine FSS minimum program size. (1) Public housing. 
The minimum size of a PHA's public housing FSS program is equal to the 
number of public housing units specified below:
    (i) The total number of public housing units reserved in FY 1993 
through October 20, 1998; plus
    (ii) The number of public housing units reserved in FY 1991 and FY 
1992 under the FSS incentive award competitions; minus
    (iii) The number of families that have graduated from the PHA's 
public housing FSS program on or after October 21, 1998, by fulfilling 
their FSS contract of participation obligations.
    (2) Section 8. The minimum size of a PHA's Section 8 FSS program is 
equal to the number of Section 8 certificate and voucher program units 
as calculated below:
    (i) Units included. (A) The number of rental certificates and rental 
voucher units reserved under the combined FY 1991/1992 FSS incentive 
award competition; plus
    (B) The number of additional rental certificates and rental voucher 
units reserved in FY 1993 through October 20, 1998 (not including the 
renewal of funding for units previously reserved), minus such units that 
are excluded from minimum program size in accordance with paragraph 
(b)(2)(ii) of this section; minus

[[Page 681]]

    (C) The number of families who have graduated from the PHA's Section 
8 FSS program on or after October 21, 1998, by fulfilling their contract 
of participation obligations.
    (ii) Units excluded. When determining a PHA's minimum Section 8 FSS 
program size, funding reserved in FY 1993 through October 20, 1998 for 
the following program categories is excluded (except as provided in 
paragraph (b)(2)(ii)(B) of this section):
    (A) Funding for families affected by termination, expiration or 
owner opt-out under Section 8 project-based programs;
    (B) Funding for families affected by demolition or disposition of a 
public housing project or replacement of a public housing project;
    (C) Funding for families affected by conversion of assistance from 
the Section 23 leased housing or housing assistance payments programs to 
the Section 8 program;
    (D) Funding for families affected by the sale of a HUD-owned 
project; and
    (E) Funding for families affected by the prepayment of a mortgage or 
voluntary termination of mortgage insurance.
    (3) Maintaining minimum program size. The minimum program size for a 
PHA's public housing or Section 8 FSS program is reduced by one slot for 
each family that graduates from the FSS program by fulfilling its FSS 
contract of participation on or after October 21, 1998. If an FSS slot 
is vacated by a family that has not completed its FSS contract of 
participation obligations, the slot must be filled by a replacement 
family which has been selected in accordance with the FSS family 
selection procedures set forth in Sec. 984.203.
    (c) Exception to program operation. (1) Upon approval by HUD, a PHA 
will not be required to establish and carry out a public housing or a 
Section 8 FSS program if the PHA provides to HUD a certification, as 
defined in Sec. 984.103, that the establishment and operation of such 
an FSS program is not feasible because of local circumstances, which may 
include, but are not limited to:
    (i) Lack of accessible supportive services funding, including lack 
of the availability of programs under JTPA or JOBS;
    (ii) Lack of funding for reasonable administrative costs;
    (iii) Lack of cooperation by other units of State or local 
government; or
    (iv) Lack of interest in participating in the FSS program on the 
part of eligible families.
    (2) An exception will not be granted if HUD determines that local 
circumstances do not preclude the PHA from effectively operating an FSS 
program that is smaller than the minimum program size.
    (d) Reduction in program size. Upon approval by HUD, a PHA may be 
permitted to operate a public housing or a Section 8 FSS program that is 
smaller than the minimum program size if the PHA provides to HUD a 
certification, as defined in Sec. 984.103, that the operation of an FSS 
program of the minimum program size is not feasible because of local 
circumstances, which may include, but are not limited to:
    (1) Decrease in or lack of accessible supportive services, including 
decrease in the availability of programs under JTPA or JOBS;
    (2) Decrease in or lack of funding for reasonable administrative 
costs;
    (3) Decrease in or lack of cooperation by other units of State or 
local government;
    (4) Decrease in or lack of interest in participating in the FSS 
program on the part of eligible families.
    (e) Expiration of exception. A full or partial exception to the FSS 
minimum program size requirement (approved by HUD in accordance with 
paragraph (c) or (d) of this section) expires three years from the date 
of HUD approval of the exception. If a PHA seeks to continue an 
exception after its expiration, the PHA must submit a new request and a 
new certification to HUD for consideration.
    (f) Review of certification records. HUD reserves the right to 
examine, during its management review of the PHA, or at any time, the 
documentation and data that a PHA relied on in certifying to the 
unfeasibility of its establishing and operating an FSS program, or of 
operating an FSS program of less than minimum program size.

[61 FR 8815, Mar. 5, 1996, as amended at 65 FR 16732, Mar. 20, 2000]

[[Page 682]]



          Subpart B_Program Development and Approval Procedures



Sec. 984.201  Action Plan.

    (a) Requirement for Action Plan. A PHA must have a HUD-approved 
Action Plan that complies with the requirements of this section before 
the PHA implements an FSS program, whether the FSS program is a 
mandatory or voluntary program.
    (b) Development of Action Plan. The Action Plan shall be developed 
by the PHA in consultation with the chief executive officer of the 
applicable unit of general local government, and the Program 
Coordinating Committee.
    (c) Plan submission--(1) Initial submission--(i) Mandatory program. 
Unless the dates stated in paragraph (c) of this section are extended by 
HUD for good cause, a PHA that is establishing its first FSS program 
must submit an Action Plan to HUD for approval within 90 days after the 
PHA receives notice from HUD of:
    (A) Approval of the PHA's application for incentive award units; or
    (B) Approval of other funding that establishes the obligation to 
operate an FSS program, if the PHA did not receive FSS incentive award 
units.
    (ii) Voluntary program. The PHA must submit its Action Plan and 
obtain HUD approval of the plan before the PHA implements a voluntary 
FSS program, including a program that exceeds the minimum size for a 
mandatory program.
    (2) Revision. Following HUD's initial approval of the Action Plan, 
no further approval of the Action Plan is required unless the PHA 
proposes to make policy changes to the Action Plan or increase the size 
of a voluntary program; or HUD requires other changes. The PHA must 
submit any changes to the Action Plan to HUD for approval.
    (d) Contents of Plan. The Action Plan shall describe the policies 
and procedures of the PHA for operation of a local FSS program, and 
shall contain, at a minimum, the following information:
    (1) Family demographics. A description of the number, size, 
characteristics, and other demographics (including racial and ethnic 
data), and the supportive service needs of the families expected to 
participate in the FSS program;
    (2) Estimate of participating families. A description of the number 
of eligible FSS families who can reasonably be expected to receive 
supportive services under the FSS program, based on available and 
anticipated Federal, tribal, State, local, and private resources;
    (3) Eligible families from other self-sufficiency program. If 
applicable, the number of families, by program type, who are 
participating in Operation Bootstrap, Project Self-Sufficiency, or any 
other local self-sufficiency program who are expected to agree to 
execute an FSS contract of participation.
    (4) FSS family selection procedures. A statement indicating the 
procedures to be utilized to select families for participation in the 
FSS program, subject to the requirements governing the selection of FSS 
families, set forth in Sec. 984.203. This statement must include a 
description of how the PHA's selection procedures ensure that families 
will be selected without regard to race, color, religion, sex, handicap, 
familial status, or national origin.
    (5) Incentives to encourage participation--a description of the 
incentives that the PHA intends to offer eligible families to encourage 
their participation in the FSS program (incentives plan). The incentives 
plan shall provide for the establishment of the FSS account in 
accordance with the requirements set forth in Sec. 984.305, and other 
incentives, if any, designed by the PHA. The incentives plan shall be 
part of the Action Plan.
    (6) Outreach efforts. A description of:
    (i) The PHA's efforts, including notification and outreach efforts, 
to recruit FSS participants from among eligible families; and
    (ii) The PHA's actions to be taken to assure that both minority and 
non-minority groups are informed about the FSS program, and how the PHA 
will make this information known.
    (7) FSS activities and supportive services. A description of the 
activities and supportive services to be provided by both public and 
private resources to FSS families, and identification of the public and 
private resources which are expected to provide the supportive services.

[[Page 683]]

    (8) Method for identification of family support needs. A description 
of how the FSS program will identify the needs and deliver the services 
and activities according to the needs of the FSS families;
    (9) Program termination; withholding of services; and available 
grievance procedures. A description of the PHA's policies concerning: 
terminating participation in the FSS program, withholding of supportive 
services, or terminating or withholding Section 8 assistance, on the 
basis of a family's failure to comply with the requirements of the 
contract of participation; and the grievance and hearing procedures 
available for FSS families.
    (10) Assurances of non-interference with rights of non-participating 
families. An assurance that a family's election not to participate in 
the FSS program will not affect the family's admission to public housing 
or to the Section 8 program or the family's right to occupancy in 
accordance with its lease.
    (11) Timetable for program implementation. A timetable for 
implementation of the FSS program, as provided in Sec. 984.301(a)(1), 
including the schedule for filling FSS slots with eligible FSS families, 
as provided in Sec. 984.301;
    (12) Certification of coordination. A certification that development 
of the services and activities under the FSS program has been 
coordinated with the JOBS Program; the programs provided under the JTPA; 
and any other relevant employment, child care, transportation, training, 
and education programs (e.g., Job Training for the Homeless 
Demonstration program) in the applicable area, and that implementation 
will continue to be coordinated, in order to avoid duplication of 
services and activities; and
    (13) Optional additional information. Such other information that 
would help HUD determine the soundness of the PHA's proposed FSS 
program.
    (e) Eligibility of a combined program. a PHA that wishes to operate 
a joint FSS program with other PHAs may combine its resources with one 
or more PHAs to deliver supportive services under a joint Action Plan 
that will provide for the establishment and operation of a combined FSS 
program that meets the requirements of this part.
    (f) Single action plan. PHAs implementing both a Section 8 FSS 
program and a public or Indian housing FSS program may submit one Action 
Plan.

[61 FR 8815, Mar. 5, 1996, as amended at 65 FR 16732, Mar. 29, 2000]



Sec. 984.202  Program Coordinating Committee (PCC).

    (a) General. Each participating PHA must establish a PCC whose 
functions will be to assist the PHA in securing commitments of public 
and private resources for the operation of the FSS program within the 
PHA's jurisdiction, including assistance in developing the Action Plan 
and in implementing the program.
    (b) Membership--(1) Required membership. The PCC must: (i) For a 
public housing FSS program, consist of representatives of the PHA, and 
the residents of public housing. The public housing resident 
representatives shall be solicited from one or more of the following 
groups:
    (A) An area-wide or city-wide resident council, if one exists;
    (B) If the PHA will be transferring FSS participants to vacant units 
in a specific public housing development, the resident council or 
resident management corporation, if one exists, of the public housing 
development where the public housing FSS program is to be carried out;
    (C) Any other public housing resident group, which the PHA believes 
is interested in the FSS program, and would contribute to the 
development and implementation of the FSS program; and
    (ii) For a Section 8 FSS program, consist of representatives of the 
PHA, and of residents assisted under the section 8 rental certificate or 
rental voucher program or under HUD's public or Indian housing programs.
    (2) Recommended membership. Membership on the PCC also may include 
representatives of the unit of general local government served by the 
PHA, local agencies (if any) responsible for carrying out JOBS training 
programs, or programs under the JTPA, and other organizations, such as 
other State, local or tribal welfare and employment agencies, public and 
private education

[[Page 684]]

or training institutions, child care providers, nonprofit service 
providers, private business, and any other public and private service 
providers with resources to assist the FSS program.
    (c) Alternative committee. The PHA may, in consultation with the 
chief executive officer of the unit of general local government served 
by the PHA, utilize an existing entity as the PCC if the membership of 
the existing entity consists or will consist of the individuals 
identified in paragraph (b)(1) of this section, and also includes 
individuals from the same or similar organizations identified in 
paragraph (b)(2) of this section.



Sec. 984.203  FSS family selection procedures.

    (a) Preference in the FSS selection process. a PHA has the option of 
giving a selection preference for up to 50 percent of its public housing 
FSS slots and of its Section 8 FSS slots respectively to eligible 
families, as defined in Sec. 984.103, who have one or more family 
members currently enrolled in an FSS related service program or on the 
waiting list for such a program. The PHA may limit the selection 
preference given to participants in and applicants for FSS related 
service programs to one or more eligible FSS related service programs. a 
PHA that chooses to exercise the selection preference option must 
include the following information in its Action Plan:
    (1) The percentage of FSS slots, not to exceed 50 percent of the 
total number of FSS slots for each of its FSS programs, for which it 
will give a selection preference;
    (2) The FSS related service programs to which it will give a 
selection preference to the programs' participants and applicants; and
    (3) The method of outreach to, and selection of, families with one 
or more members participating in the identified programs.
    (b) FSS selection without preference. For those FSS slots for which 
the PHA chooses not to exercise the selection preference provided in 
paragraph (a) of this section, the FSS slots must be filled with 
eligible families in accordance with an objective selection system, such 
as a lottery, the length of time living in subsidized housing, or the 
date the family expressed an interest in participating in the FSS 
program. The objective system to be used by the PHA must be described in 
the PHA's Action Plan.
    (c) Motivation as a selection factor--(1) General. a PHA may screen 
families for interest, and motivation to participate in the FSS program, 
provided that the factors utilized by the PHA are those which solely 
measure the family's interest, and motivation to participate in the FSS 
program.
    (2) Permissible motivational screening factors. Permitted 
motivational factors include requiring attendance at FSS orientation 
sessions or preselection interviews, and assigning certain tasks which 
indicate the family's willingness to undertake the obligations which may 
be imposed by the FSS contract of participation. However, any tasks 
assigned shall be those which may be readily accomplishable by the 
family, based on the family members' educational level, and 
disabilities, if any. Reasonable accommodations must be made for 
individuals with mobility, manual, sensory, speech impairments, mental 
or developmental disabilities.
    (3) Prohibited motivational screening factors. Prohibited 
motivational screening factors include the family's educational level, 
educational or standardized motivational test results, previous job 
history or job performance, credit rating, marital status, number of 
children, or other factors, such as sensory or manual skills, and any 
factors which may result in discriminatory practices or treatment toward 
individuals with disabilities or minority or non-minority groups.



Sec. 984.204  On-site facilities.

    Each PHA may, subject to the approval of HUD, make available and 
utilize common areas or unoccupied dwelling units in public housing 
projects (or for IHAs, in Indian housing projects) to provide supportive 
services under an FSS program, including a Section 8 FSS program.

[[Page 685]]



                       Subpart C_Program Operation



Sec. 984.301  Program implementation.

    (a) Program implementation deadline. (1) Voluntary program. There is 
no deadline for implementation of a voluntary program. A voluntary 
program, however, may not be implemented before the requirements of 
Sec. 984.201 have been satisfied.
    (2) Mandatory program--(i) Program start-up. Except as provided in 
paragraph (a)(3) of this section, operation of a local FSS program must 
begin within 12 months of the earlier of notification to the PHA of 
HUD's approval of the incentive award units or of other funding that 
establishes the obligation to operate an FSS program. Operation means 
that activities such as outreach, participant selection, and enrollment 
have begun. Full delivery of the supportive services to be provided to 
the total number of families required to be served under the program 
need not occur within 12 months, but must occur by the deadline set 
forth in paragraph (a)(2) of this section.
    (ii) Full enrollment and delivery of service. Except as provided in 
paragraph (a)(3) of this section, the PHA must have completed enrollment 
of the total number of families required to be served under the FSS 
program (based on the minimum program size), and must have begun 
delivery of the supportive services within two years from the date of 
notification of approval of the application for new public housing units 
for a public housing FSS program or for new rental certificates or 
rental vouchers for a Section 8 FSS program.
    (iii) Extension of program deadlines for good cause. HUD may extend 
the deadline set forth in either paragraph (a)(1) or paragraph (a)(2) of 
this section if the PHA requests an extension, and HUD determines that, 
despite best efforts on the part of the PHA, the development of new 
public housing units will not occur within the deadlines set forth in 
this paragraph (a), the commitment by public or private resources to 
deliver supportive services has been withdrawn, the delivery of such 
services has been delayed, or other local circumstances warrant an 
extension of the deadlines set forth in this paragraph (a).
    (b) Program administration. a PHA may employ appropriate staff, 
including a service coordinator or program coordinator to administer its 
FSS program, and may contract with an appropriate organization to 
establish and administer the FSS program, including the FSS account, as 
provided by Sec. 984.305.

[61 FR 8815, Mar. 5, 1996, as amended at 65 FR 16733, Mar. 29, 2000]



Sec. 984.302  Administrative fees.

    (a) Public housing FSS program. The performance funding system 
(PFS), provided under section 9(a) of the 1937 Act, shall provide for 
the inclusion of reasonable and eligible administrative costs incurred 
by PHAs in carrying out the public housing FSS programs. These costs are 
subject to appropriations by the Congress. However, a PHA may use other 
resources for this purpose.
    (b) Section 8 FSS program. The administrative fees paid to PHAs for 
HUD-approved costs associated with operation of an FSS program are 
established by the Congress and subject to appropriations.

[61 FR 8815, Mar. 5, 1996, as amended at 65 FR 16733, Mar. 29, 2000]



Sec. 984.303  Contract of participation.

    (a) General. Each family that is selected to participate in an FSS 
program must enter into a contract of participation with the PHA that 
operates the FSS program in which the family will participate. The 
contract of participation shall be signed by the head of the FSS family.
    (b) Form and content of contract--(1) General. The contract of 
participation, which incorporates the individual training and services 
plan(s), shall be in the form prescribed by HUD, and shall set forth the 
principal terms and conditions governing participation in the FSS 
program, including the rights and responsibilities of the FSS family and 
of the PHA, the services to be provided to, and the activities to be 
completed by, the head of the FSS family and each adult member of the 
family who elects to participate in the program.

[[Page 686]]

    (2) Interim goals. The individual training and services plan, 
incorporated in the contract of participation, shall establish specific 
interim and final goals by which the PHA, and the family, may measure 
the family's progress toward fulfilling its obligations under the 
contract of participation, and becoming self-sufficient. For each 
participating FSS family that is a recipient of welfare assistance, the 
PHA must establish as an interim goal that the family become independent 
from welfare assistance and remain independent from welfare assistance 
at least one year before the expiration of the term of the contract of 
participation, including any extension thereof.
    (3) Compliance with lease terms. The contract of participation shall 
provide that one of the obligations of the FSS family is to comply with 
the terms and conditions of the respective public housing lease or 
Section 8-assisted lease.
    (4) Employment obligation--(i) Head of family's obligation. The head 
of the FSS family shall be required under the contract of participation 
to seek and maintain suitable employment during the term of the contract 
and any extension thereof. Although other members of the FSS family may 
seek and maintain employment during the term of the contract, only the 
head of the FSS family is required to seek and maintain suitable 
employment.
    (ii) Seek employment. The obligation to seek employment means that 
the head of the FSS family has applied for employment, attended job 
interviews, and has otherwise followed through on employment 
opportunities.
    (iii) Determination of suitable employment. A determination of 
suitable employment shall be made by the PHA based on the skills, 
education, and job training of the individual that has been designated 
the head of the FSS family, and based on the available job opportunities 
within the jurisdiction served by the PHA.
    (5) Consequences of noncompliance with the contract. The contract of 
participation shall specify that if the FSS family fails to comply, 
without good cause, with the terms and conditions of the contract of 
participation, which includes compliance with the public housing lease 
or the Section 8-assisted lease, the PHA may:
    (i) Withhold the supportive services;
    (ii) Terminate the family's participation in the FSS program; or
    (iii) For the Section 8 FSS program, terminate or withhold the 
family's Section 8 assistance, except in the case where the only basis 
for noncompliance with the contract of participation is noncompliance 
with the lease, or failure to become independent from welfare 
assistance. However, failure to become independent from welfare 
assistance because of failure of the head of household to meet the 
employment obligation described in paragraph (a)(4) of this section, or 
failure of the FSS family to meet any other obligation under the 
contract of participation, except the interim goal concerning welfare 
assistance, is grounds for the PHA to terminate or withhold Section 8 
assistance.
    (c) Contract term. The contract of participation shall provide that 
each FSS family will be required to fulfill those obligations to which 
the participating family has committed itself under the contract of 
participation no later than 5 years after the effective date of the 
contract.
    (d) Contract extension. The PHA shall, in writing, extend the term 
of the contract of participation for a period not to exceed two years 
for any FSS family that requests, in writing, an extension of the 
contract, provided that the PHA finds that good cause exists for 
granting the extension. The family's written request for an extension 
must include a description of the need for the extension. As used in 
this paragraph (d), ``good cause'' means circumstances beyond the 
control of the FSS family, as determined by the PHA, such as a serious 
illness or involuntary loss of employment. Extension of the contract of 
participation will entitle the FSS family to continue to have amounts 
credited to the family's FSS account in accordance with Sec. 984.304.
    (e) Unavailability of supportive services--(1) Good faith effort to 
replace unavailable services. If a social service agency fails to 
deliver the supportive services pledged under an FSS family member's 
individual training and services plan, the PHA shall make a good

[[Page 687]]

faith effort to obtain these services from another agency.
    (2) Assessment of necessity of services. If the PHA is unable to 
obtain the services from another agency, the PHA shall reassess the 
family member's needs, and determine whether other available services 
would achieve the same purpose. If other available services would not 
achieve the same purpose, the PHA shall determine whether the 
unavailable services are integral to the FSS family's advancement or 
progress toward self-sufficiency. If the unavailable services are:
    (i) Determined not to be integral to the FSS family's advancement 
toward self-sufficiency, the PHA shall revise the individual training 
and services plan to delete these services, and modify the contract of 
participation to remove any obligation on the part of the FSS family to 
accept the unavailable services, in accordance with paragraph (f) of 
this section; or
    (ii) Determined to be integral to the FSS family's advancement 
toward self-sufficiency (which may be the case if the affected family 
member is the head of the FSS family), the PHA shall declare the 
contract of participation null and void. Nullification of the contract 
of participation on the basis of unavailability of supportive services 
shall not be grounds for termination of Section 8 assistance.
    (f) Modification. The PHA and the FSS family may mutually agree to 
modify the contract of participation. The contract of participation may 
be modified in writing with respect to the individual training and 
services plans, the contract term in accordance with paragraph (d) of 
this section, and designation of the head of the family.
    (g) Completion of the contract. The contract of participation is 
considered to be completed, and a family's participation in the FSS 
program is considered to be concluded when one of the following occurs:
    (1) The FSS family has fulfilled all of its obligations under the 
contract of participation on or before the expiration of the contract 
term, including any extension thereof; or
    (2) 30 percent of the monthly adjusted income of the FSS family 
equals or exceeds the published existing housing fair market rent for 
the size of the unit for which the FSS family qualifies based on the 
PHA's occupancy standards. The contract of participation will be 
considered completed and the family's participation in the FSS program 
concluded on this basis even though the contract term, including any 
extension thereof, has not expired, and the family members who have 
individual training and services plans have not completed all the 
activities set forth in their plans.
    (h) Termination of the contract. The contract of participation is 
automatically terminated if the family's Section 8 assistance is 
terminated in accordance with HUD requirements. The contract of 
participation may be terminated before the expiration of the contract 
term, and any extension thereof, by:
    (1) Mutual consent of the parties;
    (2) The failure of the FSS family to meet its obligations under the 
contract of participation without good cause, including in the Section 8 
FSS program the failure to comply with the contract requirements because 
the family has moved outside the jurisdiction of the PHA;
    (3) The family's withdrawal from the FSS program;
    (4) Such other act as is deemed inconsistent with the purpose of the 
FSS program; or
    (5) Operation of law.
    (i) Option to terminate Section 8 housing and supportive service 
assistance. The PHA may terminate or withhold Section 8 housing 
assistance, the supportive services, and the FSS family's participation 
in the FSS program, if the PHA determines, in accordance with the 
hearing procedures provided in 24 CFR 982.555 that the FSS family has 
failed to comply without good cause with the requirements of the 
contract of participation as provided in paragraph (b)(5) of this 
section.
    (j) Transitional supportive service assistance. a PHA may continue 
to offer to a former FSS family who has completed its contract of 
participation and whose head of family is employed, appropriate FSS 
supportive services in becoming self-sufficient (if the family

[[Page 688]]

still resides in public housing, or Section 8-assisted housing), or in 
remaining self-sufficient (if the family no longer resides in public, 
Section 8-assisted housing, or other assisted housing).



Sec. 984.304  Total tenant payment, family rent, and increases in 
family income.

    (a)(1) Public housing FSS program: Calculation of total tenant 
payment. Total tenant payment for a family participating in the public 
housing FSS program is determined in accordance with the regulations set 
forth in 24 CFR part 913.
    (2) Section 8 FSS program: Calculation of family rent. For the 
rental certificate program, total tenant payment for a family 
participating in the Section 8 FSS program and the amount of the housing 
assistance payment is determined in accordance with the regulations set 
forth in subpart F of 24 CFR part 5, and subpart K of 24 CFR part 982. 
For the rental voucher program, the housing assistance payment for a 
family participating in the FSS program is determined in accordance with 
the regulations set forth in 24 CFR Sec. 982.505.
    (b) Increases in FSS family income. Any increase in the earned 
income of an FSS family during its participation in an FSS program may 
not be considered as income or a resource for purposes of eligibility of 
the FSS family for other benefits, or amount of benefits payable to the 
FSS family, under any other program administered by HUD, unless the 
income of the FSS family equals or exceeds 80 percent of the median 
income of the area (as determined by HUD, with adjustments for smaller 
and larger families).

[61 FR 8815, Mar. 5, 1996, as amended at 64 FR 13057, Mar. 16, 1999]



Sec. 984.305  FSS account.

    (a) Establishment of FSS account--(1) General. The PHA shall deposit 
the FSS account funds of all families participating in the PHA's FSS 
program into a single depository account. The PHA must deposit the FSS 
account funds in one or more of the HUD-approved investments.
    (2) Accounting for FSS account funds--(i) Accounting records. The 
total of the combined FSS account funds will be supported in the PHA 
accounting records by a subsidiary ledger showing the balance applicable 
to each FSS family. During the term of the contract of participation, 
the PHA shall credit periodically, but not less than annually, to each 
family's FSS account, the amount of the FSS credit determined in 
accordance with paragraph (b) of this section.
    (ii) Proration of investment income. The investment income for funds 
in the FSS account will be prorated and credited to each family's FSS 
account based on the balance in each family's FSS account at the end of 
the period for which the investment income is credited.
    (iii) Reduction of amounts due by FSS family. If the FSS family has 
not paid the family contribution towards rent, or other amounts, if any, 
due under the public housing or section 8-assisted lease, the balance in 
the family's FSS account shall be reduced by that amount (as reported by 
the owner to the PHA in the Section 8 FSS program) before prorating the 
interest income. If the FSS family has fraudulently under-reported 
income, the amount credited to the FSS account will be based on the 
income amounts originally reported by the FSS family.
    (3) Reporting on FSS account. Each PHA will be required to make a 
report, at least once annually, to each FSS family on the status of the 
family's FSS account. At a minimum, the report will include:
    (i) The balance at the beginning of the reporting period;
    (ii) The amount of the family's rent payment that was credited to 
the FSS account, during the reporting period;
    (iii) Any deductions made from the account for amounts due the PHA 
before interest is distributed;
    (iv) The amount of interest earned on the account during the year; 
and
    (v) The total in the account at the end of the reporting period.
    (b) FSS credit--(1) Computation of amount. For purposes of 
determining the FSS credit, ``family rent'' is: for the public housing 
program, the total tenant payment as defined in 24 CFR

[[Page 689]]

subpart F of 24 CFR part 5; for the rental certificate program, the 
total tenant payment as defined in 24 CFR subpart F of 24 CFR part 5; 
and for the rental voucher program, 30 percent of adjusted monthly 
income. The FSS credit shall be computed as follows:
    (i) For FSS families who are very low-income families, the FSS 
credit shall be the amount which is the lesser of:
    (A) Thirty percent of current monthly adjusted income less the 
family rent, which is obtained by disregarding any increases in earned 
income (as defined in Sec. 984.103) from the effective date of the 
contract of participation; or
    (B) The current family rent less the family rent at the time of the 
effective date of the contract of participation.
    (ii) For FSS families who are low-income families but not very low-
income families, the FSS credit shall be the amount determined according 
to paragraph (b)(1)(i) of this section, but which shall not exceed the 
amount computed for 50 percent of median income.
    (2) Ineligibility for FSS credit. FSS families who are not low-
income families shall not be entitled to any FSS credit.
    (3) Cessation of FSS credit. The PHA shall not make any additional 
credits to the FSS family's FSS account when the FSS family has 
completed the contract of participation, as defined in Sec. 984.303(g), 
or when the contract of participation is terminated or otherwise 
nullified.
    (c) Disbursement of FSS account funds--(1) General. The amount in an 
FSS account, in excess of any amount owed to the PHA by the FSS family, 
as provided in paragraph (a)(3)(iii) of this section, shall be paid to 
the head of the FSS family when the contract of participation has been 
completed as provided in Sec. 984.303(g), and if, at the time of 
contract completion, the head of the FSS family submits to the PHA a 
certification, as defined in Sec. 984.103, that, to the best of his or 
her knowledge and belief, no member of the FSS family is a recipient of 
welfare assistance.
    (2) Disbursement before expiration of contract term. (i) If the PHA 
determines that the FSS family has fulfilled its obligations under the 
contract of participation before the expiration of the contract term, 
and the head of the FSS family submits a certification that, to the best 
of his or her knowledge, no member of the FSS family is a recipient of 
welfare assistance, the amount in the family's FSS account, in excess of 
any amount owed to the PHA by the FSS family, as provided in paragraph 
(a)(3)(iii) of this section, shall be paid to the head of the FSS 
family.
    (ii) If the PHA determines that the FSS family has fulfilled certain 
interim goals established in the contract of participation and needs a 
portion of the FSS account funds for purposes consistent with the 
contract of participation, such as completion of higher education (i.e., 
college, graduate school), or job training, or to meet start-up expenses 
involved in creation of a small business, the PHA may, at the PHA's sole 
option, disburse a portion of the funds from the family's FSS account to 
assist the family meet those expenses.
    (3) Verification of family certification. Before disbursement of the 
FSS account funds to the family, the PHA may verify that the FSS family 
is no longer a recipient of welfare assistance by requesting copies of 
any documents which may indicate whether the family is receiving any 
welfare assistance, and contacting welfare agencies.
    (d) Succession to FSS account. If the head of the FSS family ceases 
to reside with other family members in the public housing or the Section 
8-assisted unit, the remaining members of the FSS family, after 
consultation with the PHA, shall have the right to designate another 
family member to receive the funds in accordance with paragraph (c) (1) 
or (2) of this section.
    (e) Use of FSS account funds for homeownership. A public housing FSS 
family may use its FSS account funds for the purchase of a home, 
including the purchase of a home under one of HUD's homeownership 
programs, or other Federal, State, or local homeownership programs 
unless such use is prohibited by the statute or regulations governing 
the particular homeownership program.
    (f) Forfeiture of FSS account funds--(1) Conditions for forfeiture. 
Amounts in the FSS account shall be forfeited upon the occurrence of the 
following:

[[Page 690]]

    (i) The contract of participation is terminated, as provided in 
Sec. 984.303(e) or Sec. 984.303(h); or
    (ii) The contract of participation is completed by the family, as 
provided in Sec. 984.303(g), but the FSS family is receiving welfare 
assistance at the time of expiration of the term of the contract of 
participation, including any extension thereof.
    (2) Treatment of forfeited FSS account funds--(i) Public housing FSS 
program. FSS account funds forfeited by the FSS family will be credited 
to the PHA's operating reserves and counted as other income in the 
calculation of the PFS operating subsidy eligibility for the next budget 
year.
    (ii) Section 8 FSS program. FSS account funds forfeited by the FSS 
family will be treated as program receipts for payment of program 
expenses under the PHA budget for the applicable Section 8 program, and 
shall be used in accordance with HUD requirements governing the use of 
program receipts.

[61 FR 8815, Mar. 5, 1996, as amended at 64 FR 13057, Mar. 16, 1999]



Sec. 984.306  Section 8 residency and portability requirements.

    (a) Relocating FSS family. For purposes of this section, the term 
``relocating FSS family'' refers to an FSS family that moves from the 
jurisdiction of a PHA at least 12 months after signing its contract of 
participation.
    (b) Initial occupancy--(1) First 12 months. A family participating 
in the Section 8 FSS program must lease an assisted unit, for a minimum 
period of 12 months after the effective date of the contract of 
participation, in the jurisdiction of the PHA that selected the family 
for the FSS program. However, the PHA may approve a family's request to 
move outside the initial PHA jurisdiction under portability (in 
accordance with Sec. 982.353 of this chapter) during this period.
    (2) After the first 12 months. After the first 12 months of the FSS 
contract of participation, the FSS family may move outside the initial 
PHA jurisdiction under portability procedures (in accordance with Sec. 
982.353 of this chapter).
    (c) Portability: relocation but continued participation in the FSS 
program of the initial PHA--(1) General. A relocating FSS family may 
continue in the FSS program of the initial PHA if the family 
demonstrates to the satisfaction of the initial PHA that, 
notwithstanding the move, the relocating FSS family will be able to 
fulfill its responsibilities under the initial or modified contract of 
participation at its new place of residence. (For example, the FSS 
family may be able to commute to the supportive services specified in 
the contract of participation, or the family may move to obtain 
employment as specified in the contract.)
    (2) Single contract of participation. If the relocating family 
remains in the FSS program of the initial PHA, there will only be one 
contract of participation, which shall be the contract executed by the 
initial PHA.
    (d) Portability: relocation and participation in the FSS program of 
the receiving PHA--(1) General. A relocating FSS family may participate 
in the FSS program of the receiving PHA, if the receiving PHA allows the 
family to participate in its program. a PHA is not obligated to enroll a 
relocating FSS family in its FSS program.
    (2) Two contracts of participation. If the receiving PHA allows the 
relocating FSS family to participate in its FSS program, the receiving 
PHA will enter into a new contract of participation with the FSS family 
for the term on the remaining contract with the initial PHA. The initial 
PHA will terminate its contract of participation with the family.
    (e) Single FSS account. Regardless of whether the relocating FSS 
family remains in the FSS program of the initial PHA or is enrolled in 
the FSS program of the receiving PHA, there will be a single FSS account 
which will be maintained by the initial PHA. When an FSS family will be 
absorbed by the receiving PHA, the initial PHA will transfer the 
family's FSS account to the receiving PHA.
    (f) FSS program termination; loss of FSS account; and termination of 
Section 8 assistance. (1) If an FSS family that relocates to another 
jurisdiction, as provided under this section, is unable to

[[Page 691]]

fulfill its obligations under the contract of participation, or any 
modifications thereto, the PHA, which is party to the contract of 
participation, may:
    (i) Terminate the FSS family from the FSS program and the family's 
FSS account will be forfeited; and
    (ii) Terminate the FSS family's Section 8 assistance on the ground 
that the family failed to meet its obligations under the contract of 
participation.
    (2) In the event of forfeiture of the family's FSS account, the 
funds in the family's FSS account will revert to the PHA maintaining the 
FSS account for the family.

[61 FR 8815, Mar. 5, 1996, as amended at 65 FR 16733, Mar. 29, 2000]



                           Subpart D_Reporting



Sec. 984.401  Reporting.

    Each PHA that carries out an FSS program under this part shall 
submit to HUD, in the form prescribed by HUD, a report regarding its FSS 
program. The report shall include the following information:
    (a) A description of the activities carried out under the program;
    (b) A description of the effectiveness of the program in assisting 
families to achieve economic independence and self-sufficiency;
    (c) A description of the effectiveness of the program in 
coordinating resources of communities to assist families to achieve 
economic independence and self-sufficiency; and
    (d) Any recommendations by the PHA or the appropriate local program 
coordinating committee for legislative or administrative action that 
would improve the FSS program and ensure the effectiveness of the 
program.



PART 985_SECTION 8 MANAGEMENT ASSESSMENT PROGRAM (SEMAP)--Table of Contents




                            Subpart A_General

Sec.
985.1 Purpose and applicability.
985.2 Definitions.
985.3 Indicators, HUD verification methods and ratings.

                       Subpart B_Program Operation

985.101 SEMAP certification.
985.102 SEMAP profile.
985.103 SEMAP score and overall performance rating.
985.104 PHA right of appeal of overall rating.
985.105 HUD SEMAP responsibilities.
985.106 Required actions for SEMAP deficiencies.
985.107 Required actions for PHA with troubled performance rating.
985.108 SEMAP records.
985.109 Default under the Annual Contributions Contract (ACC).

Subpart C--Physical Assessment Component [Reserved]

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

    Source: 63 FR 48555, Sept. 10, 1998, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 985 appear 64 FR 67983, 
Dec. 3, 1999.



                            Subpart A_General



Sec. 985.1  Purpose and applicability.

    (a) Purpose. The Section 8 Management Assessment Program (SEMAP) is 
designed to assess whether the Section 8 tenant-based assistance 
programs operate to help eligible families afford decent rental units at 
the correct subsidy cost. SEMAP also establishes a system for HUD to 
measure PHA performance in key Section 8 program areas and to assign 
performance ratings. SEMAP provides procedures for HUD to identify PHA 
management capabilities and deficiencies in order to target monitoring 
and program assistance more effectively. PHAs can use the SEMAP 
performance analysis to assess and improve their own program operations.
    (b) Applicability. This rule applies to PHA administration of the 
tenant-based Section 8 rental voucher and rental certificate programs 
(24 CFR part 982), the project-based component (PBC) of the certificate 
program (24 CFR part 983) to the extent that PBC family and unit data 
are reported and measured under the stated HUD verification method, and 
enrollment levels and contributions to escrow accounts for Section 8 
participants under

[[Page 692]]

the family self-sufficiency program (FSS) (24 CFR part 984).

[63 FR 48555, Sept. 10, 1998, as amended at 64 FR 40497, July 26, 1999]



Sec. 985.2  Definitions.

    (a) The terms Department, Fair Market Rent, HUD, Secretary, and 
Section 8, as used in this part, are defined in 24 CFR 5.100.
    (b) The definitions in 24 CFR 982.4 apply to this part. As used in 
this part:
    Confirmatory review means an on site review performed by HUD to 
verify the management performance of an PHA.
    Corrective action plan means a HUD-required written plan that 
addresses PHA program management deficiencies or findings identified by 
HUD through remote monitoring or on-site review, and that will bring the 
PHA to an acceptable level of performance.
    MTCS means Multifamily Tenant Characteristics System. MTCS is the 
Department's national database on participants and rental units in the 
Section 8 rental certificate, rental voucher, and moderate 
rehabilitation programs and in the Public and Indian Housing programs.
    PHA means a Housing Agency.
    PHA's quality control sample means an annual sample of files or 
records drawn in an unbiased manner and reviewed by an PHA supervisor 
(or by another qualified person other than the person who performed the 
original work) to determine if the work documented in the files or 
records conforms to program requirements. The minimum size of the PHA's 
quality control sample is as follows:

------------------------------------------------------------------------
                                           Minimum number of files or
               Universe                       records to be sampled
------------------------------------------------------------------------
50 or less............................  5.
51-600................................  5 plus 1 for each 50 (or part of
                                         50) over 50.
601-2000..............................  16 plus 1 for each 100 (or part
                                         of 100) over 600.
Over 2000.............................  30 plus 1 for each 200 (or part
                                         of 200) over 2000.
------------------------------------------------------------------------


Where the universe is: the number of admissions in the last year for 
each of the two quality control samples under the SEMAP indicator at 
Sec. 985.3(a) Selection from the Waiting List; the number of families 
assisted for the SEMAP indicators at Sec. 985.3(b) Reasonable Rent, and 
985.3(c) Determination of Adjusted Income; the number of units under HAP 
contract during the last completed PHA fiscal year for the SEMAP 
indicator at Sec. 985.3(e) HQS Quality Control Inspections; and the 
number of failed HQS inspections in the last year for the SEMAP 
indicator at Sec. 985.3(f) HQS Enforcement.
    Performance indicator means a standard set for a key area of Section 
8 program management against which the PHA's performance is measured to 
show whether the PHA administers the program properly and effectively. 
(See Sec. 985.3.)
    SEMAP certification means the PHA's annual certification to HUD, on 
the form prescribed by HUD, concerning its performance in key Section 8 
program areas.
    SEMAP deficiency means any rating of 0 points on a SEMAP performance 
indicator.
    SEMAP profile means a summary prepared by HUD of an PHA's ratings on 
each SEMAP indicator, its overall SEMAP score, and its overall 
performance rating (high performer, standard, troubled).

[63 FR 48555, Sept. 10, 1998, as amended at 64 FR 40497, July 26, 1999]



Sec. 985.3  Indicators, HUD verification methods and ratings.

    This section states the performance indicators that are used to 
assess PHA Section 8 management. HUD will use the verification method 
identified for each indicator in reviewing the accuracy of an PHA's 
annual SEMAP certification. HUD will prepare a SEMAP profile for each 
PHA and will assign a rating for each indicator as shown. If the HUD 
verification method for the indicator relies on data in MTCS and HUD 
determines those data are insufficient to verify the PHA's certification 
on the indicator due to the PHA's failure to adequately report family 
data, HUD will assign a zero rating for the indicator. The method for 
selecting the PHA's quality control sample under paragraphs (a), (b), 
(c) and (f) of this section must leave a clear audit trail that can be 
used to verify that the PHA's quality control sample was drawn in an 
unbiased manner.

[[Page 693]]

    An PHA that expends less than $300,000 in Federal awards and whose 
Section 8 programs are not audited by an independent auditor (IA), will 
not be rated under the SEMAP indicators in paragraphs (a) through (g) of 
this section for which the annual IA audit report is a HUD verification 
method. For those PHAs, the SEMAP score and overall performance rating 
will be determined based only on the remaining indicators in paragraphs 
(i) through (o) of this section as applicable. Although the SEMAP 
performance rating will not be determined using the indicators in 
paragraphs (a) through (g) of this section, PHAs not subject to Federal 
audit requirements must still complete the SEMAP certification for these 
indicators and performance under the indicators is subject to HUD 
confirmatory reviews.
    (a) Selection from the waiting list. (1) This indicator shows 
whether the PHA has written policies in its administrative plan for 
selecting applicants from the waiting list and whether the PHA follows 
these policies when selecting applicants for admission from the waiting 
list. (24 CFR 982.54(d)(1) and 982.204(a))
    (2) HUD verification method: The independent auditor (IA) annual 
audit report covering the PHA fiscal year entered on the SEMAP 
certification and on-site confirmatory review if performed.
    (3) Rating: (i) The PHA's SEMAP certification states that:
    (A) The PHA has written waiting list selection policies in its 
administrative plan and,
    (B) Based on the PHA's quality control samples, drawn separately for 
applicants reaching the top of the waiting list and for admissions, 
documentation shows that at least 98 percent of the families in both 
samples of applicants and admissions were selected from the waiting list 
for admission in accordance with these policies and met the selection 
criteria that determined their places on the waiting list and their 
order of selection. 15 points.
    (ii) The PHA's SEMAP certification does not support the statement in 
paragraph (a)(3)(i) of this section. 0 points.
    (b) Reasonable rent. (1) This indicator shows whether the PHA has 
and implements a reasonable written method to determine and document for 
each unit leased that the rent to owner is reasonable based on current 
rents for comparable unassisted units: at the time of initial leasing; 
if there is any increase in the rent to owner; and at the HAP contract 
anniversary if there is a 5 percent decrease in the published fair 
market rent (FMR) in effect 60 days before the HAP contract anniversary. 
The PHA's method must take into consideration the location, size, type, 
quality and age of the units, and the amenities, housing services, and 
maintenance and utilities provided by the owners in determining 
comparability and the reasonable rent. (24 CFR 982.4, 24 CFR 
982.54(d)(15), 982.158(f)(7) and 982.507)
    (2) HUD verification method: The IA annual audit report covering the 
PHA fiscal year entered on the SEMAP certification and on-site 
confirmatory review if performed.
    (3) Rating: (i) The PHA's SEMAP certification states that:
    (A) The PHA has a reasonable written method to determine reasonable 
rent which considers location, size, type, quality and age of the units 
and the amenities, housing services, and maintenance and utilities 
provided by the owners; and
    (B) Based on the PHA's quality control sample of tenant files, the 
PHA follows its written method to determine reasonable rent and has 
documented its determination that the rent to owner is reasonable in 
accordance with Sec. 982.507 for at least 98 percent of units sampled 
at the time of initial leasing, if there is any increase in the rent to 
owner and, at the HAP contract anniversary if there is a 5 percent 
decrease in the published FMR in effect 60 days before the HAP contract 
anniversary. 20 points.
    (ii) The PHA's SEMAP certification includes the statements in 
paragraph (b)(3)(i) of this section, except that the PHA documents its 
determination of reasonable rent for only 80 to 97 percent of units 
sampled at initial leasing, if there is any increase in the rent to 
owner, and at the HAP contract anniversary if there is a 5 percent 
decrease

[[Page 694]]

in the published FMR in effect 60 days before the HAP contract 
anniversary. 15 points.
    (iii) The PHA's SEMAP certification does not support the statements 
in either paragraph (b)(3)(i) or (b)(3)(ii) of this section. 0 points.
    (c) Determination of adjusted income. (1) This indicator shows 
whether, at the time of admission and annual reexamination, the PHA 
verifies and correctly determines adjusted annual income for each 
assisted family and, where the family is responsible for utilities under 
the lease, the PHA uses the appropriate utility allowances for the unit 
leased in determining the gross rent. (24 CFR part 5, subpart F and 24 
CFR 982.516)
    (2) HUD verification method: The IA annual audit report covering the 
PHA fiscal year entered on the SEMAP certification and on-site 
confirmatory review if performed.
    (3) Rating: (i) The PHA's SEMAP certification states that, based on 
the PHA's quality control sample of tenant files, for at least 90 
percent of families:
    (A) The PHA obtains third party verification of reported family 
annual income, the value of assets totalling more than $5,000, expenses 
related to deductions from annual income, and other factors that affect 
the determination of adjusted income, and uses the verified information 
in determining adjusted income, and/or documents tenant files to show 
why third party verification was not available;
    (B) The PHA properly attributes and calculates allowances for any 
medical, child care, and/or disability assistance expenses; and
    (C) The PHA uses the appropriate utility allowances to determine 
gross rent for the unit leased. 20 points.
    (ii) The PHA's SEMAP certification includes the statements in 
paragraph (c)(3)(i) of this section, except that the PHA obtains and 
uses independent verification of income, properly attributes allowances, 
and uses the appropriate utility allowances for only 80 to 89 percent of 
families. 15 points.
    (iii) The PHA's SEMAP certification does not support the statements 
in either paragraph (c)(3)(i) or (c)(3)(ii) of this section. 0 points.
    (d) Utility Allowance Schedule. (1) This indicator shows whether the 
PHA maintains an up-to-date utility allowance schedule. (24 CFR 982.517)
    (2) HUD verification method: The IA annual audit report covering the 
PHA fiscal year entered on the SEMAP certification and on-site 
confirmatory review if performed.
    (3) Rating: (i) The PHA's SEMAP certification states that the PHA 
reviewed utility rate data within the last 12 months, and adjusted its 
utility allowance schedule if there has been a change of 10 percent or 
more in a utility rate since the last time the utility allowance 
schedule was revised. 5 points.
    (ii) The PHA's SEMAP certification does not support the statement in 
paragraph (d)(3)(i) of this section. 0 points.
    (e) HQS quality control inspections. (1) This indicator shows 
whether an PHA supervisor or other qualified person reinspects a sample 
of units under contract during the PHA fiscal year, which meets the 
minimum sample size requirements specified at Sec. 985.2 under PHA's 
quality control sample, for quality control of HQS inspections. The PHA 
supervisor's reinspected sample is to be drawn from recently completed 
HQS inspections (i.e., performed during the 3 months preceding 
reinspection) and is to be drawn to represent a cross section of 
neighborhoods and the work of a cross section of inspectors. (24 CFR 
982.405(b))
    (2) HUD verification method: The IA annual audit report covering the 
PHA fiscal year entered on the SEMAP certification and on-site 
confirmatory review if performed.
    (3) Rating: (i) The PHA's SEMAP certification states that an PHA 
supervisor or other qualified person performed quality control HQS 
reinspections during the PHA fiscal year for a sample of units under 
contract which meets the minimum sample size requirements specified in 
Sec. 983.2 under PHA's quality control sample. The PHA's SEMAP 
certification also states that the reinspected sample was drawn from 
recently completed HQS inspections (i.e., performed during the 3 months 
preceding the quality control

[[Page 695]]

reinspection) and was drawn to represent a cross section of 
neighborhoods and the work of a cross section of inspectors. 5 points.
    (ii) The PHA's SEMAP certification does not support the statements 
in paragraph (e)(3)(i) of this section. 0 points.
    (f) HQS enforcement. (1) This indicator shows whether, following 
each HQS inspection of a unit under contract where the unit fails to 
meet HQS, any cited life-threatening HQS deficiencies are corrected 
within 24 hours from the inspection and all other cited HQS deficiencies 
are corrected within no more than 30 calendar days from the inspection 
or any PHA-approved extension. In addition, if HQS deficiencies are not 
corrected timely, the indicator shows whether the PHA stops (abates) 
housing assistance payments beginning no later than the first of the 
month following the specified correction period or terminates the HAP 
contract or, for family-caused defects, takes prompt and vigorous action 
to enforce the family obligations. (24 CFR 982.404)
    (2) HUD verification method: The IA annual audit report covering the 
PHA fiscal year entered on the SEMAP certification and on-site 
confirmatory review if performed.
    (3) Rating: (i) The PHA's SEMAP certification states that the PHA's 
quality control sample of case files with failed HQS inspections shows 
that, for all cases sampled, any cited life-threatening HQS deficiencies 
were corrected within 24 hours from the inspection and, for at least 98 
percent of cases sampled, all other cited HQS deficiencies were 
corrected within no more than 30 calendar days from the inspection or 
any PHA-approved extension, or, if any life-threatening HQS deficiencies 
were not corrected within 24 hours and all other HQS deficiencies were 
not corrected within 30 calendar days or any PHA-approved extension, the 
PHA stopped (abated) housing assistance payments beginning no later than 
the first of the month following the correction period, or took prompt 
and vigorous action to enforce family obligations. 10 points.
    (ii) The PHA's SEMAP certification does not support the statement in 
paragraph (f)(3)(i) of this section. 0 points.
    (g) Expanding housing opportunities. (1) This indicator applies only 
to PHAs with jurisdiction in metropolitan FMR areas. The indicator shows 
whether the PHA has adopted and implemented a written policy to 
encourage participation by owners of units located outside areas of 
poverty or minority concentration; informs rental voucher holders of the 
full range of areas where they may lease units both inside and outside 
the PHA's jurisdiction; and supplies a list of landlords or other 
parties who are willing to lease units or help families find units, 
including units outside areas of poverty or minority concentration. (24 
CFR 982.54(d)(5), 982.301(a) and 982.301(b)(4) and 982.301(b)(12))
    (2) HUD verification method: The IA annual audit report covering the 
PHA fiscal year entered on the SEMAP certification and on-site 
confirmatory review if performed.
    (3) Rating: (i) The PHA's SEMAP certification states that:
    (A) The PHA has a written policy in its administrative plan which 
includes actions the PHA will take to encourage participation by owners 
of units located outside areas of poverty or minority concentration, and 
which clearly delineates areas in its jurisdiction that the PHA 
considers areas of poverty or minority concentration;
    (B) PHA documentation shows that the PHA has taken actions indicated 
in its written policy to encourage participation by owners of units 
located outside areas of poverty or minority concentration;
    (C) The PHA has prepared maps that show various areas with housing 
opportunities outside areas of poverty or minority concentration both 
within its jurisdiction and neighboring its jurisdiction; has assembled 
information about the characteristics of those areas which may include 
information about job opportunities, schools, transportation and other 
services in these areas; and can demonstrate that it uses the maps and 
area characteristics information when briefing rental voucher holders 
about the full range of areas where they may look for housing;

[[Page 696]]

    (D) The PHA's information packet for rental voucher holders contains 
either a list of owners who are willing to lease (or properties 
available for lease) under the rental voucher program; or a current list 
of other organizations that will help families find units and the PHA 
can demonstrate that the list(s) includes properties or organizations 
that operate outside areas of poverty or minority concentration;
    (E) The PHA's information packet includes an explanation of how 
portability works and includes a list of portability contact persons for 
neighboring housing agencies, with the name, address and telephone 
number of each, for use by families who move under portability; and
    (F) PHA documentation shows that the PHA has analyzed whether rental 
voucher holders have experienced difficulties in finding housing outside 
areas of poverty or minority concentration and, if such difficulties 
have been found, PHA documentation shows that the PHA has analyzed 
whether it is appropriate to seek approval of exception payment standard 
amounts in any part of its jurisdiction and has sought HUD approval of 
exception payment standard amounts when necessary. 5 points.
    (ii) The PHA's SEMAP certification does not support the statement in 
paragraph (g)(3)(i) of this section. 0 points.
    (h) Deconcentration bonus. (1) Submission of deconcentration data in 
the HUD-prescribed format for this indicator is mandatory for a PHA 
using one or more payment standard amount(s) that exceed(s) 100 percent 
of the published FMR set at the 50th percentile rent to provide access 
to a broad range of housing opportunities throughout a metropolitan area 
in accordance with Sec. 888.113(c) of this title, starting with the 
second full PHA fiscal year following initial use of payment standard 
amounts based on the FMR set at the 50th percentile rent. Submission of 
deconcentration data for this indicator is optional for all other PHAs. 
Additional SEMAP points are available to PHAs that have jurisdiction in 
metropolitan FMR areas and that choose to submit with their SEMAP 
certifications certain data, in a HUD-prescribed format, on the percent 
of their tenant-based Section 8 families with children who live in, and 
who have moved during the PHA fiscal year to, low poverty census tracts 
in the PHA's principal operating area. For purposes of this indicator, 
the PHA's principal operating area is the geographic entity for which 
the Census tabulates data that most closely matches the PHA's geographic 
jurisdiction under State or local law (e.g., city, county, metropolitan 
statistical area) as determined by the PHA, subject to HUD review. A low 
poverty census tract is defined as a census tract where the poverty rate 
of the tract is at or below 10 percent, or at or below the overall 
poverty rate for the principal operating area of the PHA, whichever is 
greater. The PHA determines the overall poverty rate for its principal 
operating area using the most recent available decennial Census data. 
Family data used for the PHA's analysis must be the same information as 
reported to MTCS for the PHA's tenant-based Section 8 families with 
children. If HUD determines that the quantity of MTCS data is 
insufficient for adequate analysis, HUD will not award points under this 
bonus indicator. Bonus points will be awarded if:
    (i) Half or more of all Section 8 families with children assisted by 
the PHA in its principal operating area at the end of the last completed 
PHA fiscal year reside in low poverty census tracts;
    (ii) The percent of Section 8 mover families with children who moved 
to low poverty census tracts in the PHA's principal operating area 
during the last completed PHA fiscal year is at least 2 percentage 
points higher than the percent of all Section 8 families with children 
who reside in low poverty census tracts at the end of the last completed 
PHA fiscal year; or
    (iii) The percent of Section 8 families with children who moved to 
low-poverty census tracts in the PHA's principal operating area over the 
last two completed PHA fiscal years is at least 2 percentage points 
higher than the percent of all Section 8 families with children who 
resided in low poverty census tracts at the end of the second to last 
completed PHA fiscal year.

[[Page 697]]

    (iv) State and regional PHAs that provide Section 8 rental 
assistance in more than one metropolitan area within a State or region 
make these determinations separately for each metropolitan area or 
portion of a metropolitan area where the PHA has assisted at least 20 
Section 8 families with children in the last completed PHA fiscal year.
    (2) HUD verification methods: PHA data submitted for the 
deconcentration bonus, the IA annual audit report covering the PHA 
fiscal year entered on the SEMAP certification, and on-site confirmatory 
review if performed.
    (3) Rating: (i) The data submitted by the PHA for the 
deconcentration bonus shows that the PHA met the requirements for bonus 
points in paragraph (h)(1)(i), (ii) or (iii) of this section. 5 points.
    (ii) The data submitted by the PHA for the deconcentration bonus 
does not show that the PHA met the requirements for bonus points in 
paragraph (h)(1)(i), (ii) or (iii) of this section. 0 points.
    (i) Payment standards. (1) This indicator shows whether the PHA has 
adopted a payment standard schedule that establishes voucher payment 
standard amounts by unit size for each FMR area in the PHA jurisdiction, 
and, if applicable, separate payment standard amounts by unit size for a 
PHA-designated part of an FMR area, which payment standards do not 
exceed 110 percent of the current applicable published FMRs and which 
are not less than 90 percent of the current applicable published FMRs 
(unless a higher or lower payment standard amount is approved by HUD). 
(Sec. 982.503 of this chapter.)
    (2) HUD verification method: PHA data submitted on the SEMAP 
certification form concerning payment standards.
    (3) Rating:
    (i) The PHA's voucher program payment standard schedule contains 
payment standards which do not exceed 110 percent of the current 
applicable published FMR and which are not less than 90 percent of the 
current applicable published FMR (unless a higher or lower payment 
standard amount is approved by HUD). 5 points.
    (ii) The PHA's voucher program payment standard schedule contains 
payment standards which exceed 110 percent of the current applicable 
published FMRs or which are less than 90 percent of the current 
applicable published FMRs (unless a higher or lower payment standard 
amount is approved by HUD). 0 points.
    (j) Annual reexaminations. (1) This indicator shows whether the PHA 
completes a reexamination for each participating family at least every 
12 months. (24 CFR 5.617).
    (2) HUD verification method: MTCS report--Shows percent of 
reexaminations that are more than 2 months overdue. The 2-month 
allowance is provided only to accommodate a possible lag in the PHA's 
electronic reporting of the annual reexamination on Form HUD-50058 and 
to allow the processing of the data into MTCS. The 2-month allowance 
provided here for rating purposes does not mean that any delay in 
completing annual reexaminations is permitted.
    (3) Rating:
    (i) Fewer than 5 percent of all PHA reexaminations are more than 2 
months overdue. 10 points.
    (ii) 5 to 10 percent of all PHA reexaminations are more than 2 
months overdue. 5 points.
    (iii) More than 10 percent of all PHA reexaminations are more than 2 
months overdue. 0 points.
    (k) Correct tenant rent calculations. (1) This indicator shows 
whether the PHA correctly calculates tenant rent in the rental 
certificate program and the family's share of the rent to owner in the 
rental voucher program. (24 CFR 982 subpart K).
    (2) HUD verification method: MTCS report--Shows percent of tenant 
rent and family's share of the rent to owner calculations that are 
incorrect based on data sent to HUD by the PHA on Forms HUD-50058. The 
MTCS data used for verification cover only voucher program and regular 
certificate program tenancies, and do not include rent calculation 
discrepancies for manufactured home owner rentals of manufactured home 
spaces under the certificate program or for proration of assistance 
under the noncitizen rule.
    (3) Ratings:

[[Page 698]]

    (i) 2 percent or fewer of PHA tenant rent and family's share of the 
rent to owner calculations are incorrect. 5 points.
    (ii) More than 2 percent of PHA tenant rent and family's share of 
the rent to owner calculations are incorrect. 0 points.
    (l) Pre-contract housing quality standards (HQS) inspections. (1) 
This indicator shows whether newly leased units pass HQS inspection on 
or before the beginning date of the assisted lease and HAP contract. (24 
CFR 982.305).
    (2) HUD verification method: MTCS report--Shows percent of newly 
leased units where the beginning date of the assistance contract is 
before the date the unit passed HQS inspection.
    (3) Rating:
    (i) 98 to 100 percent of newly leased units passed HQS inspection 
before the beginning date of the assisted lease and HAP contract. 5 
points.
    (ii) Fewer than 98 percent of newly leased units passed HQS 
inspection before the beginning date of the assisted lease and HAP 
contract. 0 points.
    (m) Annual HQS inspections. (1) This indicator shows whether the PHA 
inspects each unit under contract at least annually. (24 CFR 982.405(a))
    (2) HUD verification method: MTCS report--Shows percent of HQS 
inspections that are more than 2 months overdue. The 2-month allowance 
is provided only to accommodate a possible lag in the PHA's electronic 
reporting of the annual HQS inspection on Form HUD-50058, and to allow 
the processing of the data into MTCS. The 2-month allowance provided 
here for rating purposes does not mean that any delay in completing 
annual HQS inspections is permitted.
    (3) Rating:
    (i) Fewer than 5 percent of annual HQS inspections of units under 
contract are more than 2 months overdue. 10 points.
    (ii) 5 to 10 percent of all annual HQS inspections of units under 
contract are more than 2 months overdue. 5 points.
    (iii) More than 10 percent of all annual HQS inspections of units 
under contract are more than 2 months overdue. 0 points.
    (n) Lease-up. (1) This indicator shows whether the PHA enters HAP 
contracts for the number of units reserved under ACC for at least one 
year.
    (2) HUD verification method: (i) Percent of units leased during the 
last completed PHA fiscal year as determined by taking unit months under 
HAP contract as shown on the PHA's last year-end operating statement 
recorded in the HUD accounting system, and dividing by the number of 
unit months available for leasing, based on the number of reserved units 
for which HUD has obligated funding under ACC and adjusted to exclude 
units associated with funding increments obligated during the last PHA 
fiscal year and units obligated for litigation.
    (ii) In the event a PHA has not leased the percent of units needed 
to attain the points specified under paragraph (n)(3) of this section 
due to escalating housing assistance payments and insufficient allocated 
budget authority to support that percent of lease-up, HUD will consider 
alternatively, whether the PHA has expended that percent of allocated 
budget authority.
    (3) Rating: (i) The percent of units leased during the last PHA 
fiscal year was 98 percent or more, or the percent of allocated budget 
authority expended during the last PHA fiscal year was 98 percent or 
more. 20 points.
    (ii) The percent of units leased during the last PHA fiscal year was 
95 to 97 percent, or the percent of allocated budget authority expended 
during the last PHA fiscal year was 95 to 97 percent. 15 points.
    (iii) The percent of units leased during the last PHA fiscal year 
was less than 95 percent, and the percent of allocated budget authority 
expended during the last PHA fiscal year was less than 95 percent. 0 
points.
    (o) Family self-sufficiency (FSS) enrollment and escrow accounts. 
(1) This indicator applies only to PHAs with mandatory FSS programs. The 
indicator consists of 2 components which show whether the PHA has 
enrolled families in the FSS program as required, and the extent of the 
PHA's progress in supporting FSS by measuring the percent of current FSS 
participants with FSS progress reports entered in MTCS that have had 
increases in earned income which resulted in escrow account balances. 
(24 CFR 984.105 and 984.305)

[[Page 699]]

    (2) HUD verification method: MTCS report--Shows number of families 
currently enrolled in FSS. This number is divided by the number of 
mandatory FSS slots, as determined under Sec. 984.105 of this chapter. 
An MTCS report also shows the percent of FSS families with FSS progress 
reports who have escrow account balances. HUD also uses information 
reported on the SEMAP certification by initial PHAs concerning FSS 
families enrolled in their FSS programs but who have moved under 
portability to the jurisdiction of another PHA.
    (3) Rating:
    (i) The PHA has filled 80 percent or more of its mandatory FSS slots 
and 30 percent or more of FSS families have escrow account balances. 10 
points.
    (ii) The PHA has filled 60 to 79 percent of its mandatory FSS slots 
and 30 percent or more of FSS families have escrow account balances. 8 
points.
    (iii) The PHA has filled 80 percent or more of its mandatory FSS 
slots, but fewer than 30 percent of FSS families have escrow account 
balances. 5 points.
    (iv) 30 percent or more of FSS families have escrow account 
balances, but fewer than 60 percent of the PHA's mandatory FSS slots are 
filled. 5 points.
    (v) The PHA has filled 60 to 79 percent of its mandatory FSS slots, 
but fewer than 30 percent of FSS families have escrow account balances. 
3 points.
    (vi) The PHA has filled fewer than 60 percent of its mandatory FSS 
slots and less than 30 percent of FSS families have escrow account 
balances. 0 points.
    (p) Success rate of voucher holders. (1) This indicator shows 
whether voucher holders were successful in leasing units with voucher 
assistance. This indicator applies only to PHAs that have received 
approval to establish success rate payment standard amounts in 
accordance with Sec. 982.503(e). This indicator becomes initially 
effective for the second full PHA fiscal year following the date of HUD 
approval of success rate payment standard amounts.
    (2) HUD verification method: MTCS Report.
    (3) Rating (5 points): (i) The proportion of families issued rental 
vouchers during the last PHA fiscal year that have become participants 
in the voucher program is more than the higher of:
    (A) 75 percent; or
    (B) The proportion of families issued rental vouchers that became 
participants in the program during the six month period utilized to 
determine eligibility for success rate payment standards under Sec. 
982.503(e)(1) plus 5 percentage points; and
    (ii) The percent of units leased during the last PHA fiscal year was 
95 percent or more, or the percent of allocated budget authority 
expended during the last PHA fiscal year was 95 percent or more 
following the methodology of Sec. 985.3(n).

[63 FR 48555, Sept. 10, 1998, as amended at 64 FR 40497, July 26, 1999; 
64 FR 67983, Dec. 3, 1999; 65 FR 16733, Mar. 29, 2000; 65 FR 16823, Mar. 
30. 2000; 65 FR 58875, Oct. 2, 2000; 66 FR 50005, Oct. 1, 2001]



                       Subpart B_Program Operation



Sec. 985.101  SEMAP certification.

    (a) An PHA must submit the HUD-required SEMAP certification form 
within 60 calendar days after the end of its fiscal year.
    (1) The certification must be approved by PHA board resolution and 
signed by the PHA executive director. If the PHA is a unit of local 
government or a state, a resolution approving the certification is not 
required, and the certification must be executed by the Section 8 
program director.
    (2) An PHA that subcontracts administration of its program to one or 
more subcontractors shall require each subcontractor to submit the 
subcontractor's own SEMAP certification on the HUD-prescribed form to 
the PHA in support of the PHA's SEMAP certification to HUD. The PHA 
shall retain subcontractor certifications for 3 years.
    (3) An PHA may include with its SEMAP certification any information 
bearing on the accuracy or completeness of the information used by the 
PHA in providing its certification.
    (b) Failure of an PHA to submit its SEMAP certification within 60 
calendar days after the end of its fiscal year will result in an overall 
performance rating of troubled and the PHA

[[Page 700]]

will be subject to the requirements at Sec. 985.107.
    (c) An PHA's SEMAP certification is subject to HUD verification by 
an on-site confirmatory review at any time. (Information collection 
requirements in this section have been approved by the Office of 
Management and Budget under control number 2577-0215)

[63 FR 48555, Sept. 10, 1998, as amended at 66 FR 50006, Oct. 1, 2001]



Sec. 985.102  SEMAP profile.

    Upon receipt of the PHA's SEMAP certification, HUD will rate the 
PHA's performance under each SEMAP indicator in accordance with Sec. 
985.3. HUD will then prepare a SEMAP profile for each PHA which shows 
the rating for each indicator, sums the indicator ratings, and divides 
by the total possible points to arrive at an PHA's overall SEMAP score. 
SEMAP scores shall be rounded off to the nearest whole percent.



Sec. 985.103  SEMAP score and overall performance rating.

    (a) High performer rating. PHAs with SEMAP scores of at least 90 
percent shall be rated high performers under SEMAP. PHAs that achieve an 
overall performance rating of high performer may receive national 
recognition by the Department and may be given competitive advantage 
under notices of fund availability.
    (b) Standard rating. PHAs with SEMAP scores of 60 to 89 percent 
shall be rated standard.
    (c) Troubled rating. PHAs with SEMAP scores of less than 60 percent 
shall be rated troubled.
    (d) Modified rating on an indicator. A rating on any of the 
indicators at Sec. Sec. 985.3(a) through 985.3(h) will be subject to 
change after HUD receives the PHA's annual audit report or after HUD 
conducts a confirmatory review if the audit report or the confirmatory 
review report contains information that the PHA's SEMAP certification 
concerning an indicator is not accurate.
    (e) Modified or withheld overall rating. (1) Notwithstanding an 
PHA's SEMAP score, HUD may modify or withhold an PHA's overall 
performance rating when warranted by circumstances which have bearing on 
the SEMAP indicators such as an PHA's appeal of its overall rating, 
adverse litigation, a conciliation agreement under Title VI of the Civil 
Rights Act of 1964, fair housing and equal opportunity monitoring and 
compliance review findings, fraud or misconduct, audit findings or 
substantial noncompliance with program requirements.
    (2) Notwithstanding an PHA's SEMAP score, if the latest IA report 
submitted for the PHA under the Single Audit Act indicates that the 
auditor is unable to provide an opinion as to whether the PHA's 
financial statements are presented fairly in all material respects in 
conformity with generally accepted accounting principals, or an opinion 
that the schedule of expenditures of Federal awards is presented fairly 
in all material respects in relation to the financial statements taken 
as a whole, the PHA will automatically be given an overall performance 
rating of troubled and the PHA will be subject to the requirements at 
Sec. 985.107.
    (3) When HUD modifies or withholds a rating for any reason, it shall 
explain in writing to the PHA the reasons for the modification or for 
withholding the rating.

[63 FR 48555, Sept. 10, 1998, as amended at 64 FR 40498, July 26, 1999]



Sec. 985.104  PHA right of appeal of overall rating.

    An PHA may appeal its overall performance rating to HUD by providing 
justification of the reasons for its appeal. An appeal made to a HUD hub 
or program center or to the HUD Troubled Agency Recovery Center and 
denied may be further appealed to the Assistant Secretary.



Sec. 985.105  HUD SEMAP responsibilities.

    (a) Frequency of SEMAP assessments. (1) Annual review. Except as 
provided in paragraph (a)(2) of this section, HUD shall assess each 
PHA's performance under SEMAP annually and shall assign each PHA a SEMAP 
score and overall performance rating.
    (2) Biennial review for small PHAs. HUD shall assess and score the 
performance of a PHA with less than 250

[[Page 701]]

assisted units once every other PHA fiscal year, unless the PHA:
    (i) Elects to have its performance assessed on an annual basis; or
    (ii) Is designated as troubled, in accordance with Sec. 985.103.
    (b) Notification to PHA. No later than 120 calendar days after the 
PHA's fiscal year end, HUD shall notify each PHA in writing of its 
rating on each SEMAP indicator, of its overall SEMAP score and of its 
overall performance rating (high performer, standard, troubled). The HUD 
notification letter shall identify and require correction of any SEMAP 
deficiencies (indicator rating of zero) within 45 calendar days from 
date of HUD notice.
    (c) On-site confirmatory review. HUD may conduct an on-site 
confirmatory review to verify the PHA certification and the HUD rating 
under any indicator.
    (d) Changing rating from troubled. HUD must conduct an on-site 
confirmatory review of an PHA's performance before changing any annual 
overall performance rating from troubled to standard or high performer.
    (e) Appeals. HUD must review, consider and provide a final written 
determination to an PHA on its appeal of its overall performance rating.
    (f) Corrective action plans. HUD must review the adequacy and 
monitor implementation of PHA corrective action plans submitted under 
Sec. 985.106(c) or Sec. 985.107(c) and provide technical assistance to 
help the PHA improve program management. If an PHA is assigned an 
overall performance rating of troubled, the PHA's corrective action plan 
must be approved in writing by HUD.

[63 FR 48555, Sept. 10, 1998, as amended at 68 FR 37671, June 24, 2003]



Sec. 985.106  Required actions for SEMAP deficiencies.

    (a) When the PHA receives the HUD notification of its SEMAP rating, 
an PHA must correct any SEMAP deficiency (indicator rating of zero) 
within 45 calendar days from date of HUD notice.
    (b) The PHA must send a written report to HUD describing its 
correction of any identified SEMAP deficiency.
    (c) If an PHA fails to correct a SEMAP deficiency within 45 calendar 
days as required, HUD may then require the PHA to prepare and submit a 
corrective action plan for the deficiency within 30 calendar days from 
the date of HUD notice.

(Information collection requirements in this section have been approved 
by the Office of Management and Budget under control number 2577-0215)



Sec. 985.107  Required actions for PHA with troubled performance rating.

    (a) On-site reviews. (1) Required reviews for troubled PHAs. Except 
as provided in paragraph (a)(2) of this section, HUD will conduct an on-
site review of PHA program management for any PHA assigned an overall 
performance rating of troubled to assess the magnitude and seriousness 
of the PHA's noncompliance with performance requirements.
    (2) On-site reviews for small PHAs. Notwithstanding paragraph (a)(1) 
of this section, HUD may elect not to conduct an on-site review of a 
troubled PHA, if:
    (i) The PHA has less than 250 assisted units; and
    (ii) HUD determines that an on-site review is unnecessary to 
determine the needs of the PHA and the actions required to address the 
program deficiencies.
    (b) HUD written report. HUD must provide the PHA a written report of 
its on-site review containing HUD findings of program management 
deficiencies, the apparent reasons for the deficiencies, and 
recommendations for improvement.
    (c) PHA corrective action plan. Upon receipt of the HUD written 
report on its on-site review, the PHA must write a corrective action 
plan and submit it to HUD for approval. The corrective action plan must:
    (1) Specify goals to be achieved;
    (2) Identify obstacles to goal achievement and ways to eliminate or 
avoid them;
    (3) Identify resources that will be used or sought to achieve goals;
    (4) Identify an PHA staff person with lead responsibility for 
completing each goal;
    (5) Identify key tasks to reach each goal;

[[Page 702]]

    (6) Specify time frames for achievement of each goal, including 
intermediate time frames to complete each key task; and
    (7) Provide for regular evaluation of progress toward improvement.
    (8) Be signed by the PHA board of commissioners chairperson and by 
the PHA executive director. If the PHA is a unit of local government or 
a state, the corrective action plan must be signed by the Section 8 
program director and by the chief executive officer of the unit of 
government or his or her designee.
    (d) Monitoring. The PHA and HUD must monitor the PHA's 
implementation of its corrective action plan to ensure performance 
targets are met.
    (e) Use of administrative fee reserve prohibited. Any PHA assigned 
an overall performance rating of troubled may not use any part of the 
administrative fee reserve for other housing purposes (see 24 CFR 
982.155(b)).
    (f) Upgrading poor performance rating. HUD shall change an PHA's 
overall performance rating from troubled to standard or high performer 
if HUD determines that a change in the rating is warranted because of 
improved PHA performance and an improved SEMAP score.

(Information collection requirements in this section have been approved 
by the Office of Management and Budget under control number 2577-0215)

[63 FR 48555, Sept. 10, 1998, as amended at 68 FR 37672, June 24, 2003]



Sec. 985.108  SEMAP records.

    HUD shall maintain SEMAP files, including certifications, 
notifications, appeals, corrective action plans, and related 
correspondence for at least 3 years.

(Information collection requirements in this section have been approved 
by the Office of Management and Budget under control number 2577-0215)



Sec. 985.109  Default under the Annual Contributions Contract (ACC).

    HUD may determine that an PHA's failure to correct identified SEMAP 
deficiencies or to prepare and implement a corrective action plan 
required by HUD constitutes a default under the ACC.

Subpart C--Physical Assessment Component [Reserved]



PART 990_THE PUBLIC HOUSING OPERATING FUND PROGRAM--Table of Contents




                  Subpart A_The Operating Fund Formula

Sec.
990.101 Purpose.
990.102 Definitions.
990.103 Applicability of the Operating Fund Formula.
990.104 Determination of amount of operating subsidy under the Operating 
          Fund Formula.
990.105 Computation of allowable expense level.
990.106 Transition funding for excessively high-cost PHAs.
990.107 Computation of utilities expense level.
990.108 Other costs.
990.109 Projected operating income level.
990.110 Adjustments.
990.111 Submission and approval of operating subsidy calculations and 
          budgets.
990.112 Payments procedure for operating subsidy under the Operating 
          Fund Formula.
990.113 Payments of operating subsidy conditioned upon reexamination of 
          income of families in occupancy.
990.114 Phase-down of subsidy for units approved for demolition.
990.116 Increases in dwelling rental income.
990.117 Determining actual and requested budget year occupancy 
          percentages.
990.120 Audits.
990.121 Effect of recission.

    Subpart B_Financial Management Systems, Monitoring and Reporting

990.201 Purpose--General policy on financial management, monitoring and 
          reporting.
990.202 Applicability.

                   Subpart C_Project-Based Accounting

990.301 Applicability.
990.305 Definitions.
990.310 Project-based accounting.
990.315 Records and reports.
990.320 Certifications.
990.325 Compliance dates.

      Subpart D_Resident Management Corporations Operating Subsidy

990.401 Calculation of operating subsidy.
990.402 Calculation of total income and preparation of operating budget.
990.403 Adjustments to total income.
990.404 Retention of excess revenues.
990.405 Use of retained revenues.


[[Page 703]]


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

    Source: 41 FR 55676, Dec. 21, 1976, unless otherwise noted. 
Redesignated at 49 FR 6714, Feb. 23, 1984.

    Note: It is hereby certified that the economic and inflationary 
impacts of this regulation have been carefully evaluated in accordance 
with OMB Circular A-107.



                  Subpart A_The Operating Fund Formula

    Source: 66 FR 17287, Mar. 29, 2001, unless otherwise noted.



Sec. 990.101  Purpose.

    This subpart implements section 9(f) of the United States Housing 
Act of 1937 (42 U.S.C. 1437g) (referred to as ``the 1937 Act''). Section 
9(f) establishes an Operating Fund for the purposes of making assistance 
available to public housing agencies (PHAs) for the operation and 
management of public housing. The assistance made available from the 
Operating Fund is determined using a formula developed through 
negotiated rulemaking procedures. This subpart describes the policies 
and procedures for operating subsidy calculations under the Operating 
Fund Formula.



Sec. 990.102  Definitions.

    Allowable Expense Level (AEL). The per unit per month dollar amount 
of expenses (excluding Utilities and expenses allowed under Sec. 
990.108) computed in accordance with Sec. 990.105, which is used to 
compute the amount of operating subsidy.
    Allowable Utilities Consumption Level (AUCL). The amount of 
Utilities expected to be consumed per unit per month by the PHA during 
the Requested Budget Year, which is equal to the average amount consumed 
per unit per month during the Rolling Base Period.
    Base Year. The PHA's fiscal year immediately preceding its first 
fiscal year of receipt of operating subsidy under this part (either 
under the Operating Fund Formula or its predecessor, the Performance 
Funding System (PFS)).
    Base Year Expense Level. The expense level (excluding Utilities, 
audits and certain other items) for the Base Year, computed as provided 
in Sec. 990.105.
    Current Budget Year. The fiscal year in which the PHA is currently 
operating.
    Dwelling rent. The amount charged monthly for a dwelling unit 
occupied by a resident or family eligible for public housing as 
determined in Sec. 960.253 of this title. For purposes of determining 
subsidy eligibility, the dwelling rent will not reflect decreases 
resulting from the PHA's implementation of any optional earned income 
exclusions.
    Formula. The revised formula derived from the actual expenses of the 
sample group of PHAs receiving assistance under the Operating Fund 
Formula, which is used to determine the Formula Expense Level and the 
Range of each PHA (see Sec. 990.105(c)).
    FHA-based operating expense level (FHAEL). The per unit per month 
dollar amount of expenses (excluding utilities and expenses allowed 
under Sec. 990.108) computed in accordance with Sec. 990.105(e), which 
is used on a one-time basis to adjust the AEL for selected PHAs.
    Formula Expense Level. The per unit per month dollar amount of 
expenses (excluding Utilities and audits) computed under the Formula, in 
accordance with Sec. 990.105.
    HUD Field Office. The HUD Field Office that has been delegated 
authority under the U.S. Housing Act of 1937 to perform functions 
pertaining to this subpart for the area in which the PHA is located.
    Local Inflation Factor. The HUD-supplied weighted average percentage 
increase in local government wages and salaries for the area in which 
the PHA is located and non-wage expenses.
    Long-term vacancy. This term means the same as it is used in the 
definition of ``Unit Months Available'' in this section.
    Nondwelling rent. The amount charged monthly, including utility and 
equipment charges, to a lessee for a dwelling unit that is being used 
for nondwelling purposes. For purposes of determining operating subsidy:
    (1) If the nondwelling unit has been approved for subsidy (e.g., the 
unit is being used for economic self-sufficiency services or anti-drug 
activities) at the rate of the PHA's AEL, the PHA

[[Page 704]]

will include all charges as nondwelling rent;
    (2) If the nondwelling unit has not been approved for subsidy, a PHA 
will include as nondwelling rent only that portion of the charge that 
exceeds the rate of the PHA's AEL.
    Operating budget. The PHA's operating budget and all related 
documents, as required by HUD, approved by the PHA Board of 
Commissioners.
    Other income. Income from rent billed to lessees of dwelling units 
rented for nondwelling purposes, and from charges to residents for 
excess utility consumption for PHA supplied utilities.
    Project. Each project under an Annual Contributions Contract to 
which the Operating Fund Formula is applicable, as provided in Sec. 
990.103.
    Project Units. All dwelling units of a PHA's Projects.
    Projected Operating Income Level. The per unit per month dollar 
amount of dwelling rental income plus other income, computed as provided 
in Sec. 990.109.
    Requested Budget Year. The budget year (fiscal year) of a PHA 
following the Current Budget Year.
    Rolling Base Period. The 36-month period that ends 12 months before 
the beginning of the PHA Requested Budget Year, which is used to 
determine the Allowable Utilities Consumption Level used to compute the 
Utilities Expense Level.
    Top of Range. Formula Expense Level multiplied by 1.15.
    Transition funding. Funding for excessively high-cost PHAs, as 
provided in Sec. 990.106.
    Unit Approved for Deprogramming.
    (1) A dwelling unit for which HUD has approved the PHA's formal 
request to remove the dwelling unit from the PHA's inventory and the 
Annual Contributions Contract but for which removal, i.e., 
deprogramming, has not yet been completed; or
    (2) A nondwelling structure or a dwelling unit used for nondwelling 
purposes which the PHA has determined will no longer be used for PHA 
purposes and which HUD has approved for removal from the PHA's inventory 
and Annual Contributions Contract.
    Unit months available. Project Units multiplied by the number of 
months the Project Units are available for occupancy during a given PHA 
fiscal year. For purposes of this part, a unit is considered available 
for occupancy from the date established as the End of the Initial 
Operating Period for the Project until the time the unit is approved by 
HUD for deprogramming and is vacated or is approved for nondwelling use. 
In the case of a PHA development involving the acquisition of scattered 
site housing, see also Sec. 990.104(b). A unit will be considered a 
long-term vacancy and will not be considered available for occupancy in 
any given PHA Requested Budget Year if the PHA determines that:
    (1) The unit has been vacant for more than 12 months at the time the 
PHA determines its Actual Occupancy Percentage;
    (2) The unit is not either:
    (i) A vacant unit undergoing modernization; or
    (ii) A unit vacant for circumstances and actions beyond the PHA's 
control, as these terms are defined in this section; and
    (3) The PHA determines that it will have a vacancy percentage of 
more than 3% and will have more than five vacant units, for its 
Requested Budget Year, even after adjusting for vacant units undergoing 
modernization and units that are vacant for circumstances and actions 
beyond the PHA's control, as defined in this section. (Reference in this 
part to ``more than five units'' or ``fewer than five units'' shall 
refer to a circumstance in which five units equals or exceeds 3% of the 
number of units to which the 3% threshold is applicable.)
    Units vacant due to circumstances and actions beyond the PHA's 
control. Dwelling units that are vacant due to circumstances and actions 
that prohibit the PHA from occupying, selling, demolishing, 
rehabilitating, reconstructing, consolidating or modernizing vacant 
units and are beyond the PHA's control. For purposes of this definition, 
circumstances and actions beyond the PHA's control are limited to:
    (1) Litigation. The effect of court litigation such as a court order 
or settlement agreement that is legally enforceable. An example would be 
units that are being held vacant as part of a

[[Page 705]]

court-ordered or HUD-approved desegregation plan.
    (2) Laws. Federal or State laws of general applicability, or their 
implementing regulations. Units vacant only because they do not meet 
minimum standards pertaining to construction or habitability under 
Federal, State, or local laws or regulations will not be considered 
vacant due to circumstances and actions beyond the PHA's control.
    (3) Changing market conditions. For example, small PHAs that are 
located in areas experiencing population loss or economic dislocations 
may face a lack of demand in the foreseeable future, even after the PHA 
has taken aggressive marketing and outreach measures.
    (4) Natural disasters.
    (5) RMC Funding. The failure of a PHA to fund an otherwise 
approvable RMC request for Federal modernization funding.
    (6) Casualty Losses. Delays in repairing damage to vacant units due 
to the time needed for settlement of insurance claims.
    Utilities. Electricity, gas, heating fuel, water and sewerage 
service.
    Utilities expense level. The per unit per month dollar amount of 
utilities expense, computed as provided in Sec. 990.107.
    Vacant unit undergoing modernization. A vacant unit in a project not 
considered to be obsolete (as determined using the indicia in Sec. 
970.6 of this chapter), when the project is undergoing modernization 
that includes work that is necessary to reoccupy the vacant unit, and in 
which one of the following conditions is met:
    (1) The unit is under construction (i.e., the construction contract 
has been awarded or force account work has started); or
    (2) The treatment of the vacant unit is included in a HUD-approved 
modernization budget (or its successor under the public housing Capital 
Fund program), but the time period for placing the vacant unit under 
construction has not yet expired. The PHA must place the vacant unit 
under construction within two Federal Fiscal Years (FFYs) after the FFY 
in which the modernization funds are approved.



Sec. 990.103  Applicability of the Operating Fund Formula.

    (a) General. The Operating Fund Formula will be used in determining 
the amounts of operating subsidy payable to PHAs.
    (b) Applicability of the Operating Fund Formula. The Operating Fund 
Formula is applicable to all PHA rental units under Annual Contributions 
Contracts. The Operating Fund Formula applies to PHAs that have not 
received operating subsidy payments previously, but are eligible for 
such payments under the Operating Fund Formula.
    (c) Inapplicability of the Operating Fund Formula. The Operating 
Fund Formula, as described in this part, is not applicable to Indian 
Housing, the Section 23 Leased Housing Program, the Section 23 Housing 
Assistance Payments Program, the Section 8 Housing Assistance Payments 
Program, the Mutual Help Program, or the Turnkey III Homeownership 
Opportunity Programs.
    (d) Applicability of the Operating Fund Formula to the PHAs of the 
Virgin Islands, Puerto Rico, Guam, and Alaska. (1) The following 
provisions of this subpart A are applicable to housing owned by the PHAs 
of the Virgin Islands, Puerto Rico, Guam, and Alaska:
    (i) The definition of ``other income'' at Sec. 990.102;
    (ii) Section 990.105 (Computation of allowable expense level). 
However, Sec. 990.105(e) (Computation of FHA-based operating expense 
level for application in FY 2001) does not apply to these PHAs;
    (iii) Section 990.105(f) (Flood insurance adjustment for FY 2001);
    (iv) Section 990.108(e) (Funding for resident participation 
activities);
    (v) Section 990.109(b) (Computation of projected average monthly 
dwelling rental income);
    (vi) Section 990.110(b) (Adjustments to utilities expense level); 
and
    (vii) Section 990.116 (Increases in dwelling rental income).
    (2) With the exception of the provisions listed in paragraph (d)(1) 
of this section, and other provisions of this part necessary to give 
full effect to the provisions listed in paragraph (d)(1) of this 
section, the Operating Fund Formula is not applicable to the PHAs of

[[Page 706]]

the Virgin Islands, Puerto Rico, Guam and Alaska. Operating subsidy 
payments to these PHAs are made in accordance with subpart B of this 
part.
    (e) Financial management, monitoring and reporting. The financial 
management system, monitoring and reporting on program performance and 
financial reporting will be in compliance with 24 CFR 85.20, 85.40 and 
85.41 except to the extent that HUD requirements provide for additional 
specialized procedures which are determined by HUD to be necessary for 
the proper management of the program in accordance with the requirements 
of the U.S. Housing Act of 1937 and the Annual Contributions Contracts 
between the PHAs and HUD.



Sec. 990.104  Determination of amount of operating subsidy under the 
Operating Fund Formula.

    (a) The amount of operating subsidy for which each PHA is eligible 
shall be determined as follows: The Projected Operating Income Level is 
subtracted from the total expense level (Allowable Expense Level plus 
Utilities Expense Level). These amounts are per unit per month dollar 
amounts, and must be multiplied by the Unit Months Available. Transition 
Funding, if applicable, and other costs as specified in Sec. 990.108 
are then added to this total in order to determine the total amount of 
operating subsidy for the Requested Budget Year, exclusive of 
consideration of the cost of an independent audit. As an independent 
operating subsidy eligibility factor, a PHA may receive operating 
subsidy in an amount, approved by HUD, equal to the actual cost of an 
independent audit to be prorated to operations of the PHA-owned rental 
housing. See Sec. 990.110 regarding adjustments.
    (b) In the case of a PHA development involving the acquisition of 
scattered site housing, the PHA may submit, and HUD shall review and 
approve, a revised Development Cost Budget (or its successor under the 
public housing Capital Fund program) reflecting the number of units that 
were occupied during the previous six months, and the Unit Months 
Available used in the calculation of operating subsidy eligibility shall 
be revised to include the number of months the new/acquired units are 
actually occupied.
    (c) A special phase-down of subsidy to PHAs is applicable when 
demolition of units is approved by HUD. See Sec. 990.114.
    (d) The calculation of operating subsidy for a PHA in the Moving to 
Work demonstration program shall be made in accordance with the 
applicable Moving to Work Agreement, and any amendments to such 
agreements, as may be approved by HUD.



Sec. 990.105  Computation of allowable expense level.

    The PHA shall compute its Allowable Expense Level using forms 
prescribed by HUD, as follows:
    (a) Computation of Base Year Expense Level. The Base Year Expense 
Level includes Payments in Lieu of Taxes (PILOT) required by a 
Cooperation Agreement even if PILOT is not included in the Operating 
Budget for the Base Year because of a waiver of the requirements by the 
local taxing jurisdiction(s). The Base Year Expense Level includes all 
other operating expenditures as reflected in the PHA's Operating Budget 
for the Base Year except the following:
    (1) Utilities expense;
    (2) Cost of an independent audit;
    (3) Adjustments applicable to budget years before the Base Year;
    (4) Expenditures supported by supplemental subsidy payments 
applicable to budget years before the Base Year;
    (5) All other expenditures which are not normal fiscal year 
expenditures as to amount or as to the purpose for which expended; and
    (6) Expenditures which were funded from a nonrecurring source of 
income.
    (b) Adjustment. In compliance with the above six exclusions, the PHA 
shall adjust the AEL by excluding any of these items from the Base Year 
Expense Level if this has not already been accomplished. If such 
adjustment is made in the second or some subsequent fiscal year of 
receipt of operating subsidy under this part, the AEL shall be adjusted 
in the year in which the adjustment is made, but the adjustment shall 
not be applied retroactively. If the PHA does not make these 
adjustments, the HUD Field Office shall compute the adjustments.

[[Page 707]]

    (c) Computation of Formula Expense Level. The PHA shall compute its 
Formula Expense Level in accordance with a HUD-prescribed formula that 
estimates the cost of operating an average unit in a particular PHA's 
inventory. It uses weights and a Local Inflation Factor assigned each 
year to derive a Formula Expense Level for the current year and the 
requested budget year. The formula is the sum of the following six 
numbers and the weights of the formula and the formula are subject to 
updating by HUD:
    (1) The number of pre-1940 rental units occupied by poor households 
in 1980 as a percentage of the 1980 population of the community 
multiplied by a weight of 7.954. This census-based statistic applies to 
the county of the PHA, except that, if the PHA has 80% or more of its 
units in an incorporated city of more than 10,000 persons, it uses city-
specific data. County data will exclude data for any incorporated cities 
of more than 10,000 persons within its boundaries.
    (2) The Local Government Wage Rate multiplied by a weight of 
116.496. The wage rate used is a figure determined by the Bureau of 
Labor Statistics. It is a county-based statistic, calibrated to a unit-
weighted PHA standard of 1.0. For multi-county PHAs, the local 
government wage is unit-weighted. For this formula, the local government 
wage index for a specific county cannot be less than 85% or more than 
115% of the average local government wage for counties of comparable 
population and metro/non-metro status, on a state-by-state basis. In 
addition, for counties of more than 150,000 population in 1980, the 
local government wage cannot be less than 85% or more than 115% of the 
wage index of private employment determined by the Bureau of Labor 
Statistics and the rehabilitation cost index of labor and materials 
determined by the R.S. Means Construction Cost Index.
    (3) The lesser of the current number of the PHA's two or more 
bedroom units available for occupancy, or 15,000 units, multiplied by a 
weight of .002896.
    (4) The current ratio of the number of the PHA's two or more bedroom 
units available for occupancy in high-rise family projects to the number 
of all the PHA's units available for occupancy multiplied by a weight of 
37.294. For this indicator, a high-rise family project is defined as 
averaging 1.5 or more bedrooms per unit available for occupancy and 
averaging 35 or more units available for occupancy per building and 
containing at least one building with units available for occupancy that 
is 5 or more stories high.
    (5) The current ratio of the number of the PHA's three or more 
bedroom units available for occupancy to the number of all the PHA's 
units available for occupancy multiplied by a weight of 22.303.
    (6) An equation calibration constant of -.2344.
    (d) Computation of Allowable Expense Level (AEL). The PHA shall 
compute its Allowable Expense Level as follows:
    (1) AEL for first budget year of operating subsidy under this part 
where Base Year Expense Level does not exceed the top of the range. 
Every PHA whose Base Year Expense Level is less than the top of the 
range shall compute its AEL for the first budget year of operating 
subsidy under this part by adding the following to its Base Year Expense 
Level (before adjustments under Sec. 990.110):
    (i) Any increase approved by HUD in accordance with Sec. 990.110;
    (ii) The increase (decrease) between the Formula Expense Level for 
the Base Year and the Formula Expense Level for the first budget year of 
operating subsidy under this part; and
    (iii) The sum of the Base Year Expense Level, and any amounts 
described in paragraphs (d)(1) (i) and (ii) of this section multiplied 
by the Local Inflation Factor.
    (2) AEL for first budget year of operating subsidy under this part 
where Base Year Expense Level exceeds the top of the range. Every PHA 
whose Base Year Expense Level exceeds the top of the range shall compute 
its AEL for the first budget year of operating subsidy under this part 
by adding the following to the top of the range (not to its Base Year 
Expense Level, as in paragraph (d)(1) of this section):
    (i) The increase (decrease) between the Formula Expense Level for 
the Base Year and the Formula Expense Level for the first budget year of 
operating subsidy under this part;

[[Page 708]]

    (ii) The sum of the figure equal to the top of the range and the 
increase (decrease) described in paragraph (d)(2)(i) of this section, 
multiplied by the Local Inflation Factor. (If the Base Year Expense 
Level is above the AEL, computed as provided above, the PHA may be 
eligible for Transition Funding under Sec. 990.106.)
    (3) AEL for first budget year of operating subsidy under this part 
for a new project. A new project of a new PHA or a new project of an 
existing PHA that the PHA decides to place under a separate ACC, which 
did not have a sufficient number of units available for occupancy in the 
Base Year to have a level of operations representative of a full fiscal 
year of operation is considered to be a ``new project.'' The AEL for the 
first budget year of operating subsidy under this part for a ``new 
project'' will be based on the AEL for a comparable project, as 
determined by the HUD Field Office. The PHA may suggest a project or 
projects it believes to be comparable. In determining what constitutes a 
``new project'' under this paragraph, HUD will be guided by its public 
housing development regulations at 24 CFR part 941.
    (4) Adjustment of AEL for budget years after the first budget year 
of operating subsidy under this part. HUD may adjust the AEL of budget 
years after the first year of operating subsidy under this part, in 
accordance with the provisions of Sec. 990.105(b) or Sec. 990.108(c).
    (5) Allowable Expense Level for budget years after the first budget 
year of operating subsidy under this part. For each budget year after 
the first budget year of operating subsidy under this part, the AEL 
shall be computed as follows:
    (i) The AEL shall be increased by any increase to the AEL approved 
by HUD under Sec. 990.108(c).
    (ii) The AEL for the Current Budget Year also shall be adjusted as 
follows:
    (A) Increased by one-half of one percent (.5%); and
    (B) If the PHA has experienced a change in the number of units in 
excess of 5% or 1,000 units, whichever is less, since the last 
adjustment to the AEL based on this paragraph, it shall use the increase 
(decrease) between the Formula Expense Level calculated using the PHA's 
characteristics that applied to the Requested Year when the last 
adjustment to the AEL was made based on this paragraph and the Formula 
Expense Level calculated using the PHA's characteristics for the 
Requested Budget Year.
    (iii) The amount computed in accordance with paragraphs (d)(5)(i) 
and (ii) of this section shall be multiplied by the Local Inflation 
Factor.
    (6) Adjustment of AEL for budget years after the first budget year 
of operating subsidy under this part. HUD may adjust the AEL of budget 
years after the first year of operating subsidy under this part, in 
accordance with the provisions of Sec. 990.105(b) or Sec. 990.108(c).
    (e) Computation of FHA-based operating expense level (FHAEL) for 
application in FY 2001.--(1) HUD calculation of FHAEL. For every PHA 
that is eligible to receive operating subsidy under the Operating Fund 
Formula, HUD will calculate an FHAEL (based upon FY 2000 data and for 
application in FY 2001) as follows:
    (i) Step 1: Calculation of average national operating cost. HUD will 
calculate an FHA-based national average cost of operating a two-bedroom 
public housing unit, exclusive of utility costs and property taxes. The 
average national cost will be calculated using privately managed (FHA 
multifamily insured and/or assisted) rental housing financial data 
available to HUD for the most recent year of full reporting and adjusted 
to reflect a two-bedroom size by using Section 8 Fair Market Rent (FMR) 
relationships (i.e., increase or decrease the national average cost 
depending on whether the average cost-weighted bedroom size is greater 
or less than 2.0 bedrooms per unit). (See 24 CFR part 888 for additional 
information regarding FMRs.)
    (ii) Step 2: Adjustment of average national two-bedroom operating 
cost for local cost differences. HUD will adjust the average national 
two-bedroom operating cost for local cost differences using the location 
adjustment factors provided in the R.S. Means Residential Construction 
Costs Index.
    (iii) Step 3: Adjustment of average national operating cost for PHA-
specific bedroom-size distribution. For each PHA, HUD will further 
adjust the average

[[Page 709]]

national operating cost for the bedroom size distribution of the PHA 
using Section 8 FMR cost relationships (i.e., increase or decrease the 
average national cost depending on whether the average cost-weighted 
bedroom size for the PHA's inventory is greater or less than 2.0 
bedrooms per unit).
    (iv) Step 4: Update of PHA-specific average operating cost to 
reflect FY 2000 costs. HUD will update this PHA-specific operating cost 
to reflect increased FY 2000 operating costs by using the Public Housing 
AEL inflation factor.
    (2) Availability of FHAEL to PHA. HUD will make the following 
information available to each PHA:
    (i) FHAEL. The FHAEL for the PHA;
    (ii) PHA bedroom distribution. The PHA bedroom distribution used to 
make the PHA-specific bedroom adjustment under paragraph (e)(1)(iii) of 
this section; and
    (iii) Base average national cost. The two-bedroom base average 
national cost calculated under paragraph (e)(1)(i) of this section.
    (3) Use of FHAEL for FY 2000 for PHAs with less than 500 units under 
contract. Each PHA with less than 500 units shall review the FHAEL and 
bedroom distribution provided by HUD, and do the following:
    (i) The PHA will determine if the bedroom size distribution used by 
HUD was appropriate.--(A) Mandatory recalculation. If the bedroom size 
distribution calculated by the PHA produces a weighted average bedroom 
size that differs by more than .02 from the weighted average used by 
HUD, the PHA shall recalculate its FY 2000 FHAEL using the two-bedroom 
base average national operating cost provided by HUD.
    (B) Discretionary recalculation. If the bedroom size distribution 
calculated by the PHA produces a weighted average bedroom size that 
differs by less than .02 from the weighted average used by HUD, the PHA 
may recalculate its FY 2000 FHAEL using the two-bedroom base average 
national operating cost provided by HUD.
    (ii) Comparison of FHAEL to AEL. The PHA shall compare its FHAEL 
with its approved FY 2000 AEL.
    (iii) If the PHA has less than 250 units. PHAs with less than 250 
units shall use the higher of their current AEL or 85% of the FHAEL. 
However, in no case will the PHA use an amount that exceeds 120% of its 
FHAEL for purposes of FY 2001 subsidy determinations under the Operating 
Fund Formula (see paragraph (e)(3)(v) of this section).
    (iv) If the PHA has 250-499 units. PHAs with 250-499 units shall use 
the higher of their current AEL, or 70% of FHAEL. However, in no case 
will the PHA use an amount that exceeds 120% of its FHAEL for purposes 
of FY 2001 subsidy determinations under the Operating Fund Formula (see 
paragraph (e)(3)(v) of this section).
    (v) If the PHA with less than 500 units has an AEL greater than 120% 
of its FHAEL. If a PHA with less than 500 units has an FY 2000 AEL that 
is greater than 120% of its FHAEL, the PHA shall use 120% of its FHAEL 
in place of its actual FY 2000 AEL for purposes of FY 2001 subsidy 
determinations under the Operating Fund Formula.
    (4) Use of FHAEL for FY 2000 for PHAs with more than 500 units under 
contract. Each PHA with more than 500 units shall review the FHAEL and 
bedroom distribution provided by HUD and do the following:
    (i) The PHA shall determine if the bedroom size distribution used by 
HUD was appropriate.--(A) Mandatory recalculation. If the bedroom size 
distribution calculated by the PHA produces a weighted average bedroom 
size that differs by more than .02 from the weighted average used by 
HUD, the PHA shall recalculate its FY 2000 FHAEL using the two-bedroom 
base average national operating cost provided by HUD.
    (B) Discretionary recalculation. If the bedroom size distribution 
calculated by the PHA produces a weighted average bedroom size that 
differs by less than .02 from the weighted average used by HUD, the PHA 
may recalculate its FY 2000 FHAEL using the two-bedroom base average 
national operating cost provided by HUD.
    (ii) Comparison of FHAEL to AEL. The PHA shall compare its FHAEL 
with its approved FY 2000 AEL.
    (iii) If the PHA's FY 2000 AEL is less than or equal to 85% of its 
FHAEL. If the PHA's FY 2000 AEL is less than or equal to 85% of its 
FHAEL, the PHA

[[Page 710]]

shall use its FY 2000 AEL for purposes of FY 2001 subsidy determinations 
under the Operating Fund Formula.
    (iv) If the PHA's FY 2000 AEL is greater than 85% of its FHAEL. If 
the PHA's FY 2000 AEL is greater than 85% of its FHAEL, the PHA shall 
use 98.64% of its FY 2000 AEL for purposes of calculating its FY 2001 
subsidy determinations under the Operating Fund Formula.
    (v) Inapplicability of AEL reduction to certain PHAs. The AEL 
reduction described in paragraph (e)(4)(iv) of this section does not 
apply to the PHAs of the Virgin Islands, Puerto Rico, Guam and Alaska. 
These PHAs will use their FY 2000 AELs for purposes of FY 2001 subsidy 
determinations, regardless of whether the PHA's AEL is greater than 85% 
of its FHAEL.
    (vi) Cap on AEL value reduction. In no instance shall a PHA subject 
to an AEL reduction, reduce the FY 2000 AEL value used in calculating 
its FY 2001 AEL for purposes of operating subsidy determinations to a 
value less than 85% of its FHAEL.
    (f) Flood insurance adjustment for FY 2001. To simplify the 
calculation of operating subsidy, the AEL computation for the PHA's 
fiscal year beginning in 2001 will include an additional step following 
the determination made in accordance with paragraphs (a) through (e) of 
this section: the AEL per unit month derived in accordance with those 
paragraphs is to be adjusted by adding the flood insurance charge per 
unit month, as reflected in the last HUD approved subsidy calculation 
for FY 2000. This adjustment is a one-time permanent adjustment made 
only in FY 2001. However, if the flood map is revised at a future date, 
HUD will adjust the AEL for the affected PHAs in accordance with this 
paragraph.



Sec. 990.106  Transition funding for excessively high-cost PHAs.

    (a) Eligibility. If a PHA's Base Year Expense Level exceeds its AEL 
for any budget year under the Operating Fund Formula, the PHA may be 
eligible for Transition Funding.
    (b) Amounts. Transition Funding shall be an amount not to exceed the 
difference between the Base Year Expense Level and the AEL for the 
Requested Budget Year, multiplied by the number of Unit Months 
Available.
    (c) Reduction in transition funding. HUD shall have the right to 
discontinue payment of all or part of the Transition Funding in the 
event HUD at any time determines that the PHA has not achieved a 
satisfactory level of management efficiency, or is not making efforts 
satisfactory to HUD to improve its management performance.



Sec. 990.107  Computation of utilities expense level.

    (a) Computation of the utilities expense level. The PHA's Utilities 
Expense Level for the requested Budget Year shall be computed by 
multiplying the Allowable Utilities Consumption Level (AUCL) per unit 
per month for each utility, determined as provided in paragraph (c) of 
this section, by the projected utility rate determined as provided in 
paragraph (b) of this section.
    (b) Utilities rates. (1) The current applicable rates, with 
consideration of adjustments and pass-throughs, in effect at the time 
the Operating Budget is submitted to HUD will be used as the utilities 
rates for the Requested Budget Year, except that, when the appropriate 
utility commission has, prior to the date of submission of the Operating 
Budget to HUD, approved and published rate changes to be applicable 
during the Requested Budget Year, the future approved rates may be used 
as the utilities rates for the entire Requested Budget Year.
    (2) If a PHA takes action, such as wellhead purchase of natural gas, 
or administrative appeals or legal action beyond normal public 
participation in rate-making proceedings to reduce the rate it pays for 
utilities (including water, fuel oil, electricity, and gas), then the 
PHA will be permitted to retain one-half of the cost savings during the 
first 12 months attributable to its actions. Upon determination that the 
action was cost-effective in the first year, the PHA may be permitted to 
retain one-half the annual cost savings, if the actions continue to be 
cost-effective. See also paragraph (e) of this section and Sec. 
990.110(b).

[[Page 711]]

    (c) Computation of Allowable Utilities Consumption Level. The 
Allowable Utilities Consumption Level used to compute the Utilities 
Expense Level of PHAs for the Requested Budget Year generally will be 
based on the availability of consumption data. For project utilities 
where consumption data are available for the entire Rolling Base Period, 
the computation will be in accordance with paragraph (c)(1) of this 
section. Where data are not available for the entire period, the 
computation will be in accordance with paragraph (c)(2) of this section, 
unless the project is a new project, in which case the computation will 
be in accordance with paragraph (c)(3) of this section. For a project 
where the PHA has taken special energy conservation measures that 
qualify for special treatment in accordance with paragraph (f)(1) of 
this section, the computation of the Allowable Utilities Consumption 
Level may be made in accordance with paragraph (c)(4) of this section. 
The AUCL for all of a PHA's projects is the sum of the amounts 
determined using all of these subparagraphs, as appropriate.
    (1) Rolling Base Period System. (i) For project utilities with 
consumption data for the entire Rolling Base Period, the AUCL is the 
average amount consumed per unit per month during the Rolling Base 
Period adjusted in accordance with paragraph (d) of this section. The 
PHA shall determine the average amount of each of the utilities consumed 
during the Rolling Base period (i.e., the 36-month period ending 12 
months prior to the first day of the Requested Budget Year).
    (ii) An example of a rolling base is as follows:

------------------------------------------------------------------------
       PHA fiscal year (affected fiscal year)        Rolling base period
------------------------------------------------------------------------
           Beginning                   Ending         Begins     Ends
------------------------------------------------------------------------
 1-1-01........................  12-31-01 (1st        1-1-97    12-31-99
                                  year).
1-1-02.........................  12-31-02 (2nd        1-1-98    12-31-00
                                  year).
------------------------------------------------------------------------

    (2) Alternative method where data is not available for the entire 
Rolling Base Period. (i) If the PHA has not maintained or cannot 
recapture consumption data regarding a particular utility from its 
records for the whole Rolling Base Period mentioned in paragraph (c)(1) 
of this section, it shall submit consumption data for that utility for 
the last 24 months of its Rolling Base Period to the HUD Field Office 
for approval. If this is not possible, it shall submit consumption data 
for the last 12 months of its Rolling Base Period. The PHA also shall 
submit a written explanation of the reasons that data for the whole 
Rolling Base Period is unavailable.
    (ii) In those cases where a PHA has not maintained or cannot 
recapture consumption data for a utility for the entire Rolling Base 
Period, comparable consumption for the greatest of either 36, 24, or 12 
months, as needed, shall be used for the utility for which the data is 
lacking. The comparable consumption shall be estimated based upon the 
consumption experienced during the Rolling Base Period of comparable 
project(s) with comparable utility delivery systems and occupancy. The 
use of actual and comparable consumption by each PHA, other than those 
PHAs defined as New Projects in paragraph (c)(3) of this section, will 
be determined by the availability of complete data for the entire 36-
month Rolling Base Period. Appropriate utility consumption records, 
satisfactory to HUD, shall be developed and maintained by all PHAs so 
that a 36-month rolling average utility consumption per unit per month 
under paragraph (c)(1) of this section can be determined.
    (iii) If a PHA cannot develop the consumption data for the Rolling 
Base Period or for 12 or 24 months of the Rolling Base Period, either 
from its own project(s) data, or by using comparable consumption data 
the actual per unit per month (PUM) utility expenses stated in paragraph 
(d) of this section shall be used as the Utilities Expense Level.
    (3) Computation of Allowable Utilities Consumption Levels for New 
Projects. (i) A New Project, for the purpose of establishing the Rolling 
Base Period and the Utilities Expense Level, is defined as either:
    (A) A project which had not been in operation during at least 12 
months of the Rolling Base Period, or a project which enters management 
after the Rolling Base Period and prior to the end of the Requested 
Budget Year; or

[[Page 712]]

    (B) A project which during or after the Rolling Base Period, has 
experienced conversion from one energy source to another; interruptable 
service; deprogrammed units; a switch from resident-purchased to PHA-
supplied utilities; or a switch from PHA-supplied to resident-purchased 
utilities.
    (ii) The actual consumption for New Projects shall be determined so 
as not to distort the Rolling Base Period in accordance with a method 
prescribed by HUD.
    (4) Freezing the Allowable Utilities Consumption Level. (i) 
Notwithstanding the provisions of paragraphs (c)(1) and (c)(2) of this 
section, if a PHA undertakes energy conservation measures that are 
approved by HUD under paragraph (f) of this section, the Allowable 
Utilities Consumption Level for the project and the utilities involved 
may be frozen during the contract period. Before the AUCL is frozen, it 
must be adjusted to reflect any energy savings resulting from the use of 
any HUD funding. The AUCL is then frozen at the level calculated for the 
year during which the conservation measures initially will be 
implemented, as determined in accordance with paragraph (f) of this 
section.
    (ii) If the AUCL is frozen during the contract period, the annual 
three-year rolling base procedures for computing the AUCL shall be 
reactivated after the PHA satisfies the conditions of the contract. The 
three years of consumption data to be used in calculating the AUCL after 
the end of the contract period will be as follows:
    (A)  First year: The energy consumption during the year before the 
year in which the contract ended and the energy consumption for each of 
the two years before installation of the energy conservation 
improvements;
    (B) Second year: The energy consumption during the year the contract 
ended, energy consumption during the year before the contract ended, and 
energy consumption during the year before installation of the energy 
conservation improvements;
    (C) Third year: The energy consumption during the year after the 
contract ended, energy consumption during the year the contract ended, 
and energy consumption during the year before the contract ended.
    (d) Utilities expense level where consumption data for the full 
Rolling Base Period is unavailable. If a PHA does not obtain the 
consumption data for the entire Rolling Base Period, or for 12 or 24 
months of the Rolling Base Period, either for its own project(s) or by 
using comparable consumption data as required in paragraph (c)(2) of 
this section, it shall request HUD Field Office approval to use actual 
PUM utility expenses. These expenses shall exclude Utilities Labor and 
Other Utilities Expenses. The actual PUM utility expenses shall be taken 
from the year-end Statement of Operating Receipts and Expenditures, Form 
HUD-52599, (Office of Management and Budget approval number 2577-0067) 
prepared for the PHA fiscal year which ended 12 months prior to the 
beginning of the PHA Requested Budget Year (e.g., for a PHA fiscal year 
beginning January 1, 2001, the PHA would use data from the fiscal year 
ended December 31, 1999). Subsequent adjustments will not be approved 
for a budget year for which the utility expense level is established 
based upon actual PUM utility expenses.
    (e) Adjustments. PHAs shall request adjustments of Utilities Expense 
Levels in accordance with Sec. 990.110(b), which requires an adjustment 
based upon a comparison between actual experience and estimates of 
consumption and of utility rates.
    (f) Incentives for energy conservation improvements. If a PHA 
undertakes energy conservation measures (including those covering water, 
fuel oil, electricity, and gas) that are financed by an entity other 
than the Secretary, such as physical improvements financed by a loan 
from a utility or governmental entity, management of costs under a 
performance contract, or a shared savings agreement with a private 
energy service company, the PHA may qualify for one of the two possible 
incentives under this part. For a PHA to qualify for these incentives, 
HUD approval must be obtained. Approval will be based upon a 
determination that payments under the contract can

[[Page 713]]

be funded from the reasonably anticipated energy cost savings, and the 
contract period does not exceed 12 years.
    (1) If the contract allows the PHA's payments to be dependent on the 
cost savings it realizes, the PHA must use at least 50% of the cost 
savings to pay the contractor. With this type of contract, the PHA may 
take advantage of a frozen AUCL under paragraph (c)(4) of this section, 
and it may use the full amount of the cost savings, as described in 
Sec. 990.110(b)(2)(ii).
    (2) If the contract does not allow the PHA's payments to be 
dependent on the cost savings it realizes, then the AUCL will continue 
to be calculated in accordance with paragraphs (c)(1) through (c)(3) of 
this section, as appropriate; the PHA will be able to retain part of the 
cost savings, in accordance with Sec. 990.110(b)(2)(i); and the PHA 
will qualify for additional operating subsidy eligibility (above the 
amount based on the allowable expense level) to cover the cost of 
amortizing the cost of the energy conservation measures during the term 
of the contract, in accordance with Sec. 990.110(c).



Sec. 990.108  Other costs.

    (a) Cost of independent audits. (1) Eligibility to receive operating 
subsidy for independent audits is considered separately from the 
Operating Fund Formula. However, the PHA shall not request, nor will HUD 
approve, an operating subsidy for the cost of an independent audit if 
the audit has already been funded by subsidy in a prior year.
    (2) A PHA that is required by the Single Audit Act (31 U.S.C. 7501-
7507) (see 24 CFR part 85) to conduct a regular independent audit may 
receive operating subsidy to cover the cost of the audit. The actual 
cost of an independent audit, applicable to the operations of PHA-owned 
rental housing, is not included in the Allowable Expense Level, but it 
is allowed in full in computing the amount of operating subsidy under 
Sec. 990.104, above.
    (3) A PHA that is exempt from the audit requirements under the 
Single Audit Act (24 CFR part 85) may receive operating subsidy to 
offset the actual cost of an independent audit chargeable to operations 
(after the End of the Initial Operating Period) if the PHA chooses to 
have an audit.
    (b)(1) Costs attributable to units that are approved for 
deprogramming and vacant may be eligible for inclusion, but must be 
limited to the minimum services and protection necessary to protect and 
preserve the units until the units are deprogrammed. Costs attributable 
to units temporarily unavailable for occupancy because the units are 
utilized for PHA-related activities are not eligible for inclusion. In 
determining operating subsidy calculations under the Operating Fund 
Formula, these units shall not be included in the calculation of Unit 
Months Available. Units approved for deprogramming shall be listed by 
the PHA, and supporting documentation regarding direct costs 
attributable to such units shall be included as a part of the Operating 
Fund Formula calculation in which the PHA requests operating subsidy for 
these units. If the PHA requires assistance in this matter, the PHA 
should contact the HUD Field Office.
    (2) Units approved for nondwelling use to promote economic self-
sufficiency services and anti-drug activities are eligible for operating 
subsidy under the conditions provided in this paragraph (b)(2), and the 
costs attributable to these units are to be included in the operating 
budget. If a unit satisfies the conditions stated in paragraphs 
(b)(2)(i) through (v) of this section, it will be eligible for subsidy 
at the rate of the AEL for the number of months the unit is devoted to 
such use. Approval will be given for a period of no more than 3 years. 
HUD may renew the approval to allow payments after that period only if 
the PHA can demonstrate that no other sources for paying the non-utility 
operating costs of the unit are available. The conditions the unit must 
satisfy are:
    (i) The unit must be used for either economic self-sufficiency 
activities directly related to maximizing the number of employed 
residents or for anti-drug programs directly related to ridding the 
development of illegal drugs and drug-related crime. The activities must 
be directed toward and for the benefit of residents of the development.

[[Page 714]]

    (ii) The PHA must demonstrate that space for the service or program 
is not available elsewhere in the locality and that the space used is 
safe and suitable for its intended use or that the resources are 
committed to make the space safe and suitable.
    (iii) The PHA must demonstrate satisfactorily that other funding is 
not available to pay for the non-utility operating costs. All rental 
income generated as a result of the activity must be reported as income 
in the operating subsidy calculation.
    (iv) Operating subsidy may be approved for only one site (involving 
one or more contiguous units) per public housing development for 
economic self-sufficiency services or anti-drug programs, and the number 
of units involved should be the minimum necessary to support the service 
or program. Operating subsidy for any additional sites per development 
can only be approved by HUD Headquarters.
    (v) The PHA must submit a certification with its Operating Fund 
Formula Calculation that the units are being used for the purpose for 
which they were approved and that any rental income generated as a 
result of the activity is reported as income in the operating subsidy 
calculation. The PHA must maintain specific documentation of the units 
covered. Such documentation should include a listing of the units, the 
street addresses, and project/management control numbers.
    (3) Long-term vacant units that are not included in the calculation 
of Unit Months Available are eligible for operating subsidy in the 
Requested Budget Year at the rate of 20% of the AEL. Allowable utility 
costs for long term vacant units will continue to be funded in 
accordance with Sec. 990.107.
    (c) Costs attributable to changes in Federal law or regulation. In 
the event that HUD determines that enactment of a Federal law or 
revision in HUD or other Federal regulation has caused or will cause a 
significant increase in expenditures of a continuing nature above the 
Allowable Expense Level and Utilities Expense Level, HUD may in HUD's 
sole discretion decide to prescribe a procedure under which the PHA may 
apply for or may receive an increase in operating subsidy.
    (d)(1) Costs resulting from combination of two or more units. When a 
PHA redesigns or rehabilitates a project and combines two or more units 
into one larger unit and the combination of units results in a unit that 
houses at least the same number of people as were previously served, the 
AEL for the requested year shall be multiplied by the number of unit 
months not included in the requested year's unit months available as a 
result of these combinations that have occurred since the Base Year. The 
number of people served in a unit will be based on the formula ((2 x No. 
of Bedrooms) minus 1), which yields the average number of people that 
would be served. An efficiency unit will be counted as a one bedroom 
unit for purposes of this calculation.
    (2) An exception to paragraph (d)(1) of this section is made when a 
PHA combines two efficiency units into a one-bedroom unit. In these 
cases, the AEL for the requested year shall be multiplied by the number 
of unit months not included in the requested year's unit months 
available as a result of these combinations that have occurred since the 
Base Year.
    (e) Funding for resident participation activities.--(1) Funding 
amount. Each PHA shall include in the operating subsidy eligibility 
calculation, $25 per occupied unit per year for resident participation 
activities, including (but not limited to) those described in part 964 
of this title. For purposes of this section, a unit may be occupied by a 
public housing resident, a PHA employee, or a police officer. If, in any 
fiscal year, appropriations are not sufficient to meet all funding 
requirements under this part, then the $25 will be subject to pro-
ration.
    (2) Use of vacant rental units. If there is no community or rental 
space available for providing resident participation activities, HUD may 
approve, at the request of the PHA, the use of one or more vacant rental 
units for resident participation purposes. A unit that satisfies the 
following conditions will be eligible for operating subsidy at the rate 
of the AEL for the number of months the unit is devoted to such use:
    (i) The PHA must demonstrate that safe and suitable space for the 
resident

[[Page 715]]

participation activities is not otherwise readily available;
    (ii) One or more contiguous units may be used for resident 
participation activities. However, the units must be located on a single 
site per public housing development. Further, the number of units 
involved must be the minimum necessary to support the resident 
participation activities;
    (iii) The PHA must submit a certification with its Operating Fund 
Formula calculation that the units are being used for the purpose for 
which they were approved and that any rental income generated as a 
result of the activity is reported as income in the operating subsidy 
calculation; and
    (iv) The PHA must maintain specific documentation of the units 
covered. Such documentation must include a listing of the units, the 
street addresses, and project/management control numbers.



Sec. 990.109  Projected operating income level.

    (a) Policy. The Operating Fund Formula determines the amount of 
operating subsidy for a particular PHA based in part upon a projection 
of the actual dwelling rental income and other income for the particular 
PHA. The projection of dwelling rental income is obtained by computing 
the average monthly dwelling rental charge per unit for the PHA, and 
applying an upward trend factor (subject to updating). This amount is 
then multiplied by the Projected Occupancy Percentage for the Requested 
Budget Year. There are special provisions for projection of dwelling 
rental income for new projects.
    (b) Computation of projected average monthly dwelling rental 
income.--(1) General. The projected average monthly dwelling rental 
income per unit for the PHA is calculated as follows:
    (i) Step 1: Calculation of the current year and three year averages. 
The PHA calculates:
    (A) The average monthly dwelling rental charge per unit for the 
current budget year (the ``current year average'' calculated in 
accordance with paragraph (b)(2) of this section); and
    (B) The average monthly dwelling rental charge per unit for the 
current budget year and the immediate past two budget years (the ``three 
year average'' calculated in accordance with paragraph (b)(3) of this 
section).
    (ii) Step 2: Adjustment for any increase in dwelling rental income. 
If the current year average is greater than the three year average, the 
PHA has increased dwelling rental income. If a PHA has increased 
dwelling rental income, it shall perform the following calculation. The 
PHA shall:
    (A) Subtract the three year average from the current year average;
    (B) Divide the result by 2; and
    (C) Add this sum to the three year average.
    (iii) Step 3: Calculating the amount of increased rental revenue 
that may be retained. PHAs shall be allowed to retain 50% of any 
increases in dwelling rental income, so long as the PHA uses the 
increased revenue for the provision of resident-related improvements and 
services as described in Sec. 990.116. The retained income will not be 
recognized in the PHA's calculation under the Operating Fund Formula. 
The annual amount of increased revenue retained by the PHA is calculated 
by subtracting the three year average from the current year average, 
dividing the result by two, and multiplying the result by the projected 
occupancy percentage (see Sec. 990.109(b)(6)), and the unit months 
available (see Sec. 990.102).
    (iv) Step 4: Applying the rental income adjustment factor. The lower 
of the amount calculated under paragraph (b)(i)(A) or (b)(ii) of this 
section is then adjusted by the dwelling rental income adjustment factor 
described in paragraph (b)(5) of this section.
    (2) Average monthly dwelling rental charge per unit. (i) The average 
monthly dwelling rental charge per unit shall be computed using the 
total dwelling rental charges for all Project Units, as shown on the 
Tenant Rent Rolls which the PHA is required to maintain, for the first 
day of the month which is six months before the first day of the 
Requested Budget Year. However, if a change in the total of the Rent 
Rolls has occurred in a subsequent month which is before the beginning 
of the Requested Budget Year, and before the submission of the Requested 
Budget Year calculation of operating subsidy

[[Page 716]]

eligibility, the PHA may use the latest changed Rent Roll for the 
purpose of the computation.
    (ii) This aggregate dollar amount shall be divided by the number of 
occupied dwelling units as of the same date.
    (iii) The Rent Roll used for calculating the projected operating 
income level will not reflect decreases resulting from the PHA's 
implementation of an optional earned income exclusion authorized by the 
explanation of ``annual income'' in 24 CFR 5.609.
    (3) Three year average monthly dwelling rental charge per unit. The 
three year average monthly dwelling rental charge shall be computed by 
averaging the amounts calculated under paragraph (b)(2) of this section 
for the current budget year and the immediate past two budget years.
    (4) Changes in supply of utilities. The PHA must adjust the rent 
rolls used for purposes of the calculations described in paragraphs 
(b)(2) and (b)(3) of this section to reflect any change from PHA-paid 
utilities to resident-paid utilities, or vice versa, between the rent 
roll date and the projected budget year.
    (5) Dwelling rental income adjustment factor. An adjustment factor 
will be applied to the calculations described in paragraphs (b)(2) and 
(b)(3) of this section. In FY 2001, the inflation factor will be 3%. In 
subsequent years, the average monthly dwelling rental charge per unit 
will be increased for inflation using a HUD supplied adjustment factor 
for the requested budget year to obtain the projected average monthly 
dwelling rental charge per unit of the PHA for the Requested Budget 
Year.
    (6) Projected occupancy percentage. The PHA shall determine its 
projected percentage of occupancy for all Project Units (Projected 
Occupancy Percentage), as follows:
    (i) General. Using actual occupancy data collected before the start 
of the budget year as a beginning point, the PHA will develop estimates 
for its Requested Budget Year (RBY) of: How many units the PHA will have 
available for occupancy; how many of the available units will be 
occupied and how many will be vacant, and what the average occupancy 
percentage will be for the RBY. The conditions under which the RBY 
occupancy percentage will be used as the projected occupancy percentage 
for purposes of determining operating subsidy eligibility are described 
below.
    (ii) High Occupancy PHA--No adjustments necessary. If the PHA's RBY 
Occupancy Percentage, calculated in accordance with Sec. 990.117, is 
equal to or greater than 97%, the PHA's Projected Occupancy Percentage 
is 97%. If the PHA's RBY Occupancy Percentage is less than 97%, but the 
PHA demonstrates that it will have an average of five or fewer vacant 
units in the requested budget year, the PHA will use its RBY Occupancy 
Percentage as its projected occupancy percentage.
    (iii) Adjustments in determining occupancy. If the PHA's RBY 
Occupancy Percentage is less than 97% and the PHA has more than 5 vacant 
units, the PHA will adjust its estimate of vacant units to exclude 
vacant units undergoing modernization and units that are vacant due to 
circumstances and actions beyond the PHA's control. After making this 
adjustment, the PHA will recalculate its estimated vacancy percentage 
for the RBY.
    (A) High Occupancy PHA after adjustment. If the recalculated vacancy 
percentage is 3% or less (or the PHA would have five or fewer vacant 
units), the PHA will use its RBY Occupancy Percentage as its projected 
occupancy percentage.
    (B) Low Occupancy PHA--adjustment for long-term vacancies. If the 
recalculated vacancy percentage is greater than 3% (or the PHA would 
have more than 5 vacant units), the PHA will then further adjust its RBY 
Occupancy Percentage by excluding from its calculation of Unit Months 
Available (UMAs), those unit months attributable to units that have been 
vacant for longer than 12 months that are not vacant units undergoing 
modernization or are not units vacant due to circumstances and actions 
beyond the PHA's control.
    (iv) Low Occupancy PHA after all adjustments. A PHA that has 
determined its RBY Occupancy Percentage in accordance with paragraph 
(b)(6)(iii)(B) of this section will be eligible for operating subsidy as 
follows:
    (A) Long-term vacancies removed from the calculation of UMAs will be

[[Page 717]]

eligible to receive a reduced operating subsidy calculated at 20% of the 
PHA's AEL.
    (B) If the recalculated RBY Occupancy Percentage is 97% or higher, 
the PHA will use 97%.
    (C) If the recalculated RBY Occupancy Percentage is less than 97%, 
but the vacancy rate after adjusting for vacant units undergoing 
modernization and units that are vacant due to circumstances and actions 
beyond the PHA's control is 3% or less (or the PHA has five or fewer 
vacant units), the PHA may use its recalculated RBY Occupancy Percentage 
as its projected occupancy percentage.
    (D) If the recalculated RBY Occupancy Percentage is less than 97% 
and the vacancy percentage is greater than 3% (or the PHA has more than 
five vacant units) after adjusting for vacant units undergoing 
modernization and units that are vacant due to circumstances and actions 
beyond the PHA's control, the PHA will use 97% as its projected 
occupancy percentage, but will be allowed to adjust the 97% by the 
number of vacant units undergoing modernization and units that are 
vacant due to circumstances and actions beyond the PHA's control. For a 
small PHA using five vacant units as its occupancy objective for the 
RBY, the PHA will determine what percentage five units represents as a 
portion of its units available for occupancy and subtract that 
percentage from 100%. The result will be used as the PHA's projected 
occupancy percentage, but the PHA will be allowed to adjust the 
projected occupancy percentage by vacant units undergoing modernization 
and units that are vacant for circumstances and actions beyond the PHA's 
control.
    (c) Projected average monthly dwelling rental charge per unit for 
new Projects. The projected average monthly dwelling rental charge for 
new Projects which were not available for occupancy during the budget 
year prior to the Requested Budget Year and which will reach the End of 
the Initial Operating Period (EIOP) within the first nine months of the 
Requested Budget Year, shall be calculated as follows:
    (1) If the PHA has another Project or Projects under management 
which are comparable in terms of elderly and nonelderly resident 
composition, the PHA shall use the projected average monthly dwelling 
rental charge for such Project or Projects.
    (2) If the PHA has no other Projects which are comparable in terms 
of elderly and nonelderly resident composition, the HUD Field Office 
will provide the projected average monthly dwelling rental charge for 
such Project or Projects, based on comparable Projects located in the 
area.
    (d) Estimate of additional dwelling rental income. After 
implementation of the provisions of any legislation enacted or any HUD 
administrative action taken subsequent to the effective date of these 
regulations, which affects rents paid by residents of Projects, HUD may 
adjust the projected average monthly dwelling rental charge per unit to 
reflect such change. HUD also shall have complete discretion to reduce 
or increase the operating subsidy approved for the PHA current fiscal 
year in an amount equivalent to the change in the rental income.
    (e) PHA's estimate of other income. All PHAs shall estimate Other 
Income based on past experience and a reasonable projection for the 
Requested Budget Year, which estimate shall be subject to HUD approval. 
The estimated total amount of Other Income, as approved, shall be 
divided by the number of Unit Months Available to obtain a per unit per 
month amount.
    (f) Projected operating income level. The projected average dwelling 
rental income per unit (calculated under paragraphs (b), (c), and (d) of 
this section) shall be added to the estimated Other Income (calculated 
under paragraph (e) of this section) to obtain the Projected Operating 
Income Level. This amount shall not be subject to the provisions 
regarding program income in 24 CFR 85.25.



Sec. 990.110  Adjustments.

    Adjustment information submitted to HUD under this section must be 
accompanied by an original or revised calculation of operating subsidy 
eligibility.
    (a) Adjustment of base year expense level.--(1) Eligibility. A PHA 
with projects that have been in management

[[Page 718]]

for at least one full fiscal year, for which operating subsidy is being 
requested under the Operating Fund Formula for the first time, may, 
during its first budget year under the Operating Fund Formula, request 
HUD to increase its Base Year Expense Level. Included in this category 
are existing PHAs requesting subsidy for a project or projects in 
operation at least one full fiscal year under separate ACC, for which 
operating subsidy has never been paid, except for independent audit 
costs. This request may be granted by HUD, in its discretion, only where 
the PHA establishes to HUD's satisfaction that the Base Year Expense 
Level computed under Sec. 990.105(a) will result in operating subsidy 
at a level insufficient to support a reasonable level of essential 
services. The approved increase cannot exceed the lesser of the per unit 
per month amount by which the top of the Range exceeds the Base Year 
Expense Level.
    (2) Procedure. A PHA that is eligible for an adjustment under 
paragraph (a)(1) of this section may only make a request for such 
adjustment once for projects under a particular ACC, at the time it 
submits the calculation of operating subsidy eligibility for the first 
budget year under the Operating Fund Formula. Such request shall be 
submitted to the HUD Field Office, which will review, modify as 
necessary, and approve or disapprove the request. A request under this 
paragraph must include a calculation of the amount per unit per month of 
requested increase in the Base Year Expense Level, and must show the 
requested increase as a percentage of the Base Year Expense Level.
    (b) Adjustments to Utilities Expense Level. A PHA receiving 
operating subsidy under Sec. 990.104, excluding those PHAs that receive 
operating subsidy solely for independent audit (Sec. 990.108(a)), must 
submit an adjustment regarding the Utility Expense Level approved for 
operating subsidy eligibility purposes. This adjustment, which will 
compare the actual utility expense and consumption for the PHA fiscal 
year to the estimates used for subsidy eligibility purposes, shall be 
submitted on forms prescribed by HUD. This adjustment, applicable to PHA 
fiscal years beginning on or after January 1, 1999, shall be submitted 
to the HUD Field Office within 45 days after the close of the PHA fiscal 
year that is being adjusted. Failure to submit the required adjustment 
of the Utilities Expense Level by the due date may, in the discretion of 
HUD, result in the withholding of approval of future obligation of 
operating subsidies and/or a delay in the recognition of the adjustment. 
Adjustments under this section normally will be made in the operating 
subsidy calculation for the second PHA fiscal year following the year 
being adjusted, unless a repayment plan is necessary as noted in 
paragraph (d) of this section.
    (1) Rates. A change in the Utilities Expense Level because of 
changes in utility rates--to the extent funded by the operating 
subsidy--will result in an adjustment of future operating subsidy 
payments. However, where the rate reduction covering utilities, such as 
water, fuel oil, electricity, and gas, is directly attributable to 
action by the PHA, such as wellhead purchase of natural gas, or 
administrative appeals or legal action beyond normal public 
participation in rate-making proceedings, then the PHA will be permitted 
to retain one-half of the cost savings attributable to its actions for 
the first year and, upon determination that the action was cost-
effective in the first year, for as long as the actions continue to be 
cost-effective, and the other one-half of the cost savings will be 
deducted from operating subsidy otherwise payable.
    (2) Consumption. (i) Generally, 75% of any decrease in the Utilities 
Expense Level attributable to decreased consumption after adjustment for 
any utility rate change, will be retained by the PHA; 25% will be offset 
by HUD against subsequent payment of operating subsidy.
    (ii) However, in the case of a PHA whose energy conservation 
measures have been approved by HUD as satisfying the requirements of 
Sec. 990.107(f)(1) (regarding non-HUD financed incentives for energy 
conservation improvements), the PHA operating fund eligibility shall 
reflect the retention of 100% of the savings from decreased consumption 
after payment of the amount

[[Page 719]]

due the contractor until the term of the financing agreement is 
completed. The decreased consumption is to be determined by adjusting 
for any utility rate changes and may be adjusted, subject to HUD 
approval, using a heating degree day adjustment for space heating 
utilities. The savings realized must be applied in the following order:
    (A) Retention of up to 50% of the total savings from decreased 
consumption to cover training of PHA employees, counseling of residents, 
PHA management of the cost reduction program and any other eligible 
costs; and
    (B) Prepayment of the amount due the contractor under the contract.
    (iii) 25% of an increase in the Utilities Expense Level attributable 
to increased consumption, after adjustment for any utility rate change, 
will be reflected in the operating subsidy eligibility for the second 
PHA fiscal year following the year being adjusted, in accordance with 
Sec. 990.111.
    (iv) PHAs are encouraged to:
    (A) Provide conservation incentives and training to residents in 
order to realize increased utility savings;
    (B) Share information with residents regarding changes in utility 
costs related to rate changes and to changes in consumption; and
    (C) Explain to residents conservation benefits and impacts of excess 
consumption on the operating budget.
    (3) Documentation. Supporting documentation substantiating the 
requested adjustments shall be retained by the PHA pending HUD audit.
    (c) Energy conservation financing. If HUD has approved an energy 
conservation contract under Sec. 990.107(f)(2), then the PHA is 
eligible for additional operating subsidy each year of the contract to 
amortize the cost of the energy conservation measures under the 
contract, subject to a maximum annual limit equal to the cost savings 
for that year and a maximum contract period of 12 years.
    (1) Each year, the energy cost savings would be determined as 
follows:
    (i) The consumption level that would have been expected if the 
energy conservation measure had not been undertaken would be adjusted 
for any change in utility rate and may be adjusted, subject to HUD 
approval, using a heating degree day adjustment for space heating 
utilities;
    (ii) The actual cost of energy (of the type affected by the energy 
conservation measure) after implementation of the energy conservation 
measure would be subtracted from the expected energy cost, to produce 
the energy cost savings for the year. (See also paragraph (b)(2)(i) of 
this section for retention of consumption savings.)
    (2) If the cost savings for any year during the contract period is 
less than the amount of operating subsidy to be made available under 
this paragraph (c) to pay for the energy conservation measure in that 
year, the deficiency will be offset against the PHA's operating subsidy 
eligibility for the PHA's next fiscal year.
    (3) If energy cost savings are less than the amount necessary to 
meet amortization payments specified in a contract, the contract term 
may be extended (up to the 12-year limit) if HUD determines that the 
shortfall is the result of changed circumstances rather than a 
miscalculation or misrepresentation of projected energy savings by the 
contractor or PHA. The contract term may only be extended to accommodate 
payment to the contractor and associated direct costs.
    (d) Additional HUD-initiated adjustments. Notwithstanding any other 
provisions of this subpart, HUD may at any time make an upward or 
downward adjustment in the amount of the PHA's operating subsidy as a 
result of data subsequently available to HUD which alters projections 
upon which the approved operating subsidy was based. If a downward 
adjustment would cause a severe financial hardship on the PHA, the HUD 
Field Office may establish a recovery schedule which represents the 
minimum number of years needed for repayment.



Sec. 990.111  Submission and approval of operating subsidy calculations 
and budgets.

    (a) Required documentation. (1) Prior to the beginning of its fiscal 
year, the PHA shall prepare an operating budget in a manner prescribed 
by HUD. The Board of Commissioners shall review and approve the budget 
by resolution. Each fiscal year, the PHA shall submit

[[Page 720]]

to the HUD Field Office, in a time and manner prescribed by HUD, the 
approved board resolution and the required operating subsidy eligibility 
calculation forms. The PHA shall submit revised calculations in support 
of any adjustments based on procedures prescribed by HUD.
    (2) HUD may direct the PHA to submit its complete operating budget 
if the PHA has failed to achieve certain specified operating standards, 
or for other reasons which in HUD's determination threaten the PHA's 
future serviceability, efficiency, economy, or stability.
    (b) HUD operating budget review. (1) The HUD Field Office will 
perform a detailed review on operating budgets that are subject to HUD 
review and approval. If the HUD Field Office finds that an operating 
budget is incomplete, includes illegal or ineligible expenditures, 
mathematical errors, errors in the application of accounting procedures, 
or is otherwise unacceptable, the HUD Field Office may at any time 
require the submission by the PHA of further information regarding an 
operating budget or operating budget revision.
    (2) When the PHA no longer is operating in a manner that threatens 
the future serviceability, efficiency, economy, or stability of the 
housing it operates, HUD will notify the PHA that it no longer is 
required to submit a complete operating budget to HUD for review and 
approval.
    (c) Compliance with environmental review requirements.--(1) General. 
Operating subsidy funds made available to a PHA to support the operation 
and management of public housing are generally for activities that are 
not subject to environmental review requirements. A PHA, however, may 
use public housing program resources (including operating subsidy funds, 
rental and nonrental income, and operating reserves) to carry out non-
routine maintenance and capital expenditure activities that may require 
an environmental review, as those activities are defined in HUD's 
prescribed Chart of Accounts.
    (2) Initial operating budget. The ACC requires that operating 
expenditures may not be incurred except pursuant to an approved 
operating budget. Before the funding of non-routine maintenance and 
capital expenditure activities may be incorporated into the PHA's 
initial operating budget, and before the PHA may commit any funds to 
such activities, the PHA must obtain either:
    (i) An environmental review from the Responsible Entity and submit 
and receive HUD approval of a Request for Release of Funds under part 58 
of this title, or, in cases where HUD has determined to do an 
environmental review under part 50 of this title, the PHA must obtain an 
environmental approval from HUD; or
    (ii) A determination from the Responsible Entity under part 58 of 
this title that the PHA's proposed non-routine maintenance and capital 
expenditure activities are exempt from environmental review in 
accordance with Sec. 58.34(a)(12) of this title.
    (3) Revisions to operating budget. If subsequent to adoption of its 
initial operating budget, a PHA determines to undertake a new non-
routine maintenance or capital expenditure activity, the PHA must obtain 
an environmental review and release of funds, HUD environmental 
approval, or an exemption from such review, as described in paragraph 
(c)(2) of this section, before the funding of the activity may be 
incorporated into a revised operating budget and before the PHA may 
commit any funds to such activities.
    (4) Determination of exempt activities. If the Responsible Entity 
documents that a proposed non-routine maintenance or capital expenditure 
activity is an exempt activity, as described in paragraph (c)(2)(ii) of 
this section, no further action is required from the PHA and the 
activity may be incorporated into the PHA's initial or revised operating 
budget, as appropriate.



Sec. 990.112  Payments procedure for operating subsidy under the 
Operating Fund Formula.

    (a) General. Subject to the availability of funds, payments of 
operating subsidy under the Operating Fund Formula shall be made 
generally by electronic funds transfers, based on a

[[Page 721]]

schedule submitted by the PHA and approved by HUD. The schedule may 
provide for several payments per month. If a PHA has an unanticipated, 
immediate need for disbursement of approved operating subsidy, it may 
make an informal request to HUD to revise the approved schedule. 
(Requests by telephone are acceptable.)
    (b) Payments procedure. In the event that the amount of operating 
subsidy has not been determined by HUD as of the beginning of a PHA's 
budget year under this part, annual or monthly or quarterly payments of 
operating subsidy shall be made, as provided in paragraph (a) of this 
section, based upon the amount of the PHA's operating subsidy for the 
previous budget year or such other amount as HUD may determine to be 
appropriate.
    (c) Availability of funds. In the event that insufficient funds are 
available to make payments approvable under the Operating Fund Formula 
for operating subsidy payable by HUD, HUD shall have complete discretion 
to revise, on a pro rata basis or other basis established by HUD, the 
amounts of operating subsidy to be paid to PHAs.



Sec. 990.113  Payments of operating subsidy conditioned upon reexamination 
of income of families in occupancy.

    (a) Policy. The income of each family must be reexamined at least 
annually. PHAs must be in compliance with this reexamination requirement 
to be eligible to receive full operating subsidy payments.
    (b) PHAs in compliance with requirements. Each submission of the 
original calculation of operating subsidy eligibility for a fiscal year 
shall be accompanied by a certification by the PHA that it is in 
compliance with the annual income reexamination requirements and that 
rents have been or will be adjusted in accordance with current HUD 
requirements.
    (c) PHAs not in compliance with requirements. Any PHA not in 
compliance with annual income reexamination requirement at the time of 
the submission of the calculation of operating subsidy eligibility shall 
furnish to the HUD Field Office a copy of the procedure it is using to 
attain compliance and a statement of the number of families that have 
undergone reexamination during the twelve months preceding the date of 
the Operating Budget submission, or the revision thereof. If, on the 
basis of such submission, or any other information, the Field Office 
Director determines that the PHA is not substantially in compliance with 
the annual income reexamination requirement, he or she shall withhold 
payments to which the PHA might otherwise be entitled under this part, 
equal to his or her estimate of the loss of rental income to the PHA 
resulting from its failure to comply with those requirements.



Sec. 990.114  Phase-down of subsidy for units approved for demolition.

    (a) General. Units that have both been approved by HUD for 
demolition and been vacated in FY 1995 and after will be excluded from a 
PHA's determination of Unit Months Available when vacated, but they will 
remain eligible for subsidy in the following way:
    (1) For the first twelve months beginning with the month that a unit 
meets both conditions of being approved for demolition and vacant, the 
full AEL will be allowed for the unit.
    (2) During the second twelve-month period after meeting both 
conditions, 66% of the AEL will be allowed for the unit.
    (3) During the third twelve-month period after meeting both 
conditions, 33% of the AEL will be allowed for the unit.
    (b) Special case for long-term vacant units. Units that have been 
vacant for longer than 12 months when they are approved for demolition 
are eligible for funding equal to 20% of the AEL for a 12-month period.
    (c) Treatment of units replaced with Section 8 Certificates or 
Vouchers. Units that are replaced with Section 8 Certificates or 
Vouchers are not subject to the provisions of this section.
    (d) Treatment of units replaced with public housing units. When 
replacement conventional public housing units become eligible for 
operating subsidy, the demolished unit is no longer eligible for any 
funding under this section.
    (e) Determination of what units are ``replaced.'' For purposes of 
this section, replacements are applied first

[[Page 722]]

against units that otherwise would fall in paragraph (a) of this 
section; any remaining replacements should be used to reduce the number 
of units qualifying under paragraph (b) of this section.
    (f) Treatment of units combined with other units. Units that are 
removed from the inventory as a result of being combined with other 
units are not considered to be demolished units for this purpose.



Sec. 990.116  Increases in dwelling rental income.

    (a) General. As described in Sec. 990.109(b)(1), PHAs shall be 
allowed to retain 50% of any increases in dwelling rental income, so 
long as the PHA uses the increased income for the provision of resident-
related improvements and services. The retained income will not be 
recognized in the PHA's calculation under the Operating Fund Formula.
    (b) Eligible uses for increased rental revenue. The uses for the 
retained income must be developed with front end resident participation 
and ongoing input and shall be made part of the PHA plan submission. 
(See 24 CFR part 903). Examples of eligible uses for the retained income 
include, but are not limited to:
    (1) Physical and management improvements that benefit residents;
    (2) Resident self-sufficiency services;
    (3) Maintenance operations;
    (4) Resident employment and training services;
    (5) Resident safety and security improvements and services; and
    (6) Optional earned income exclusions.



Sec. 990.117  Determining actual and requested budget year occupancy 
percentages.

    (a) Actual occupancy percentage. When submitting Operating Fund 
Formula calculations for Requested Budget Years, the PHA shall determine 
an Actual Occupancy Percentage for all Project Units included in the 
Unit Months Available. The PHA shall have the option of basing this 
option on either:
    (1) The number of units occupied on the last day of the month that 
ends 6 months before the beginning of the Requested Budget Year; or
    (2) The average occupancy during the month ending 6 months before 
the beginning of the Requested Budget Year. If the PHA elects to use an 
average occupancy under this paragraph (a)(2), the PHA shall maintain a 
record of its computation of its Actual Occupancy Percentage.
    (b) Requested budget year occupancy percentage. The PHA will develop 
a Requested Budget Year Occupancy Percentage by taking the Actual 
Occupancy Percentage and adjusting it to reflect changes up or down in 
occupancy during the Requested Budget Year due to HUD-approved 
activities such as units undergoing modernization, new development, 
demolition, or disposition. If after the submission and approval of the 
Operating Fund Formula calculations for the Requested Budget Year, there 
are changes up or down in occupancy because of modernization, new 
development, demolition or disposition that are not reflected in the 
Requested Budget Year Occupancy Percentage, the PHA may submit a 
revision to reflect the actual change in occupancy due to these 
activities.
    (c) Documentation required to be maintained. The PHA must maintain 
and, upon HUD's request, make available to HUD specific documentation of 
the occupancy status of all units, including long-term vacancies, vacant 
units undergoing modernization, and units vacant due to circumstances 
and actions beyond the PHA's control. This documentation shall include a 
listing of the units, street addresses, and project/management control 
numbers.



Sec. 990.120  Audit.

    PHAs that receive financial assistance under this part shall comply 
with the audit requirements in 24 CFR part 85.26. If a PHA has failed to 
submit an acceptable audit on a timely basis in accordance with that 
part, HUD may arrange for, and pay the costs of, the audit. In such 
circumstances, HUD may withhold, from assistance otherwise payable to 
the PHA under this part, amounts sufficient to pay for the

[[Page 723]]

reasonable costs of conducting an acceptable audit, including, when 
appropriate, the reasonable costs of accounting services necessary to 
place the PHA's books and records into auditable condition. The costs to 
place the PHA's books and records into auditable condition do not 
generate additional subsidy eligibility under this part.



Sec. 990.121  Effect of rescission.

    If there is a rescission of appropriated funds that reduces the 
level of funding under the Public Housing Capital Fund program, to the 
extent that the PHA can document that it is not possible to complete all 
the vacant unit rehabilitation in the PHA's approved Annual Statement, 
the PHA may seek and HUD may grant a waiver for 1 fiscal year to permit 
full eligibility under the Operating Fund Formula for those units 
approved but not funded. (See part 905 of this title for additional 
information regarding the Capital Fund program.)



    Subpart B_Financial Management Systems, Monitoring and Reporting

    Source: 53 FR 8067, Mar. 11, 1988, unless otherwise noted.



Sec. 990.201  Purpose--General policy on financial management, 
monitoring and reporting.

    The financial management systems, reporting and monitoring on 
program performance and financial reporting will be in compliance with 
the requirements of 24 CFR 85.20, 85.40 and 85.41 except to the extent 
that HUD requirements provide for additional specialized procedures 
necessary to permit the Secretary to make the determinations regarding 
the payment of operating subsidy specified in section 9(a)(1) of the 
United States Housing Act of 1937.



Sec. 990.202  Applicability.

    The provisions of this subpart B are applicable to the development, 
modernization, and operation of the Turnkey III and Turnkey IV 
Homeownership Opportunity Programs and the housing owned by the PHAs of 
the Virgin Islands, Guam, Puerto Rico and Alaska.

[57 FR 5588, Feb. 14, 1992]



                   Subpart C_Project-Based Accounting

    Source: 57 FR 61231, Dec. 23, 1992, unless otherwise noted.



Sec. 990.301  Applicability.

    (a) The provisions of this subpart C are applicable to all PHAs that 
receive operating subsidies pursuant to section 9 of the U.S. Housing 
Act of 1937 (the Act), both PFS-eligible PHAs and PHAs outside the 48 
adjacent states for which operating subsidy eligibility is not 
calculated in accordance with the PFS.
    (b) PHAs that own and operate 250 or more dwelling rental units 
under title I of the Act, exclusive of section 8 units, are required to 
develop and maintain project-based accounting systems consistent with 
Sec. 990.310. Where a portion of a PHA's rental inventory is separately 
managed (by a resident management corporation, for example), the 250-
unit threshold shall apply to the total number of PHA-owned dwelling 
rental units, including those separately managed.
    (c) PHAs that do not receive operating subsidies or that have fewer 
than 250 rental units may, but are not required to, develop and use 
project-based accounting systems consistent with the specifications of 
this subpart.



Sec. 990.305  Definitions.

    Cost Center. A set of units, activities, programs, or staff that are 
grouped by a PHA for purposes of management, financial monitoring, and 
analysis. Cost centers can be delineated by administrative departments 
or divisions within a PHA, by office locations, by individual projects 
or clusters or communities of projects that consist of one or more 
contiguous buildings, an area of contiguous row houses, or scattered-
site buildings.
    Project. A building or set of buildings identifiable as a 
development project under a HUD-assigned project number.

[[Page 724]]



Sec. 990.310  Project-based accounting.

    (a) PHAs identified in Sec. 990.301(b) shall develop and maintain a 
system of accounting for operating income and operating costs for each 
project or operating cost center in a manner capable of generating 
information to meet HUD consolidated reporting requirements.
    (b) Operating income and cost information to be accounted for at a 
project or cost center level shall include at least rental income and 
the administrative costs, utilities costs, maintenance costs, repair 
costs, and such other income and costs identified by the PHA as project-
specific for management purposes. The minimum income and expense 
distribution requirements for project-based accounting information 
include:
    (1) Project-specific operating income credited to a specific project 
or cost center which shall include, at a minimum, rental income and 
excess utilities income; and
    (2) Project-specific operating expense to be charged to a specific 
project or cost center level which shall include, at a minimum, 
utilities expense and direct maintenance (material and labor) expense, 
in addition to any other operating expenses in the 4000 series of 
accounts which are identified by the PHA as project-specific for 
management purposes (for example, tenant services or protective services 
personnel assigned to a specific project).
    (c) Indirect operating income and indirect operating expenses that 
are not project-specific are not required to be accounted for at, or 
allocated to, a project or cost center level. Indirect income and 
expense that is not required to be allocated to the project or cost 
center level includes non-project-specific income and expense, including 
PHA central office overhead expense, which is not identifiable with, or 
readily assignable to, a specific project or cost center.
    (d) PHAs may establish operating cost centers on any reasonable 
basis that reflects the PHA management structure and that meets the 
financial information needs at the lowest level of line authority within 
that management structure. A PHA's determination of appropriate cost 
centers and method of income and cost distribution shall be controlling 
unless HUD determines there is good cause for requiring some other frame 
of reference for aggregating financial information.



Sec. 990.315  Records and reports.

    (a) Each PHA shall maintain fiscal year-end income and expense 
statements, which reflect the PBA information required by Sec. 990.310, 
for each project or other cost center and shall make these available for 
review upon request by interested members of the public.
    (b) Each PHA shall distribute such year-end financial statements to 
the Chairman and to each member of the Housing Authority Board of 
Commissioners, and to such other State and local public officials as the 
Secretary may specify. Project-based income and expense statements shall 
be made available to Board chairmen as soon as is practicable after the 
close of the fiscal period.



Sec. 990.320  Certifications.

    (a) The PHA shall certify, by the effective date specified in Sec. 
990.325, in a form acceptable to HUD, that the PHA is aware of and is 
taking steps to implement project-based accounting and will produce the 
fiscal year-end reports required under Sec. 990.315. The certification 
shall identify each project or other cost center, the basis upon which 
each project or other cost center has been established and determined to 
be in compliance with the definitions of Sec. 990.305, above, and where 
a cost center consists of units in two or more projects (as identified 
by HUD-assigned development project number) the PHA shall identify the 
individual development project numbers, the number of units, and a 
characterization (i.e., high-rise family, mid-rise family, scattered-
site, etc.) of each numbered project included in the cost center.
    (b) A certification made in accordance with this section shall be 
updated if the PHA deletes units, adds additional units or projects (as 
identified by HUD-assigned development project numbers) to its 
inventory, or otherwise

[[Page 725]]

elects to reconfigure its system of cost centers.

(Approved by the Office of Management and Budget under control number 
2577-0159)



Sec. 990.325  Compliance dates.

    (a) The provisions of this subpart shall apply for PHA fiscal years 
beginning on or after January 1, 1993, for PHAs operating 500 or more 
public housing rentals units.
    (b) The provisions of this subpart shall apply for PHA fiscal years 
beginning on or after January 1, 1994, for PHAs operating fewer than 500 
public housing rental units. In the case of PHAs whose housing programs 
expand to the point at which their inventory of rental units exceeds the 
threshold stated in Sec. 990.301(b), the provisions of Sec. 990.310 
shall apply at the beginning of the PHA's first fiscal year after the 
date on which its inventory of rental units reaches that threshold.



      Subpart D_Resident Management Corporations Operating Subsidy

    Source: 59 FR 43644, Aug. 24, 1994, unless otherwise noted.



Sec. 990.401  Calculation of operating subsidy.

    Operating subsidy will be calculated separately for any project 
managed by a resident management corporation. This subsidy computation 
will be the same as the separate computation made for the balance of the 
projects in the PHA in accordance with this part, with the following 
exceptions:
    (a) The project managed by a resident management corporation will 
have an Allowable Expense Level based on the actual expenses for the 
project in the fiscal year immediately preceding management under this 
subpart. These expenditures will include the project's share of any 
expenses which are overhead or centralized HA expenditures. The expenses 
must represent a normal year's expenditures for the project, and must 
exclude all expenditures which are not normal fiscal year expenditures 
as to amount or as to the purpose for which expended. Documentation of 
this expense level must be presented with the project budget and 
approved by HUD. Any project expenditures funded from a source of income 
other than operating subsidies or income generated by the locally owned 
public housing program will be excluded from the subsidy calculation. 
For budget years after the first budget year under management by the 
resident management corporation, the Allowable Expense Level will be 
calculated as it is for all other projects in accordance with Sec. 
990.105(e)(4).
    (b) The resident management corporation project will estimate 
dwelling rental income based on the rent roll of the project immediately 
preceding the assumption of management responsibility under this 
subpart, increased by the estimate of inflation of tenant income used in 
calculating PFS subsidy.
    (c) The resident management corporation will exclude, from its 
estimate of other income, any increased income directly generated by 
activities by the corporation or facilities operated by the corporation.
    (d) Any reduction in the subsidy of a HA that occurs as a result of 
fraud, waste, or mismanagement by the HA shall not affect the subsidy 
calculation for the resident management corporation project.

[59 FR 43644, Aug. 24, 1994, as amended at 61 FR 17542, Apr. 19, 1996]



Sec. 990.402  Calculation of total income and preparation of operating 
budget.

    (a) Subject to Sec. 990.403, the amount of funds provided by a HA 
to a project managed by a resident management corporation under this 
subpart may not be reduced during the three-year period beginning on 
February 5, 1988 or on such later date as a resident management 
corporation first assumes management responsibility for the project.
    (b) For purposes of determining the amount of funds provided to a 
project under Sec. 990.402(a) of this section, the provision of 
technical assistance by the HA to the resident management corporation 
will not be included.
    (c) The resident management corporation and the HA must submit a 
separate operating budget, including the calculation of operating 
subsidy eligibility in accordance with Sec. 990.401,

[[Page 726]]

for the project managed by a resident management corporation to HUD for 
approval. This budget will reflect all project expenditures and will 
identify which expenditures are related to the responsibilities of the 
resident management corporation and which are related to the functions 
which will continue to be performed by the HA.
    (d) Each project or part of a project that is operating in 
accordance with the ACC amendment relating to this subpart and in 
accordance with a contract vesting maintenance responsibilities in the 
resident management corporation will have transferred, into a sub-
account of the operating reserve of the host HA, an operating reserve. 
Where all maintenance responsibilities for the resident-managed project 
are the responsibility of the corporation, the amount of the reserve 
made available to projects under this subpart will be the per unit cost 
amount available to the HA operating reserve, exclusive of all 
inventories, prepaids and receivables (at the end of the HA fiscal year 
preceding implementation), multiplied by the number of units in the 
project operated in accordance with the provisions of this subpart. 
Where some, but not all, maintenance responsibilities are vested in the 
resident management corporation, the contract may provide for an 
appropriately reduced portion of the operating reserve to be transferred 
into the corporation's sub-account.
    (e) The use of the reserve will be subject to all administrative 
procedures applicable to the conventionally owned public housing 
program. Any expenditure of funds from the reserve will be for eligible 
expenditures which are incorporated into an operating budget subject to 
approval by HUD.
    (f) Investment of funds held in the reserve will be in accordance 
with the provisions of Chapter 4 of the Financial Management Handbook, 
7476.1 REV.1 and interest generated will be included in the calculation 
of operating subsidy in accordance with this part.



Sec. 990.403  Adjustments to total income.

    (a) Operating subsidy calculated in accordance with Sec. 964.401 of 
this chapter will reflect changes in inflation, utility rates and 
consumption, and changes in the number of units in the resident 
management project.
    (b) In addition to the amount of income derived from the project 
(from sources such as rents and charges) and the operating subsidy 
calculated in accordance with Sec. 990.401 of this subpart, the 
contract may specify that income be provided to the project from other 
sources of income of the HA.
    (c) The following conditions may not affect the amounts to be 
provided to a project managed by a resident management corporation under 
this subpart:
    (1) Any reduction in the total income of a HA that occurs as a 
result of fraud, waste, or mismanagement by the HA.
    (2) Any change in the total income of a HA that occurs as a result 
of project-specific characteristics that are not shared by the project 
managed by the corporation under this subpart.



Sec. 990.404  Retention of excess revenues.

    (a) Any income generated by a resident management corporation that 
exceeds the income estimated for the income category involved as 
specified in the RMC's management contract must be excluded in 
subsequent years in calculating:
    (1) The operating subsidy provided to a HA under part 990, subpart 
A.
    (2) The funds provided by the HA to the resident management 
corporation.
    (b) The management contract must specify the amount of income 
expected to be derived from the project (from sources such as rents and 
charges) and the amount of income to be provided to the project from the 
other sources of income of the HA (such as operating subsidy under part 
990, subpart A, interest income, administrative fees, and rents). These 
income estimates must be calculated consistent with HUD's administrative 
instructions. Income estimates may provide for proration of anticipated 
project income between the corporation and the PHA, based upon the 
management and other project-associated responsibilities (if any) that 
are to be retained by the PHA under the contract.



Sec. 990.405  Use of retained revenues.

    Any revenues retained by a resident management corporation under 
Sec. 990.404 of this subpart may only be used for

[[Page 727]]

purposes of improving the maintenance and operation of the project, 
establishing businesses enterprises that employ residents of public 
housing, or acquiring additional dwelling units for lower income 
families. Units acquired by the resident management corporation will not 
be eligible for payment of operating subsidy.



PART 1000_NATIVE AMERICAN HOUSING ACTIVITIES--Table of Contents




                            Subpart A_General

Sec.
1000.1 What is the applicability and scope of these regulations?
1000.2 What are the guiding principles in the implementation of NAHASDA?
1000.4 What are the objectives of NAHASDA?
1000.6 What is the nature of the IHBG program?
1000.8 May provisions of these regulations be waived?
1000.10 What definitions apply in these regulations?
1000.12 What nondiscrimination requirements are applicable?
1000.14 What relocation and real property acquisition policies are 
          applicable?
1000.16 What labor standards are applicable?
1000.18 What environmental review requirements apply?
1000.20 Is an Indian tribe required to assume environmental review 
          responsibilities?
1000.22 Are the costs of the environmental review an eligible cost?
1000.24 If an Indian tribe assumes environmental review responsibility, 
          how will HUD assist the Indian tribe in performing the 
          environmental review?
1000.26 What are the administrative requirements under NAHASDA?
1000.28 May a self-governance Indian tribe be exempted from the 
          applicability of Sec. 1000.26?
1000.30 What prohibitions regarding conflict of interest are applicable?
1000.32 May exceptions be made to the conflict of interest provisions?
1000.34 What factors must be considered in making an exception to the 
          conflict of interest provisions?
1000.36 How long must a recipient retain records regarding exceptions 
          made to the conflict of interest provisions?
1000.38 What flood insurance requirements are applicable?
1000.40 Do lead-based paint poisoning prevention requirements apply to 
          affordable housing activities under NAHASDA?
1000.42 Are the requirements of section 3 of the Housing and Urban 
          Development Act of 1968 applicable?
1000.44 What prohibitions on the use of debarred, suspended or 
          ineligible contractors apply?
1000.46 Do drug-free workplace requirements apply?
1000.48 Are Indian preference requirements applicable to IHBG 
          activities?
1000.50 What Indian preference requirements apply to IHBG administration 
          activities?
1000.52 What Indian preference requirements apply to IHBG procurement?
1000.54 What procedures apply to complaints arising out of any of the 
          methods of providing for Indian preference?
1000.56 How are NAHASDA funds paid by HUD to recipients?
1000.58 Are there limitations on the investment of IHBG funds?
1000.60 Can HUD prevent improper expenditure of funds already disbursed 
          to a recipient?
1000.62 What is considered program income and what restrictions are 
          there on its use?

                 Subpart B_Affordable Housing Activities

1000.101 What is affordable housing?
1000.102 What are eligible affordable housing activities?
1000.104 What families are eligible for affordable housing activities?
1000.106 What families receiving assistance under title II of NAHASDA 
          require HUD approval?
1000.108 How is HUD approval obtained by a recipient for housing for non 
          low-income Indian families and model activities?
1000.110 Under what conditions may non low-income Indian families 
          participate in the program?
1000.112 How will HUD determine whether to approve model housing 
          activities?
1000.114 How long does HUD have to review and act on a proposal to 
          provide assistance to non low-income Indian families or a 
          model housing activity?
1000.116 What should HUD do before declining a proposal to provide 
          assistance to non low-income Indian families or a model 
          housing activity?
1000.118 What recourse does a recipient have if HUD disapproves a 
          proposal to provide assistance to non low-income Indian 
          families or a model housing activity?
1000.120 May a recipient use Indian preference or tribal preference in 
          selecting families for housing assistance?
1000.122 May NAHASDA grant funds be used as matching funds to obtain and 
          leverage funding, including any Federal or state program and 
          still be considered an affordable housing activity?

[[Page 728]]

1000.124 What maximum and minimum rent or homebuyer payment can a 
          recipient charge a low-income rental tenant or homebuyer 
          residing in housing units assisted with NAHASDA grant amounts?
1000.126 May a recipient charge flat or income-adjusted rents?
1000.128 Is income verification required for assistance under NAHASDA?
1000.130 May a recipient charge a non low-income family rents or 
          homebuyer payments which are more than 30 percent of the 
          family's adjusted income?
1000.132 Are utilities considered a part of rent or homebuyer payments?
1000.134 When may a recipient (or entity funded by a recipient) demolish 
          or dispose of current assisted stock?
1000.136 What insurance requirements apply to housing units assisted 
          with NAHASDA grants?
1000.138 What constitutes adequate insurance?
1000.140 May a recipient use grant funds to purchase insurance for 
          privately owned housing to protect NAHASDA grant amounts spent 
          on that housing?
1000.142 What is the ``useful life'' during which low-income rental 
          housing and low-income homebuyer housing must remain 
          affordable as required in sections 205(a)(2) and 209 of 
          NAHASDA?
1000.144 Are Mutual Help homes developed under the 1937 Act subject to 
          the useful life provisions of section 205(a)(2)?
1000.146 Are homebuyers required to remain low-income throughout the 
          term of their participation in a housing program funded under 
          NAHASDA?
1000.150 How may Indian tribes and TDHEs receive criminal conviction 
          information on adult applicants or tenants?
1000.152 How is the recipient to use criminal conviction information?
1000.154 How is the recipient to keep criminal conviction information 
          confidential?
1000.156 Is affordable housing developed, acquired, or assisted under 
          the IHBG program subject to limitations on cost or design 
          standards?
1000.158 How will a NAHASDA grant recipient know that the housing 
          assisted under the IHBG program meets the requirements of 
          Sec. 1000.156?
1000.160 Are non-dwelling structures developed, acquired or assisted 
          under the IHBG program subject to limitations on cost or 
          design standards?
1000.162 How will a recipient know that non-dwelling structures assisted 
          under the IHBG program meet the requirements of 1000.160?

                   Subpart C_Indian Housing Plan (IHP)

1000.201 How are funds made available under NAHASDA?
1000.202 Who are eligible recipients?
1000.204 How does an Indian tribe designate itself as recipient of the 
          grant?
1000.206 How is a TDHE designated?
1000.208 What happens if an Indian tribe had two IHAs as of September 
          30, 1996?
1000.210 What happens to existing 1937 Act units in those jurisdictions 
          for which Indian tribes do not or cannot submit an IHP?
1000.212 Is submission of an IHP required?
1000.214 What is the deadline for submission of an IHP?
1000.216 What happens if the recipient does not submit the IHP to the 
          Area ONAP by July 1?
1000.218 Who prepares an submits an IHP?
1000.220 What are the minimum requirements for the IHP?
1000.222 Are there separate IHP requirements for small Indian tribes and 
          small TDHEs?
1000.224 Can any part of the IHP be waived?
1000.226 Can the certification requirements of section 102(c)(5) of 
          NAHASDA be waived by HUD?
1000.228 If HUD changes its IHP format will Indian tribes be involved?
1000.230 What is the process for HUD review of IHPs and IHP amendments?
1000.232 Can an Indian tribe or TDHE amend its IHP?
1000.234 Can HUD's determination regarding the non-compliance of an IHP 
          or a modification to an IHP be appealed?
1000.236 What are eligible administrative and planning expenses?
1000.238 What percentage of the IHBG funds can be used for 
          administrative and planning expenses?
1000.240 When is a local cooperation agreement required for affordable 
          housing activities?
1000.242 When does the requirement for exemption from taxation apply to 
          affordable housing activities?

                      Subpart D_Allocation Formula

1000.301 What is the purpose of the IHBG formula?
1000.302 What are the definitions applicable for the IHBG formula?
1000.304 May the IHBG formula be modified?
1000.306 How can the IHBG formula be modified?
1000.308 Who can make modifications to the IHBG formula?
1000.310 What are the components of the IHBG formula?
1000.312 What is current assisted stock?
1000.314 What is formula current assisted stock?
1000.316 How is the Formula Current Assisted Stock (FCAS) Component 
          developed?

[[Page 729]]

1000.317 Who is the recipient for funds for current assisted stock which 
          is owned by state-created Regional Native Housing Authorities 
          in Alaska?
1000.318 When do units under Formula Current Assisted Stock cease to be 
          counted or expire from the inventory used for the formula?
1000.320 How is Formula Current Assisted Stock adjusted for local area 
          costs?
1000.322 Are IHA financed units included in the determination of Formula 
          Current Assisted Stock?
1000.324 How is the need component developed?
1000.325 How is the need component adjusted for local area costs?
1000.326 What if a formula area is served by more than one Indian tribe?
1000.327 What is the order of preference for allocating the IHBG formula 
          needs data for Indian tribes in Alaska not located on 
          reservations due to the unique circumstances in Alaska?
1000.328 What is the minimum amount an Indian tribe can receive under 
          the need component of the formula?
1000.330 What are data sources for the need variables?
1000.332 Will data used by HUD to determine an Indian tribe's or TDHE's 
          formula allocation be provided to the Indian tribe or TDHE 
          before the allocation?
1000.334 May Indian tribes, TDHEs, or HUD challenge the data from the 
          U.S. Decennial Census or provide an alternative source of 
          data?
1000.336 How may an Indian tribe, TDHE, or HUD challenge data?
1000.340 What if an Indian tribe is allocated less funding under the 
          block grant formula than it received in Fiscal Year 1996 for 
          operating subsidy and modernization?

 Subpart E_Federal Guarantees for Financing of Tribal Housing Activities

1000.401 What terms are used throughout this subpart?
1000.402 Are State recognized Indian tribes eligible for guarantees 
          under title VI of NAHASDA?
1000.404 What lenders are eligible for participation?
1000.406 What constitutes tribal approval to issue notes or other 
          obligations under title VI of NAHASDA?
1000.408 How does an Indian tribe or TDHE show that it has made efforts 
          to obtain financing without a guarantee and cannot complete 
          such financing in a timely manner?
1000.410 What conditions shall HUD prescribe when providing a guarantee 
          for notes or other obligations issued by an Indian tribe?
1000.412 Can an issuer obtain a guarantee for more than one note or 
          other obligation at a time?
1000.414 How is an issuer's financial capacity demonstrated?
1000.416 What is a repayment contract in a form acceptable to HUD?
1000.418 Can grant funds be used to pay costs incurred when issuing 
          notes or other obligations?
1000.420 May grants made by HUD under section 603 of NAHASDA be used to 
          pay net interest costs incurred when issuing notes or other 
          obligations?
1000.422 What are the procedures for applying for loan guarantees under 
          title VI of NAHASDA?
1000.424 What are the application requirements for guarantee assistance 
          under title VI of NAHASDA?
1000.426 How does HUD review a guarantee application?
1000.428 For what reasons may HUD disapprove an application or approve 
          an application for an amount less than that requested?
1000.430 When will HUD issue notice to the applicant if the application 
          is approved at the requested or reduced amount?
1000.432 Can an amendment to an approved guarantee be made?
1000.434 How will HUD allocate the availability of loan guarantee 
          assistance?
1000.436 How will HUD monitor the use of funds guaranteed under this 
          subpart?

      Subpart F_Recipient Monitoring, Oversight and Accountability

1000.501 Who is involved in monitoring activities under NAHASDA?
1000.502 What are the monitoring responsibilities of the recipient, the 
          grant beneficiary and HUD under NAHASDA?
1000.504 What are the recipient performance objectives?
1000.506 If the TDHE is the recipient, must it submit its monitoring 
          evaluation/results to the Indian tribe?
1000.508 If the recipient monitoring identifies programmatic concerns, 
          what happens?
1000.510 What happens if tribal monitoring identifies compliance 
          concerns?
1000.512 Are performance reports required?
1000.514 When must the annual performance report be submitted?
1000.516 What reporting period is covered by the annual performance 
          report?
1000.518 When must a recipient obtain public comment on its annual 
          performance report?
1000.520 What are the purposes of HUD review?
1000.521 After the receipt of the recipient's performance report, how 
          long does HUD

[[Page 730]]

          have to make recommendations under section 404(c) of NAHASDA?
1000.522 How will HUD give notice of on-site reviews?
1000.524 What are HUD's performance measures for the review?
1000.526 What information will HUD use for its review?
1000.528 What are the procedures for the recipient to comment on the 
          result of HUD's review when HUD issues a report under section 
          405(b) of NAHASDA?
1000.530 What corrective and remedial actions will HUD request or 
          recommend to address performance problems prior to taking 
          action under Sec. 1000.532 or Sec. 1000.538?
1000.532 What are the adjustments HUD makes to a recipient's future 
          year's grant amount under section 405 of NAHASDA?
1000.534 What constitutes substantial noncompliance?
1000.536 What happens to NAHASDA grant funds adjusted, reduced, 
          withdrawn, or terminated under Sec. 1000.532 or Sec. 
          1000.538?
1000.538 What remedies are available for substantial noncompliance?
1000.540 What hearing procedures will be used under NAHASDA?
1000.542 When may HUD require replacement of a recipient?
1000.544 What audits are required?
1000.546 Are audit costs eligible program or administrative expenses?
1000.548 Must a copy of the recipient's audit pursuant to the Single 
          Audit Act relating to NAHASDA activities be submitted to HUD?
1000.550 If the TDHE is the recipient, does it have to submit a copy of 
          its audit to the Indian tribe?
1000.552 How long must the recipient maintain program records?
1000.554 Which agencies have right of access to the recipient's records 
          relating to activities carried out under NAHASDA?
1000.556 Does the Freedom of Information Act (FOIA) apply to recipient 
          records?
1000.558 Does the Federal Privacy Act apply to recipient records?

Appendix A to Part 1000--Indian Housing Block Grant Formula Mechanics
Appendix B to Part 1000--IHBG Block Grant Formula Mechanisms

    Authority: 25 U.S.C. 4101 et seq.; 42 U.S.C. 3535(d).

    Source: 63 FR 12349, Mar. 12, 1998, unless otherwise noted.



                            Subpart A_General



Sec. 1000.1  What is the applicability and scope of these regulations?

    Under the Native American Housing Assistance and Self-Determination 
Act of 1996 (25 U.S.C. 4101 et seq.) (NAHASDA) the Department of Housing 
and Urban Development (HUD) provides grants, loan guarantees, and 
technical assistance to Indian tribes and Alaska Native villages for the 
development and operation of low-income housing in Indian areas. The 
policies and procedures described in this part apply to grants to 
eligible recipients under the Indian Housing Block Grant (IHBG) program 
for Indian tribes and Alaska Native villages. This part also applies to 
loan guarantee assistance under title VI of NAHASDA. The regulations in 
this part supplement the statutory requirements set forth in NAHASDA. 
This part, as much as practicable, does not repeat statutory language.



Sec. 1000.2  What are the guiding principles in the implementation of 
NAHASDA?

    (a) The Secretary shall use the following Congressional findings set 
forth in section 2 of NAHASDA as the guiding principles in the 
implementation of NAHASDA:
    (1) The Federal government has a responsibility to promote the 
general welfare of the Nation:
    (i) By using Federal resources to aid families and individuals 
seeking affordable homes in safe and healthy environments and, in 
particular, assisting responsible, deserving citizens who cannot provide 
fully for themselves because of temporary circumstances or factors 
beyond their control;
    (ii) By working to ensure a thriving national economy and a strong 
private housing market; and
    (iii) By developing effective partnerships among the Federal 
government, state, tribal, and local governments, and private entities 
that allow government to accept responsibility for fostering the 
development of a healthy marketplace and allow families to prosper 
without government involvement in their day-to-day activities.

[[Page 731]]

    (2) There exists a unique relationship between the Government of the 
United States and the governments of Indian tribes and a unique Federal 
responsibility to Indian people.
    (3) The Constitution of the United States invests the Congress with 
plenary power over the field of Indian affairs, and through treaties, 
statutes, and historical relations with Indian tribes, the United States 
has undertaken a unique trust responsibility to protect and support 
Indian tribes and Indian people.
    (4) The Congress, through treaties, statutes, and the general course 
of dealing with Indian tribes, has assumed a trust responsibility for 
the protection and preservation of Indian tribes and for working with 
Indian tribes and their members to improve their housing conditions and 
socioeconomic status so that they are able to take greater 
responsibility for their own economic condition.
    (5) Providing affordable homes in safe and healthy environments is 
an essential element in the special role of the United States in helping 
Indian tribes and their members to improve their housing conditions and 
socioeconomic status.
    (6) The need for affordable homes in safe and healthy environments 
on Indian reservations, in Indian communities, and in Native Alaskan 
villages is acute and the Federal government should work not only to 
provide housing assistance, but also, to the extent practicable, to 
assist in the development of private housing finance mechanisms on 
Indian lands to achieve the goals of economic self-sufficiency and self-
determination for Indian tribes and their members.
    (7) Federal assistance to meet these responsibilities should be 
provided in a manner that recognizes the right of Indian self-
determination and tribal self-governance by making such assistance 
available directly to the Indian tribes or tribally designated entities 
under authorities similar to those accorded Indian tribes in Public Law 
93-638 (25 U.S.C. 450 et seq.).
    (b) Nothing in this section shall be construed as releasing the 
United States government from any responsibility arising under its trust 
responsibilities towards Indians or any treaty or treaties with an 
Indian tribe or nation.



Sec. 1000.4  What are the objectives of NAHASDA?

    The primary objectives of NAHASDA are:
    (a) To assist and promote affordable housing activities to develop, 
maintain and operate affordable housing in safe and healthy environments 
on Indian reservations and in other Indian areas for occupancy by low-
income Indian families;
    (b) To ensure better access to private mortgage markets for Indian 
tribes and their members and to promote self-sufficiency of Indian 
tribes and their members;
    (c) To coordinate activities to provide housing for Indian tribes 
and their members and to promote self-sufficiency of Indian tribes and 
their members;
    (d) To plan for and integrate infrastructure resources for Indian 
tribes with housing development for Indian tribes; and
    (e) To promote the development of private capital markets in Indian 
country and to allow such markets to operate and grow, thereby 
benefiting Indian communities.



Sec. 1000.6  What is the nature of the IHBG program?

    The IHBG program is formula driven whereby eligible recipients of 
funding receive an equitable share of appropriations made by the 
Congress, based upon formula components specified under subpart D of 
this part. IHBG recipients must have the administrative capacity to 
undertake the affordable housing activities proposed, including the 
systems of internal control necessary to administer these activities 
effectively without fraud, waste, or mismanagement.



Sec. 1000.8  May provisions of these regulations be waived?

    Yes. Upon determination of good cause, the Secretary may, subject to 
statutory limitations, waive any provision of this part and delegate 
this authority in accordance with section 106 of the Department of 
Housing and

[[Page 732]]

Urban Development Reform Act of 1989 (42 U.S.C. 3535(q)).



Sec. 1000.10  What definitions apply in these regulations?

    Except as noted in a particular subpart, the following definitions 
apply in this part:
    (a) The terms ``Adjusted income,'' ``Affordable housing,'' ``Drug-
related criminal activity,'' ``Elderly families and near-elderly 
families,'' ``Elderly person,'' ``Grant beneficiary,'' ``Indian,'' 
``Indian housing plan (IHP),'' ``Indian tribe,'' ``Low-income family,'' 
``Near-elderly persons,'' ``Nonprofit,'' ``Recipient,'' Secretary,'' 
``State,'' and ``Tribally designated housing entity (TDHE)'' are defined 
in section 4 of NAHASDA.
    (b) In addition to the definitions set forth in paragraph (a) of 
this section, the following definitions apply to this part:
    Affordable housing activities are those activities identified in 
section 202 of NAHASDA.
    Annual Contributions Contract (ACC) means a contract under the 1937 
Act between HUD and an IHA containing the terms and conditions under 
which HUD assists the IHA in providing decent, safe, and sanitary 
housing for low-income families.
    Annual income has one of the following meanings, as determined by 
the Indian tribe:
    (1) ``Annual income'' as defined for HUD's Section 8 programs in 24 
CFR part 5, subpart F (except when determining the income of a homebuyer 
for an owner-occupied rehabilitation project, the value of the 
homeowner's principal residence may be excluded from the calculation of 
Net Family assets); or
    (2) Annual income as reported under the Census long-form for the 
most recent available decennial Census. This definition includes:
    (i) Wages, salaries, tips, commissions, etc.;
    (ii) Self-employment income;
    (iii) Farm self-employment income;
    (iv) Interest, dividends, net rental income, or income from estates 
or trusts;
    (v) Social security or railroad retirement;
    (vi) Supplemental Security Income, Aid to Families with Dependent 
Children, or other public assistance or public welfare programs;
    (vii) Retirement, survivor, or disability pensions; and
    (viii) Any other sources of income received regularly, including 
Veterans' (VA) payments, unemployment compensation, and alimony; or
    (3) Adjusted gross income as defined for purposes of reporting under 
Internal Revenue Service (IRS) Form 1040 series for individual Federal 
annual income tax purposes.
    Assistant Secretary means the Assistant Secretary for Public and 
Indian Housing.
    Department or HUD means the Department of Housing and Urban 
Development.
    Family includes, but is not limited to, a family with or without 
children, an elderly family, a near-elderly family, a disabled family, a 
single person, as determined by the Indian tribe.
    Homebuyer payment means the payment of a family purchasing a home 
pursuant to a lease purchase agreement.
    Homeless family means a family who is without safe, sanitary and 
affordable housing even though it may have temporary shelter provided by 
the community, or a family who is homeless as determined by the Indian 
tribe.
    IHBG means Indian Housing Block Grant.
    Income means annual income as defined in this subpart.
    Indian Area means the area within which an Indian tribe operates 
affordable housing programs or the area in which a TDHE is authorized by 
one or more Indian tribes to operate affordable housing programs. 
Whenever the term ``jurisdiction'' is used in NAHASDA it shall mean 
``Indian Area'' except where specific reference is made to the 
jurisdiction of a court.
    Indian Housing Authority (IHA) means an entity that:
    (1) Is authorized to engage or assist in the development or 
operation of low-income housing for Indians under the 1937 Act; and
    (2) Is established:
    (i) By exercise of the power of self government of an Indian tribe 
independent of state law; or

[[Page 733]]

    (ii) By operation of state law providing specifically for housing 
authorities for Indians, including regional housing authorities in the 
State of Alaska.
    Median income for an Indian area is the greater of:
    (1) The median income for the counties, previous counties, or their 
equivalent in which the Indian area is located; or
    (2) The median income for the United States.
    NAHASDA means the Native American Housing Assistance and Self-
Determination Act of 1996 (25 U.S.C. 4101 et seq.).
    1937 Act means the United States Housing Act of 1937 (42 U.S.C. 1437 
et seq.).
    Office of Native American Programs (ONAP) means the office of HUD 
which has been delegated authority to administer programs under this 
part. An ``Area ONAP'' is an ONAP field office.
    Person with Disabilities means a person who --
    (1) Has a disability as defined in section 223 of the Social 
Security Act;
    (2) Has a developmental disability as defined in section 102 of the 
Developmental Disabilities Assistance and Bill of Rights Act;
    (3) Has a physical, mental, or emotional impairment which-
    (i) Is expected to be of long-continued and indefinite duration;
    (ii) Substantially impedes his or her ability to live independently; 
and
    (iii) Is of such a nature that such ability could be improved by 
more suitable housing conditions.
    (4) The term ``person with disabilities'' includes persons who have 
the disease of acquired immunodeficiency syndrome or any condition 
arising from the etiologic agent for acquired immunodeficiency syndrome.
    (5) Notwithstanding any other provision of law, no individual shall 
be considered a person with disabilities, for purposes of eligibility 
for housing assisted under this part, solely on the basis of any drug or 
alcohol dependence. The Secretary shall consult with Indian tribes and 
appropriate Federal agencies to implement this paragraph.
    (6) For purposes of this definition, the term ``physical, mental or 
emotional impairment'' includes, but is not limited to:
    (i) Any physiological disorder or condition, cosmetic disfigurement, 
or anatomical loss affecting one or more of the following body systems: 
Neurological, musculoskeletal, special sense organs, respiratory, 
including speech organs; cardiovascular; reproductive; digestive; 
genito-urinary; hemic and lymphatic; skin; and endocrine; or
    (ii) Any mental or psychological condition, such as mental 
retardation, organic brain syndrome, emotional or mental illness, and 
specific learning disabilities.
    (iii) The term ``physical, mental, or emotional impairment'' 
includes, but is not limited to, such diseases and conditions as 
orthopedic, visual, speech, and hearing impairments, cerebral palsy, 
autism, epilepsy, muscular dystrophy, multiple sclerosis, cancer, heart 
disease, diabetes, Human Immunodeficiency Virus infection, mental 
retardation, and emotional illness.



Sec. 1000.12  What nondiscrimination requirements are applicable?

    (a) The requirements of the Age Discrimination Act of 1975 (42 
U.S.C. 6101-6107) and HUD's implementing regulations in 24 CFR part 146.
    (b) Section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 794) 
and HUD's regulations at 24 CFR part 8 apply.
    (c) The Indian Civil Rights Act (Title II of the Civil Rights Act of 
1968; 25 U.S.C. 1301-1303), applies to Federally recognized Indian 
tribes that exercise powers of self-government.
    (d) Title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d) and 
title VIII of the Civil Rights Act of 1968 (42 U.S.C. 3601 et seq.) 
apply to Indian tribes that are not covered by the Indian Civil Rights 
Act. However, the Title VI and Title VIII requirements do not apply to 
actions by Indian tribes under section 201(b) of NAHASDA.



Sec. 1000.14  What relocation and real property acquisition policies 
are applicable?

    The following relocation and real property acquisition policies are 
applicable to programs developed or operated under NAHASDA:

[[Page 734]]

    (a) Real Property acquisition requirements. The acquisition of real 
property for an assisted activity is subject to 49 CFR part 24, subpart 
B. Whenever the recipient does not have the authority to acquire the 
real property through condemnation, it shall:
    (1) Before discussing the purchase price, inform the owner:
    (i) Of the amount it believes to be the fair market value of the 
property. Such amount shall be based upon one or more appraisals 
prepared by a qualified appraiser. However, this provision does not 
prevent the recipient from accepting a donation or purchasing the real 
property at less than its fair market value.
    (ii) That it will be unable to acquire the property if negotiations 
fail to result in an amicable agreement.
    (2) Request HUD approval of the proposed acquisition price before 
executing a firm commitment to purchase the property if the proposed 
acquisition payment exceeds the fair market value. The recipient shall 
include with its request a copy of the appraisal(s) and a justification 
for the proposed acquisition payment. HUD will promptly review the 
proposal and inform the recipient of its approval or disapproval.
    (b) Minimize displacement. Consistent with the other goals and 
objectives of this part, recipients shall assure that they have taken 
all reasonable steps to minimize the displacement of persons 
(households, businesses, nonprofit organizations, and farms) as a result 
of a project assisted under this part.
    (c) Temporary relocation. The following policies cover residential 
tenants and homebuyers who will not be required to move permanently but 
who must relocate temporarily for the project. Such residential tenants 
and homebuyers 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 temporarily occupied housing and any increase in 
monthly housing costs (e.g., rent/utility costs).
    (2) Appropriate advisory services, including reasonable advance 
written notice of:
    (i) The date and approximate duration of the temporary relocation;
    (ii) The location of the suitable, decent, safe and sanitary 
dwelling to be made available for the temporary period;
    (iii) The terms and conditions under which the tenant may occupy a 
suitable, decent, safe, and sanitary dwelling in the building/complex 
following completion of the repairs; and
    (iv) The provisions of paragraph (c)(1) of this section.
    (d) Relocation assistance for displaced persons. A displaced person 
(defined in paragraph (g) of this section) must be provided relocation 
assistance at the levels described in, and in accordance with the 
requirements of, the Uniform Relocation Assistance and Real Property 
Acquisition Policies Act of 1970, as amended (URA) (42 U.S.C. 4601-4655) 
and implementing regulations at 49 CFR part 24.
    (e) Appeals to the recipient. A person who disagrees with the 
recipient's determination concerning whether the person qualifies as a 
``displaced person,'' or the amount of relocation assistance for which 
the person is eligible, may file a written appeal of that determination 
with the recipient.
    (f) Responsibility of recipient. (1) The recipient shall certify 
that it will comply with the URA, the regulations at 49 CFR part 24, and 
the requirements of this section. The recipient shall ensure such 
compliance notwithstanding any third party's contractual obligation to 
the recipient to comply with the provisions in this section.
    (2) The cost of required relocation assistance is an eligible 
project cost in the same manner and to the same extent as other project 
costs. However, such assistance may also be paid for with funds 
available to the recipient from any other source.
    (3) The recipient shall maintain records in sufficient detail to 
demonstrate compliance with this section.
    (g) Definition of displaced person. (1) For purposes of this 
section, the term ``displaced person'' means any person (household, 
business, nonprofit organization, or farm) that moves from real 
property, or moves his or her personal property from real property, 
permanently, as a direct result of rehabilitation, demolition, or 
acquisition for a project assisted under this part. The

[[Page 735]]

term ``displaced person'' includes, but is not limited to:
    (i) A tenant-occupant of a dwelling unit who moves from the 
building/complex permanently after the submission to HUD of an IHP that 
is later approved.
    (ii) Any person, including a person who moves before the date 
described in paragraph (g)(1)(i) of this section, that the recipient 
determines was displaced as a direct result of acquisition, 
rehabilitation, or demolition for the assisted project.
    (iii) A tenant-occupant of a dwelling unit who moves from the 
building/complex permanently after the execution of the agreement 
between the recipient and HUD, if the move occurs before the tenant is 
provided written notice offering him or her the opportunity to lease and 
occupy a suitable, decent, safe and sanitary dwelling in the same 
building/complex, under reasonable terms and conditions, upon completion 
of the project. Such reasonable terms and conditions include a monthly 
rent and estimated average monthly utility costs that do not exceed the 
greater of:
    (A) The tenant-occupant's monthly rent and estimated average monthly 
utility costs before the agreement; or
    (B) 30 percent of gross household income.
    (iv) A tenant-occupant of a dwelling who is required to relocate 
temporarily, but does not return to the building/complex, if either:
    (A) The tenant-occupant is not offered payment for all reasonable 
out-of-pocket expenses incurred in connection with the temporary 
relocation, including the cost of moving to and from the temporarily 
occupied unit, any increased housing costs and incidental expenses; or
    (B) Other conditions of the temporary relocation are not reasonable.
    (v) A tenant-occupant of a dwelling who moves from the building/
complex after he or she has been required to move to another dwelling 
unit in the same building/complex in order to carry out the project, if 
either:
    (A) The tenant-occupant is not offered reimbursement for all 
reasonable out-of-pocket expenses incurred in connection with the move; 
or
    (B) Other conditions of the move are not reasonable.
    (2) Notwithstanding the provisions of paragraph (g)(1) of this 
section, a person does not qualify as a ``displaced person'' (and is not 
eligible for relocation assistance under the URA or this section), if:
    (i) The person moved into the property after the submission of the 
IHP to HUD, but, before signing a lease or commencing occupancy, was 
provided written notice of the project, its possible impact on the 
person (e.g., the person may be displaced, temporarily relocated or 
suffer a rent increase) and the fact that the person would not qualify 
as a ``displaced person'' or for any assistance provided under this 
section as a result of the project.
    (ii) The person is ineligible under 49 CFR 24.2(g)(2).
    (iii) The recipient determines the person is not displaced as a 
direct result of acquisition, rehabilitation, or demolition for an 
assisted project. To exclude a person on this basis, HUD must concur in 
that determination.
    (3) A recipient may at any time ask HUD to determine whether a 
specific displacement is or would be covered under this section.
    (h) Definition of initiation of negotiations. For purposes of 
determining the formula for computing the replacement housing assistance 
to be provided to a person displaced as a direct result of 
rehabilitation or demolition of the real property, the term ``initiation 
of negotiations'' means the execution of the agreement covering the 
rehabilitation or demolition (See 49 CFR part 24).



Sec. 1000.16  What labor standards are applicable?

    (a) Davis-Bacon wage rates. (1) As described in section 104(b) of 
NAHASDA, contracts and agreements for assistance, sale or lease under 
NAHASDA must require prevailing wage rates determined by the Secretary 
of Labor under the Davis-Bacon Act (40 U.S.C. 276a-276a-5) to be paid to 
laborers and mechanics employed in the development of affordable 
housing.
    (2) When NAHASDA assistance is only used to assist homebuyers to 
acquire single family housing, the Davis-

[[Page 736]]

Bacon wage rates apply to the construction of the housing if there is a 
written agreement with the owner or developer of the housing that 
NAHASDA assistance will be used to assist homebuyers to buy the housing.
    (3) Prime contracts not in excess of $2000 are exempt from Davis-
Bacon wage rates.
    (b) HUD-determined wage rates. Section 104(b) also mandates that 
contracts and agreements for assistance, sale or lease under NAHASDA 
require that prevailing wages determined or adopted (subsequent to a 
determination under applicable state, tribal or local law) by HUD shall 
be paid to maintenance laborers and mechanics employed in the operation, 
and to architects, technical engineers, draftsmen and technicians 
employed in the development, of affordable housing.
    (c) Contract Work Hours and Safety Standards Act. Contracts in 
excess of $100,000 to which Davis-Bacon or HUD-determined wage rates 
apply are subject by law to the overtime provisions of the Contract Work 
Hours and Safety Standards Act (40 U.S.C. 327).
    (d) Volunteers. The requirements in 24 CFR part 70 concerning 
exemptions for the use of volunteers on projects subject to Davis-Bacon 
and HUD-determined wage rates are applicable.
    (e) Other laws and issuances. Recipients, contractors, 
subcontractors, and other participants must comply with regulations 
issued under the labor standards provisions cited in this section, other 
applicable Federal laws and regulations pertaining to labor standards, 
and HUD Handbook 1344.1 (Federal Labor Standards Compliance in Housing 
and Community Development Programs).



Sec. 1000.18  What environmental review requirements apply?

    The environmental effects of each activity carried out with 
assistance under this part must be evaluated in accordance with the 
provisions of the National Environmental Policy Act of 1969 (NEPA) (42 
U.S.C. 4321) and the related authorities listed in HUD's implementing 
regulations at 24 CFR parts 50 and 58. An environmental review does not 
have to be completed prior to HUD approval of an IHP.



Sec. 1000.20  Is an Indian tribe required to assume environmental review 
responsibilities?

    (a) No. It is an option an Indian tribe may choose. If an Indian 
tribe declines to assume the environmental review responsibilities, HUD 
will perform the environmental review in accordance with 24 CFR part 50. 
The timing of HUD undertaking the environmental review will be subject 
to the availability of resources. A HUD environmental review must be 
completed for any NAHASDA assisted activities not excluded from review 
under 24 CFR 50.19(b) before a recipient may acquire, rehabilitate, 
convert, lease, repair or construct property, or commit HUD or local 
funds used in conjunction with such NAHASDA assisted activities with 
respect to the property.
    (b) If an Indian tribe assumes environmental review 
responsibilities:
    (1) Its certifying officer must certify that he/she is authorized 
and consents on behalf of the Indian tribe and such officer to accept 
the jurisdiction of the Federal courts for the purpose of enforcement of 
the responsibilities of the certifying officer as set forth in section 
105(c) of NAHASDA; and
    (2) The Indian tribe must follow the requirements of 24 CFR part 58.
    (3) No funds may be committed to a grant activity or project before 
the completion of the environmental review and approval of the request 
for release of funds and related certification required by sections 
105(b) and 105(c) of NAHASDA, except as authorized by 24 CFR part 58 
such as for the costs of environmental reviews and other planning and 
administrative expenses.
    (c) Where an environmental assessment (EA) is appropriate under 24 
CFR part 50, instead of an Indian tribe assuming environmental review 
responsibilities under paragraph (b) of this section or HUD preparing 
the EA itself under paragraph (a) of this section, an Indian tribe or 
TDHE may prepare an EA for HUD review. In addition to complying with the 
requirements of 40 CFR 1506.5(a), HUD shall make its own evaluation of 
the environmental issues and take responsibility for the scope and 
content of the EA in accordance with 40 CFR 1506.5(b).

[[Page 737]]



Sec. 1000.22  Are the costs of the environmental review an eligible 
cost?

    Yes, costs of completing the environmental review are eligible.



Sec. 1000.24  If an Indian tribe assumes environmental review 

responsibility, how will HUD assist the Indian tribe in performing 
the environmental review?

    As set forth in section 105(a)(2)(B) of NAHASDA and 24 CFR 58.77, 
HUD will provide for monitoring of environmental reviews and will also 
facilitate training for the performance for such reviews by Indian 
tribes.



Sec. 1000.26  What are the administrative requirements under NAHASDA?

    (a) Except as addressed in Sec. 1000.28, recipients shall comply 
with the requirements and standards of OMB Circular No. A-87, 
``Principles for Determining Costs Applicable to Grants and Contracts 
with State, Local and Federally recognized Indian Tribal Governments,'' 
and with the following sections of 24 CFR part 85 ``Uniform 
Administrative Requirements for Grants and Cooperative Agreements to 
State and Local Governments.'' For purposes of this part, ``grantee'' as 
defined in 24 CFR part 85 has the same meaning as ``recipient.''
    (1) Section 85.3, ``Definitions.''
    (2) Section 85.6, ``Exceptions.''
    (3) Section 85.12, ``Special grant or subgrant conditions for `high 
risk' grantees.''
    (4) Section 85.20, ``Standards for financial management systems,'' 
except paragraph (a).
    (5) Section 85.21, ``Payment.''
    (6) Section 85.22, ``Allowable costs.''
    (7) Section 85.26, ``Non-federal audits.''
    (8) Section 85.32, ``Equipment,'' except in all cases in which the 
equipment is sold, the proceeds shall be program income.
    (9) Section 85.33, ``Supplies.''
    (10) Section 85.35, ``Subawards to debarred and suspended parties.''
    (11) Section 85.36, ``Procurement,'' except paragraph (a). There may 
be circumstances under which the bonding requirements of Sec. 85.36(h) 
are inconsistent with other responsibilities and obligations of the 
recipient. In such circumstances, acceptable methods to provide 
performance and payment assurance may include:
    (i) Deposit with the recipient of a cash escrow of not less than 20 
percent of the total contract price, subject to reduction during the 
warranty period, commensurate with potential risk;
    (ii) Letter of credit for 25 percent of the total contract price, 
unconditionally payable upon demand of the recipient, subject to 
reduction during any warranty period commensurate with potential risk; 
or
    (iii) Letter of credit for 10 percent of the total contract price 
unconditionally payable upon demand of the recipient subject to 
reduction during any warranty period commensurate with potential risk, 
and compliance with the procedures for monitoring of disbursements by 
the contractor.
    (12) Section 85.37, ``Subgrants.''
    (13) Section 85.40, ``Monitoring and reporting program 
performance,'' except paragraphs (b) through (d) and paragraph (f).
    (14) Section 85.41, ``Financial reporting,'' except paragraphs (a), 
(b), and (e).
    (15) Section 85.44, ``Termination for convenience.''
    (16) Section 85.51 ``Later disallowances and adjustments.''
    (17) Section 85.52, ``Collection of amounts due.''
    (b)(1) With respect to the applicability of cost principles, all 
items of cost listed in Attachment B of OMB Circular A-87 which require 
prior Federal agency approval are allowable without the prior approval 
of HUD to the extent that they comply with the general policies and 
principles stated in Attachment A of this circular and are otherwise 
eligible under this part, except for the following:
    (i) Depreciation methods for fixed assets shall not be changed 
without specific approval of HUD or, if charged through a cost 
allocation plan, the Federal cognizant agency.
    (ii) Fines and penalties are unallowable costs to the IHBG program.
    (2) In addition, no person providing consultant services in an 
employer-employee type of relationship shall receive more than a 
reasonable rate of compensation for personal services paid with IHBG 
funds. In no event,

[[Page 738]]

however, shall such compensation exceed the equivalent of the daily rate 
paid for Level IV of the Executive Schedule.



Sec. 1000.28  May a self-governance Indian tribe be exempted from the 
applicability of Sec. 1000.26?

    Yes. A self-governance Indian tribe shall certify that its 
administrative requirements, standards and systems meet or exceed the 
comparable requirements of Sec. 1000.26. For purposes of this section, 
a self-governance Indian tribe is an Indian tribe that participates in 
tribal self-governance as authorized under Public Law 93-638, as amended 
(25 U.S.C. 450 et seq.).



Sec. 1000.30  What prohibitions regarding conflict of interest are 
applicable?

    (a) Applicability. In the procurement of supplies, equipment, other 
property, construction and services by recipients and subrecipients, the 
conflict of interest provisions of 24 CFR 85.36 shall apply. In all 
cases not governed by 24 CFR 85.36, the following provisions of this 
section shall apply.
    (b) Conflicts prohibited. No person who participates in the 
decision-making process or who gains inside information with regard to 
NAHASDA assisted activities may obtain a personal or financial interest 
or benefit from such activities, except for the use of NAHASDA funds to 
pay salaries or other related administrative costs. Such persons include 
anyone with an interest in any contract, subcontract or agreement or 
proceeds thereunder, either for themselves or others with whom they have 
business or immediate family ties. Immediate family ties are determined 
by the Indian tribe or TDHE in its operating policies.
    (c) The conflict of interest provision does not apply in instances 
where a person who might otherwise be included under the conflict 
provision is low-income and is selected for assistance in accordance 
with the recipient's written policies for eligibility, admission and 
occupancy of families for housing assistance with IHBG funds, provided 
that there is no conflict of interest under applicable tribal or state 
law. The recipient must make a public disclosure of the nature of 
assistance to be provided and the specific basis for the selection of 
the person. The recipient shall provide the appropriate Area ONAP with a 
copy of the disclosure before the assistance is provided to the person.



Sec. 1000.32  May exceptions be made to the conflict of interest 
provisions?

    (a) Yes. HUD may make exceptions to the conflict of interest 
provisions set forth in Sec. 1000.30(b) on a case-by-case basis when it 
determines that such an exception would further the primary objective of 
NAHASDA and the effective and efficient implementation of the 
recipient's program, activity, or project.
    (b) A public disclosure of the conflict must be made and a 
determination that the exception would not violate tribal laws on 
conflict of interest (or any applicable state laws) must also be made.



Sec. 1000.34  What factors must be considered in making an exception 
to the conflict of interest provisions?

    In determining whether or not to make an exception to the conflict 
of interest provisions, HUD must consider whether undue hardship will 
result, either to the recipient or to the person affected, when weighed 
against the public interest served by avoiding the prohibited conflict.



Sec. 1000.36  How long must a recipient retain records regarding 
exceptions made to the conflict of interest provisions?

    A recipient must maintain all such records for a period of at least 
3 years after an exception is made.



Sec. 1000.38  What flood insurance requirements are applicable?

    Under the Flood Disaster Protection Act of 1973, as amended (42 
U.S.C. 4001-4128), a recipient may not permit the use of Federal 
financial assistance for acquisition and construction purposes 
(including rehabilitation) in an area identified by the Federal 
Emergency Management Agency (FEMA) as having special flood hazards, 
unless the following conditions are met:

[[Page 739]]

    (a) The community in which the area is situated is participating in 
the National Flood Insurance Program in accord with section 202(a) of 
the Flood Disaster Protection Act of 1973 (42 U.S.C. 4106(a)), or less 
than a year has passed since FEMA notification regarding such flood 
hazards. For this purpose, the ``community'' is the governmental entity, 
such as an Indian tribe or authorized tribal organization, an Alaska 
Native village, or authorized Native organization, or a municipality or 
county, that has authority to adopt and enforce flood plain management 
regulations for the area; and
    (b) Where the community is participating in the National Flood 
Insurance Program, flood insurance on the building is obtained in 
compliance with section 102(a) of the Flood Disaster Protection Act of 
1973 (42 U.S.C. 4012(a)); provided, that if the financial assistance is 
in the form of a loan or an insurance or guaranty of a loan, the amount 
of flood insurance required need not exceed the outstanding principal 
balance of the loan and need not be required beyond the term of the 
loan.



Sec. 1000.40  Do lead-based paint poisoning prevention requirements 
apply to affordable housing activities under NAHASDA?

    Yes, lead-based paint requirements apply to housing activities 
assisted under NAHASDA. The applicable requirements for NAHASDA are 
HUD's regulations at part 35, subparts A, B, H, J, K, M and R of this 
title, which implement the Lead-Based Paint Poisoning Prevention Act (42 
U.S.C. 4822-4846) and the Residential Lead-Based Paint Hazard Reduction 
Act of 1992 (42 U.S.C. 4851-4856).

[64 FR 50230, Sept. 15, 1999; 65 FR 3387, Jan. 21, 2000]



Sec. 1000.42  Are the requirements of section 3 of the Housing and 
Urban Development Act of 1968 applicable?

    (a) General. Yes. Recipients shall comply with section 3 of the 
Housing and Urban Development Act of 1968 (12 U.S.C. 1701u) and HUD's 
implementing regulations in 24 CFR part 135, to the maximum extent 
feasible and consistent with, but not in derogation of, compliance with 
section 7(b) of the Indian Self-Determination and Education Assistance 
Act (25 U.S.C. 450e(b)). Section 3 provides job training, employment, 
and contracting opportunities for low-income individuals.
    (b) Threshold requirement. The requirements of section 3 apply only 
to those section 3 covered projects or activities for which the amount 
of assistance exceeds $200,000.



Sec. 1000.44  What prohibitions on the use of debarred, suspended or 
ineligible contractors apply?

    In addition to any tribal requirements, the prohibitions in 24 CFR 
part 24 on the use of debarred, suspended or ineligible contractors 
apply.



Sec. 1000.46  Do drug-free workplace requirements apply?

    Yes. In addition to any tribal requirements, the Drug-Free Workplace 
Act of 1988 (41 U.S.C. 701 et seq.) and HUD's implementing regulations 
in 24 CFR part 24 apply.



Sec. 1000.48  Are Indian preference requirements applicable to IHBG 
activities?

    (a) Applicability. Grants under this part are subject to section 
7(b) of the Indian Self-Determination and Education Assistance Act (25 
U.S.C. 450e(b). Section 7(b) provides that any contract, subcontract, 
grant or subgrant pursuant to an act authorizing grants to Indian 
organizations or for the benefit of Indians shall require that, to the 
greatest extent feasible:
    (1) Preference and opportunities for training and employment shall 
be given to Indians, and
    (2) Preference in the award of contracts and subcontracts shall be 
given to Indian organizations and Indian-owned economic enterprises as 
defined in section 3 of the Indian Financing Act of 1974 (25 U.S.C. 
1452).
    (b) Definitions.
    (1) The Indian Self-Determination and Education Assistance Act 
defines ``Indian'' to mean a person who is a member of an Indian tribe 
and defines ``Indian tribe'' to mean any Indian tribe, band, nation, or 
other organized group or community including any Alaska Native village 
or regional or

[[Page 740]]

village corporation as defined or established pursuant to the Alaska 
Native Claims Settlement Act, which is recognized as eligible for the 
special programs and services provided by the United States to Indians 
because of their status as Indians.
    (2) In section 3 of the Indian Financing Act of 1974 ``economic 
enterprise'' is defined as any Indian-owned commercial, industrial, or 
business activity established or organized for the purpose of profit, 
except that Indian ownership must constitute not less than 51 percent of 
the enterprise. This act defines ``Indian organization'' to mean the 
governing body of any Indian tribe or entity established or recognized 
by such governing body.



Sec. 1000.50  What Indian preference requirements apply to IHBG administration 
activities?

    To the greatest extent feasible, preference and opportunities for 
training and employment in connection with the administration of grants 
awarded under this part shall be given to Indians.



Sec. 1000.52  What Indian preference requirements apply to IHBG procurement?

    To the greatest extent feasible, recipients shall give preference in 
the award of contracts for projects funded under this part to Indian 
organizations and Indian-owned economic enterprises.
    (a) Each recipient shall:
    (1) Certify to HUD that the polices and procedures adopted by the 
recipient will provide preference in procurement activities consistent 
with the requirements of section 7(b) of the Indian Self-Determination 
and Education Assistance Act (25 U.S.C.450e(b)) (An Indian preference 
policy which was previously approved by HUD for a recipient will meet 
the requirements of this section); or
    (2) Advertise for bids or proposals limited to qualified Indian 
organizations and Indian-owned enterprises; or
    (3) Use a two-stage preference procedure, as follows:
    (i) Stage 1. Invite or otherwise solicit Indian-owned economic 
enterprises to submit a statement of intent to respond to a bid 
announcement or request for proposals limited to Indian-owned firms.
    (ii) Stage 2. If responses are received from more than one Indian 
enterprise found to be qualified, advertise for bids or proposals 
limited to Indian organizations and Indian-owned economic enterprises.
    (b) If the recipient selects a method of providing preference that 
results in fewer than two responsible qualified organizations or 
enterprises submitting a statement of intent, a bid or a proposal to 
perform the contract at a reasonable cost, then the recipient shall:
    (1) Re-advertise the contract, using any of the methods described in 
paragraph (a) of this section; or
    (2) Re-advertise the contract without limiting the advertisement for 
bids or proposals to Indian organizations and Indian-owned economic 
enterprises; or
    (3) If one approvable bid or proposal is received, request Area ONAP 
review and approval of the proposed contract and related procurement 
documents, in accordance with 24 CFR 85.36, in order to award the 
contract to the single bidder or offeror.
    (c) Procurements that are within the dollar limitations established 
for small purchases under 24 CFR 85.36 need not follow the formal bid or 
proposal procedures of paragraph (a) of this section, since these 
procurements are governed by the small purchase procedures of 24 CFR 
85.36. However, a recipient's small purchase procurement shall, to the 
greatest extent feasible, provide Indian preference in the award of 
contracts.
    (d) All preferences shall be publicly announced in the advertisement 
and bidding or proposal solicitation documents and the bidding and 
proposal documents.
    (e) A recipient, at its discretion, may require information of 
prospective contractors seeking to qualify as Indian organizations or 
Indian-owned economic enterprises. Recipients may require prospective 
contractors to provide the following information before submitting a bid 
or proposal, or at the time of submission:
    (1) Evidence showing fully the extent of Indian ownership and 
interest;

[[Page 741]]

    (2) Evidence of structure, management and financing affecting the 
Indian character of the enterprise, including major subcontracts and 
purchase agreements; materials or equipment supply arrangements; and 
management salary or profit-sharing arrangements; and evidence showing 
the effect of these on the extent of Indian ownership and interest; and
    (3) Evidence sufficient to demonstrate to the satisfaction of the 
recipient that the prospective contractor has the technical, 
administrative, and financial capability to perform contract work of the 
size and type involved.
    (f) The recipient shall incorporate the following clause (referred 
to as the section 7(b) clause) in each contract awarded in connection 
with a project funded under this part:
    (1) The work to be performed under this contract is on a project 
subject to section 7(b) of the Indian Self-Determination and Education 
Assistance Act (25 U.S.C. 450e(b)) (the Indian Act). Section 7(b) 
requires that to the greatest extent feasible:
    (i) Preferences and opportunities for training and employment shall 
be given to Indians; and
    (ii) Preferences in the award of contracts and subcontracts shall be 
given to Indian organizations and Indian-owned economic enterprises.
    (2) The parties to this contract shall comply with the provisions of 
section 7(b) of the Indian Act.
    (3) In connection with this contract, the contractor shall, to the 
greatest extent feasible, give preference in the award of any 
subcontracts to Indian organizations and Indian-owned economic 
enterprises, and preferences and opportunities for training and 
employment to Indians.
    (4) The contractor shall include this section 7(b) clause in every 
subcontract in connection with the project, and shall, at the direction 
of the recipient, take appropriate action pursuant to the subcontract 
upon a finding by the recipient or HUD that the subcontractor has 
violated the section 7(b) clause of the Indian Act.



Sec. 1000.54  What procedures apply to complaints arising out of any 
of the methods of providing for Indian preference?

    The following procedures are applicable to complaints arising out of 
any of the methods of providing for Indian preference contained in this 
part, including alternate methods. Tribal policies that meet or exceed 
the requirements of this section shall apply.
    (a) Each complaint shall be in writing, signed, and filed with the 
recipient.
    (b) A complaint must be filed with the recipient no later than 20 
calendar days from the date of the action (or omission) upon which the 
complaint is based.
    (c) Upon receipt of a complaint, the recipient shall promptly stamp 
the date and time of receipt upon the complaint, and immediately 
acknowledge its receipt.
    (d) Within 20 calendar days of receipt of a complaint, the recipient 
shall either meet, or communicate by mail or telephone, with the 
complainant in an effort to resolve the matter. The recipient shall make 
a determination on a complaint and notify the complainant, in writing, 
within 30 calendar days of the submittal of the complaint to the 
recipient. The decision of the recipient shall constitute final 
administrative action on the complaint.



Sec. 1000.56  How are NAHASDA funds paid by HUD to recipients?

    (a) Each year funds shall be paid directly to a recipient in a 
manner that recognizes the right of Indian self-determination and tribal 
self-governance and the trust responsibility of the Federal government 
to Indian tribes consistent with NAHASDA.
    (b) Payments shall be made as expeditiously as practicable.



Sec. 1000.58  Are there limitations on the investment of IHBG funds?

    (a) A recipient may invest IHBG funds for the purposes of carrying 
out affordable housing activities in investment securities and other 
obligations as provided in this section.
    (b) The recipient may invest IHBG funds so long as it demonstrates 
to HUD:

[[Page 742]]

    (1) That there are no unresolved significant and material audit 
findings or exceptions in the most recent annual audit completed under 
the Single Audit Act or in an independent financial audit prepared in 
accordance with generally accepted auditing principles; and
    (2) That it is a self-governance Indian tribe or that it has the 
administrative capacity and controls to responsibly manage the 
investment. For purposes of this section, a self-governance Indian tribe 
is an Indian tribe that participates in tribal self-governance as 
authorized under Public Law 93-638, as amended (25 U.S.C. 450 et seq.).
    (c) Recipients shall invest IHBG funds only in:
    (1) Obligations of the United States; obligations issued by 
Government sponsored agencies; securities that are guaranteed or insured 
by the United States; mutual (or other) funds registered with the 
Securities and Exchange Commission and which invest only in obligations 
of the United States or securities that are guaranteed or insured by the 
United States; or
    (2) Accounts that are insured by an agency or instrumentality of the 
United States or fully collateralized to ensure protection of the funds, 
even in the event of bank failure.
    (d) IHBG funds shall be held in one or more accounts separate from 
other funds of the recipient. Each of these accounts shall be subject to 
an agreement in a form prescribed by HUD sufficient to implement the 
regulations in this part and permit HUD to exercise its rights under 
Sec. 1000.60.
    (e) Expenditure of funds for affordable housing activities under 
section 204(a) of NAHASDA shall not be considered investment.
    (f) A recipient may invest its IHBG annual grant in an amount equal 
to the annual formula grant amount less any formula grant amounts 
allocated for the operating subsidy element of the Formula Current 
Assisted Housing Stock (FCAS) component of the formula (see Sec. Sec. 
1000.316(a) and 1000.320) multiplied by the following percentages, as 
appropriate:
    (1) 50% in Fiscal Years 1998 and 1999;
    (2) 75% in Fiscal Year 2000; and
    (3) 100% in Fiscal Years 2001 and thereafter.
    (g) Investments under this section may be for a period no longer 
than two years.



Sec. 1000.60  Can HUD prevent improper expenditure of funds already 
disbursed to a recipient?

    Yes. In accordance with the standards and remedies contained in 
Sec. 1000.538 relating to substantial noncompliance, HUD will use its 
powers under a depository agreement and take such other actions as may 
be legally necessary to suspend funds disbursed to the recipient until 
the substantial noncompliance has been remedied. In taking this action, 
HUD shall comply with all appropriate procedures, appeals and hearing 
rights prescribed elsewhere in this part.



Sec. 1000.62  What is considered program income and what restrictions 
are there on its use?

    (a) Program income is defined as any income that is realized from 
the disbursement of grant amounts. Program income does not include any 
amounts generated from the operation of 1937 Act units unless the units 
are assisted with grant amounts and the income is attributable to such 
assistance. Program income includes income from fees for services 
performed from the use of real or rental of real or personal property 
acquired with grant funds, from the sale of commodities or items 
developed, acquired, etc. with grant funds, and from payments of 
principal and interest earned on grant funds prior to disbursement.
    (b) Any program income can be retained by a recipient provided it is 
used for affordable housing activities in accordance with section 202 of 
NAHASDA. If the amount of income received in a single year by a 
recipient and all its subrecipients, which would otherwise be considered 
program income, does not exceed $25,000, such funds may be retained but 
will not be considered to be or treated as program income.
    (c) If program income is realized from an eligible activity funded 
with both grant funds as well as other funds (i.e., funds that are not 
grant funds),

[[Page 743]]

then the amount of program income realized will be based on a percentage 
calculation that represents the proportional share of funds provided for 
the activity generating the program income.
    (d) Costs incident to the generation of program income shall be 
deducted from gross income to determine program income.



                 Subpart B_Affordable Housing Activities



Sec. 1000.101  What is affordable housing?

    Eligible affordable housing is defined in section 4(2) of NAHASDA 
and is described in title II of NAHASDA.



Sec. 1000.102  What are eligible affordable housing activities?

    Eligible affordable housing activities are those described in 
section 202 of NAHASDA.



Sec. 1000.104  What families are eligible for affordable housing 
activities?

    The following families are eligible for affordable housing 
activities:
    (a) Low income Indian families on a reservation or Indian area.
    (b) A non-low income Indian family may receive housing assistance in 
accordance with Sec. 1000.110, except that non low-income Indian 
families residing in housing assisted under the 1937 Act do not have to 
meet the requirements of Sec. 1000.110 for continued occupancy.
    (c) A non-Indian family may receive housing assistance on a 
reservation or Indian area if the non-Indian family's housing needs 
cannot be reasonably met without such assistance and the recipient 
determines that the presence of that family on the reservation or Indian 
area is essential to the well-being of Indian families, except that non-
Indian families residing in housing assisted under the 1937 Act do not 
have to meet these requirements for continued occupancy.



Sec. 1000.106  What families receiving assistance under title II of 
NAHASDA require HUD approval?

    (a) Housing assistance for non low-income Indian families requires 
HUD approval only as required in Sec. Sec. 1000.108 and 1000.110.
    (b) Assistance under section 201(b)(3) of NAHASDA for non-Indian 
families does not require HUD approval but only requires that the 
recipient determine that the presence of that family on the reservation 
or Indian area is essential to the well-being of Indian families and the 
non-Indian family's housing needs cannot be reasonably met without such 
assistance.



Sec. 1000.108  How is HUD approval obtained by a recipient for housing 
for non low-income Indian families and model activities?

    Recipients are required to submit proposals to operate model housing 
activities as defined in section 202(6) of NAHASDA and to provide 
assistance to non low-income Indian families in accordance with section 
201(b)(2) of NAHASDA. Assistance to non low-income Indian families must 
be in accordance with Sec. 1000.110. Proposals may be submitted in the 
recipient's IHP or at any time by amendment of the IHP, or by special 
request to HUD at any time. HUD may approve the remainder of an IHP 
notwithstanding disapproval of a model activity or assistance to non 
low-income Indian families.



Sec. 1000.110  Under what conditions may non low-income Indian families 
participate in the program?

    (a) A family who is purchasing housing under a lease purchase 
agreement and who was low income at the time the lease was signed is 
eligible without further conditions.
    (b) A recipient may provide the following types of assistance to non 
low-income Indian families under the conditions specified in paragraphs 
(c), (d) and (e) of this section:
    (1) Homeownership activities under section 202(2) of NAHASDA, which 
may include assistance in conjunction with loan guarantees under the 
Section 184 program (see 24 CFR part 1005);
    (2) Model activities under section 202(6) of NAHASDA; and
    (3) Loan guarantee activities under title VI of NAHASDA.

[[Page 744]]

    (c) A recipient must determine and document that there is a need for 
housing for each family which cannot reasonably be met without such 
assistance.
    (d) A recipient may use up to 10 percent of its annual grant amount 
for families whose income falls within 80 to 100 percent of the median 
income without HUD approval. HUD approval is required if a recipient 
plans to use more than 10 percent of its annual grant amount for such 
assistance or to provide housing for families with income over 100 
percent of median income.
    (e) Non low-income Indian families cannot receive the same benefits 
provided low-income Indian families. The amount of assistance non low-
income Indian families may receive will be determined as follows:
    (1) The rent (including homebuyer payments under a lease purchase 
agreement) to be paid by a non low-income Indian family cannot be less 
than: (Income of non low-income family/Income of family at 80 percent of 
median income) x (Rental payment of family at 80 percent of median 
income), but need not exceed the fair market rent or value of the unit.
    (2) Other assistance, including down payment assistance, to non low-
income Indian families, cannot exceed: (Income of family at 80 percent 
of median income/Income of non low-income family) x (Present value of 
the assistance provided to family at 80 percent of median income).
    (f) The requirements set forth in paragraph (e) of this section do 
not apply to non low-income Indian families which the recipient has 
determined to be essential to the well-being of the Indian families 
residing in the housing area.



Sec. 1000.112  How will HUD determine whether to approve model housing 
activities?

    HUD will review all proposals with the goal of approving the 
activities and encouraging the flexibility, discretion, and self-
determination granted to Indian tribes under NAHASDA to formulate and 
operate innovative housing programs that meet the intent of NAHASDA.



Sec. 1000.114  How long does HUD have to review and act on a proposal 

to provide assistance to non low-income Indian families or a model 
housing activity?

    Whether submitted in the IHP or at any other time, HUD will have 
sixty calendar days after receiving the proposal to notify the recipient 
in writing that the proposal to provide assistance to non low-income 
Indian families or for model activities is approved or disapproved. If 
no decision is made by HUD within sixty calendar days of receiving the 
proposal, the proposal is deemed to have been approved by HUD.



Sec. 1000.116  What should HUD do before declining a proposal to 

provide assistance to non low-income Indian families or a model 
housing activity?

    HUD shall consult with a recipient regarding the recipient's 
proposal to provide assistance to non low-income Indian families or a 
model housing activity. To the extent resources are available, HUD shall 
provide technical assistance to the recipient in amending and modifying 
the proposal if necessary. In case of a denial, HUD shall give the 
specific reasons for the denial.



Sec. 1000.118  What recourse does a recipient have if HUD disapproves 

a proposal to provide assistance to non low-income Indian families 
or a model housing activity?

    (a) Within thirty calendar days of receiving HUD's denial of a 
proposal to provide assistance to non low-income Indian families or a 
model housing activity, the recipient may request reconsideration of the 
denial in writing. The request shall set forth justification for the 
reconsideration.
    (b) Within twenty calendar days of receiving the request, HUD shall 
reconsider the recipient's request and either affirm or reverse its 
initial decision in writing, setting forth its reasons for the decision. 
If the decision was made by the Assistant Secretary, the decision will 
constitute final agency action. If the decision was made at a lower 
level, then paragraphs (c) and (d) of this section will apply.

[[Page 745]]

    (c) The recipient may appeal any denial of reconsideration by filing 
an appeal with the Assistant Secretary within twenty calendar days of 
receiving the denial. The appeal shall set forth the reasons why the 
recipient does not agree with HUD's decision and set forth justification 
for the reconsideration.
    (d) Within twenty calendar days of receipt of the appeal, the 
Assistant Secretary shall review the recipient's appeal and act on the 
appeal, setting forth the reasons for the decision.



Sec. 1000.120  May a recipient use Indian preference or tribal preference 
in selecting families for housing assistance?

    Yes. The IHP may set out a preference for the provision of housing 
assistance to Indian families who are members of the Indian tribe or to 
other Indian families if the recipient has adopted the preference in its 
admissions policy. The recipient shall ensure that housing activities 
funded under NAHASDA are subject to the preference.



Sec. 1000.122  May NAHASDA grant funds be used as matching funds to 

obtain and leverage funding, including any Federal or state program 
and still be considered an affordable housing activity?

    There is no prohibition in NAHASDA against using grant funds as 
matching funds.



Sec. 1000.124  What maximum and minimum rent or homebuyer payment 

can a recipient charge a low-income rental tenant or homebuyer 
residing in housing units assisted with NAHASDA grant amounts?

    A recipient can charge a low-income rental tenant or homebuyer rent 
or homebuyer payments not to exceed 30 percent of the adjusted income of 
the family. The recipient may also decide to compute its rental and 
homebuyer payments on any lesser percentage of adjusted income of the 
family. This requirement applies only to units assisted with NAHASDA 
grant amounts. NAHASDA does not set minimum rents or homebuyer payments; 
however, a recipient may do so.



Sec. 1000.126  May a recipient charge flat or income-adjusted rents?

    Yes, providing the rental or homebuyer payment of the low-income 
family does not exceed 30 percent of the family's adjusted income.



Sec. 1000.128  Is income verification required for assistance under 
NAHASDA?

    (a) Yes, the recipient must verify that the family is income 
eligible based on anticipated annual income. The family is required to 
provide documentation to verify this determination. The recipient is 
required to maintain the documentation on which the determination of 
eligibility is based.
    (b) The recipient may require a family to periodically verify its 
income in order to determine housing payments or continued occupancy 
consistent with locally adopted policies. When income verification is 
required, the family must provide documentation which verifies its 
income, and this documentation must be retained by the recipient.



Sec. 1000.130  May a recipient charge a non low-income family rents 

or homebuyer payments which are more than 30 percent of the family's 
adjusted income?

    Yes. A recipient may charge a non low-income family rents or 
homebuyer payments which are more than 30 percent of the family's 
adjusted income.



Sec. 1000.132  Are utilities considered a part of rent or homebuyer 
payments?

    Utilities may be considered a part of rent or homebuyer payments if 
a recipient decides to define rent or homebuyer payments to include 
utilities in its written policies on rents and homebuyer payments 
required by section 203(a)(1) of NAHASDA. A recipient may define rents 
and homebuyer payments to exclude utilities.



Sec. 1000.134  When may a recipient (or entity funded by a recipient) 
demolish or dispose of current assisted stock?

    (a) A recipient (or entity funded by a recipient) may undertake a 
planned

[[Page 746]]

demolition or disposal of current assisted stock owned by the recipient 
or an entity funded by the recipient when:
    (1) A financial analysis demonstrates that it is more cost-effective 
or housing program-effective for the recipient to demolish or dispose of 
the unit than to continue to operate or own it; or
    (2) The housing unit has been condemned by the government which has 
authority over the unit; or
    (3) The housing unit is an imminent threat to the health and safety 
of housing residents; or
    (4) Continued habitation of a housing unit is inadvisable due to 
cultural or historical considerations.
    (b) No action to demolish or dispose of the property other than 
performing the analysis cited in paragraph (a) of this section can be 
taken until HUD has been notified in writing of the recipient's intent 
to demolish or dispose of the housing units consistent with section 
102(c)(4)(H) of NAHASDA. The written notification must set out the 
analysis used to arrive at the decision to demolish or dispose of the 
property and may be set out in a recipient's IHP or in a separate 
submission to HUD.
    (c) In any disposition sale of a housing unit, a sale process 
designed to maximize the sale price will be used. However, where the 
sale is to a low-income Indian family, the home may be disposed of 
without maximizing the sale price so long as such price is consistent 
with a recipient's IHP. The sale proceeds from the disposition of any 
housing unit are program income under NAHASDA and must be used in 
accordance with the requirements of NAHASDA and these regulations.



Sec. 1000.136  What insurance requirements apply to housing units 
assisted with NAHASDA grants?

    (a) The recipient shall provide adequate insurance either by 
purchasing insurance or by indemnification against casualty loss by 
providing insurance in adequate amounts to indemnify the recipient 
against loss from fire, weather, and liability claims for all housing 
units owned or operated by the recipient.
    (b) The recipients shall not require insurance on units assisted by 
grants to families for privately owned housing if there is no risk of 
loss or exposure to the recipient or if the assistance is in an amount 
less than $5000, but will require insurance when repayment of all or 
part of the assistance is part of the assistance agreement.
    (c) The recipient shall require contractors and subcontractors to 
either provide insurance covering their activities or negotiate adequate 
indemnification coverage to be provided by the recipient in the 
contract.
    (d) These requirements are in addition to applicable flood insurance 
requirements under Sec. 1000.38.



Sec. 1000.138  What constitutes adequate insurance?

    Insurance is adequate if it is a purchased insurance policy from an 
insurance provider or a plan of self-insurance in an amount that will 
protect the financial stability of the recipient's IHBG program. 
Recipients may purchase the required insurance without regard to 
competitive selection procedures from nonprofit insurance entities which 
are owned and controlled by recipients and which have been approved by 
HUD.



Sec. 1000.140  May a recipient use grant funds to purchase insurance 

for privately owned housing to protect NAHASDA grant amounts spent 
on that housing?

    Yes. All purchases of insurance must be in accordance with 
Sec. Sec. 1000.136 and 1000.138.



Sec. 1000.142  What is the ``useful life'' during which low-income 

rental housing and low-income homebuyer housing must remain 
affordable as required in sections 205(a)(2) and 209 of NAHASDA?

    Each recipient shall describe in its IHP its determination of the 
useful life of each assisted housing unit in each of its developments in 
accordance with the local conditions of the Indian area of the 
recipient. By approving the plan, HUD determines the useful life in 
accordance with section 205(a)(2) of NAHASDA and for purposes of section 
209.

[[Page 747]]



Sec. 1000.144  Are Mutual Help homes developed under the 1937 Act subject 
to the useful life provisions of section 205(a)(2)?

    No.



Sec. 1000.146  Are homebuyers required to remain low-income throughout 
the term of their participation in a housing program funded under NAHASDA?

    No. The low-income eligibility requirement applies only at the time 
of purchase. However, families purchasing housing under a lease purchase 
agreement who are not low-income at the time of purchase are eligible 
under Sec. 1000.110.



Sec. 1000.150  How may Indian tribes and TDHEs receive criminal 
conviction information on adult applicants or tenants?

    (a) As required by section 208 of NAHASDA, the National Crime 
Information Center, police departments, and other law enforcement 
agencies shall provide criminal conviction information to Indian tribes 
and TDHEs upon request. Information regarding juveniles shall only be 
released to the extent such release is authorized by the law of the 
applicable state, Indian tribe or locality.
    (b) For purposes of this section, the term ``tenants'' includes 
homebuyers who are purchasing a home pursuant to a lease purchase 
agreement.



Sec. 1000.152  How is the recipient to use criminal conviction 
information?

    The recipient shall use the criminal conviction information 
described in Sec. 1000.150 only for applicant screening, lease 
enforcement and eviction actions. The information may be disclosed only 
to any person who has a job related need for the information and who is 
an authorized officer, employee, or representative of the recipient or 
the owner of housing assisted under NAHASDA.



Sec. 1000.154  How is the recipient to keep criminal conviction 
information confidential?

    (a) The recipient will keep all the criminal conviction record 
information it receives from the official law enforcement agencies 
listed in Sec. 1000.150 in files separate from all other housing 
records.
    (b) These criminal conviction records will be kept under lock and 
key and be under the custody and control of the recipient's housing 
executive director/lead official and/or his designee for such records.
    (c) These criminal conviction records may only be accessed with the 
written permission of the Indian tribe's or TDHE's housing executive 
director/lead official and/or his designee and are only to be used for 
the purposes stated in section 208 of NAHASDA and these regulations.



Sec. 1000.156  Is affordable housing developed, acquired, or assisted 
under the IHBG program subject to limitations on cost or design standards?

    Yes. Affordable housing must be of moderate design. For these 
purposes, moderate design is defined as housing that is of a size and 
with amenities consistent with unassisted housing offered for sale in 
the Indian tribe's general geographic area to buyers who are at or below 
the area median income. The local determination of moderate design 
applies to all housing assisted under an affordable housing activity, 
including development activities (e.g., acquisition, new construction, 
reconstruction, moderate or substantial rehabilitation of affordable 
housing and homebuyer assistance) and model activities. Acquisition 
includes assistance to a family to buy housing. Units with the same 
number of bedrooms must be comparable with respect to size, cost and 
amenities.

[66 FR 49790, Sept. 28, 2001]



Sec. 1000.158  How will a NAHASDA grant recipient know that the housing 
assisted under the IHBG program meets the requirements of Sec. 1000.156?

    (a) A recipient must use one of the methods specified in paragraph 
(b) or (c) of this section to determine if an assisted housing project 
meets the moderate design requirements of Sec. 1000.156. For purposes 
of this requirement, a project is one or more housing units, of 
comparable size, cost, amenities and design, developed with assistance 
provided by the Act.

[[Page 748]]

    (b) The recipient may adopt written standards for its affordable 
housing programs that reflect the requirement specified in Sec. 
1000.156. The standards must describe the type of housing, explain the 
basis for the standards, and use similar housing in the Indian tribe's 
general geographic area. For each affordable housing project, the 
recipient must maintain documentation substantiating compliance with the 
adopted housing standards. The standards and documentation 
substantiating compliance for each activity must be available for review 
by the general public and, upon request, by HUD. Prior to awarding a 
contract for the construction of housing or beginning construction using 
its own workforce, the recipient must complete a comparison of the cost 
of developing or acquiring/rehabilitating the affordable housing with 
the limits provided by the TDC discussed in paragraph (c) of this 
section and may not, without prior HUD approval, exceed by more than 10 
percent the TDC maximum cost for the project. In developing standards 
under this paragraph, the recipient must establish, maintain, and follow 
policies that determine a local definition of moderate design which 
considers:
    (1) Gross area;
    (2) Total cost to provide the housing;
    (3) Environmental concerns and mitigations;
    (4) Climate;
    (5) Comparable housing in geographical area;
    (6) Local codes, ordinances and standards;
    (7) Cultural relevance in design;
    (8) Design and construction features that are reasonable, and 
necessary to provide decent, safe, sanitary and affordable housing; and
    (9) Design and construction features that are accessible to persons 
with a variety of disabilities.
    (c) If the recipient has not adopted housing standards specified in 
paragraph (b) of this section, Total Development Cost (TDC) limits 
published periodically by HUD establish the maximum amount of funds 
(from all sources) that the recipient may use to develop or acquire/
rehabilitate affordable housing. The recipient must complete a 
comparison of the cost of developing or acquiring/rehabilitating the 
affordable housing with the limits provided by the TDC and may not, 
without prior HUD approval, exceed the TDC maximum cost for the project.

[66 FR 49790, Sept. 28, 2001]



Sec. 1000.160  Are non-dwelling structures developed, acquired or 

assisted under the IHBG program subject to limitations on cost or 
design standards?

    Yes. Non-dwelling structures must be of a design, size and with 
features or amenities that are reasonable and necessary to accomplish 
the purpose intended by the structures. The purpose of a non-dwelling 
structure must be to support an affordable housing activity, as defined 
by the Act.

[66 FR 49790, Sept. 28, 2001]



Sec. 1000.162  How will a recipient know that non-dwelling structures 
assisted under the IHBG program meet the requirements of 1000.160?

    (a) The recipient must use one of the methods described in paragraph 
(b) or (c) of this section to determine if a non-dwelling structure 
meets the limitation requirements of Sec. 1000.160. If the recipient 
develops, acquires, or rehabilitates a non-dwelling structure with funds 
from NAHASDA and other sources, then the cost limit standard established 
under these regulations applies to the entire structure. If funds are 
used from two different sources, the standards of the funding source 
with the more restrictive rules apply.
    (b)(1) The recipient may adopt written standards for non-dwelling 
structures. The standards must describe the type of structures and must 
clearly describe the criteria to be used to guide the cost, size, 
design, features, amenities, performance or other factors. The standards 
for such structures must be able to support the reasonableness and 
necessity for these factors and to clearly identify the affordable 
housing activity that is being provided.
    (2) When the recipient applies a standard to particular structures, 
it must document the following: (i) Identification of targeted 
population to benefit from the structures;
    (ii) Identification of need or problem to be solved;

[[Page 749]]

    (iii) Affordable housing activity provided or supported by the 
structures;
    (iv) Alternatives considered;
    (v) Provision for future growth and change;
    (vi) Cultural relevance of design;
    (vii) Size and scope supported by population and need;
    (viii) Design and construction features that are accessible to 
persons with a variety of disabilities;
    (ix) Cost; and
    (x) Compatibility with community infrastructure and services.
    (c) If the recipient has not adopted program standards specified in 
paragraph (b) of this section, then it must demonstrate and document 
that the non-dwelling structure is of a cost, size, design and with 
amenities consistent with similarly designed and constructed structures 
in the recipient's general geographic area.

[66 FR 49790, Sept. 28, 2001]



                   Subpart C_Indian Housing Plan (IHP)



Sec. 1000.201  How are funds made available under NAHASDA?

    Every fiscal year HUD will make grants under the IHBG program to 
recipients who have submitted to HUD for that fiscal year an IHP in 
accordance with Sec. 1000.220 to carry out affordable housing 
activities.



Sec. 1000.202  Who are eligible recipients?

    Eligible recipients are Indian tribes, or TDHEs when authorized by 
one or more Indian tribes.



Sec. 1000.204  How does an Indian tribe designate itself as recipient 
of the grant?

    (a) By resolution of the Indian tribe; or
    (b) When such authority has been delegated by an Indian tribe's 
governing body to a tribal committee(s), by resolution or other written 
form used by such committee(s) to memorialize the decisions of that 
body, if applicable.



Sec. 1000.206  How is a TDHE designated?

    (a)(1) By resolution of the Indian tribe or Indian tribes to be 
served; or
    (2) When such authority has been delegated by an Indian tribe's 
governing body to a tribal committee(s), by resolution or other written 
form used by such committee(s) to memorialize the decisions of that 
body, if applicable.
    (b) In the absence of a designation by the Indian tribe, the default 
designation as provided in section 4(21) of NAHASDA shall apply.



Sec. 1000.208  What happens if an Indian tribe had two IHAs as of 
September 30, 1996?

    Indian tribes which had established and were operating two IHAs as 
of September 30, 1996, under the 1937 Act shall be allowed to form and 
operate two TDHEs under NAHASDA. Nothing in this section shall affect 
the allocation of funds otherwise due to an Indian tribe under the 
formula.



Sec. 1000.210  What happens to existing 1937 Act units in those 
jurisdictions for which Indian tribes do not or cannot submit an IHP?

    NAHASDA does not provide the statutory authority for HUD to grant 
NAHASDA grant funds to an Indian housing authority, Indian tribe or to a 
default TDHE which cannot obtain a tribal certification, if the 
requisite IHP is not submitted by an Indian tribe or is determined to be 
out of compliance by HUD. There may be circumstances where this may 
happen, and in those cases, other methods of tribal, Federal, or private 
market support may have to be sought to maintain and operate those 1937 
Act units.



Sec. 1000.212  Is submission of an IHP required?

    Yes. An Indian tribe or, with the consent of its Indian tribe(s), 
the TDHE, must submit an IHP to HUD to receive funding under NAHASDA, 
except as provided in section 101(b)(2) of NAHASDA. If a TDHE has been 
designated by more than one Indian tribe, the TDHE can submit a separate 
IHP for each Indian tribe or it may submit a single IHP based on the 
requirements of Sec. 1000.220 with the approval of the Indian tribes.

[[Page 750]]



Sec. 1000.214  What is the deadline for submission of an IHP?

    IHPs must be initially sent by the recipient to the Area ONAP no 
later than July 1. Grant funds cannot be provided until the plan is 
submitted and determined to be in compliance with section 102 of NAHASDA 
and funds are available.



Sec. 1000.216  What happens if the recipient does not submit the IHP 
to the Area ONAP by July 1?

    If the IHP is not initially sent by July 1, the recipient will not 
be eligible for IHBG funds for that fiscal year. Any funds not obligated 
because an IHP was not received before the deadline has passed shall be 
distributed by formula in the following year.



Sec. 1000.218  Who prepares and submits an IHP?

    An Indian tribe, or with the authorization of a Indian tribe, in 
accordance with section 102(d) of NAHASDA a TDHE may prepare and submit 
a plan to HUD.



Sec. 1000.220  What are the minimum requirements for the IHP?

    The minimum IHP requirements are set forth in sections 102(b) and 
102(c) of NAHASDA. In addition, Sec. Sec. 1000.56, 1000.108, 1000.120, 
1000.134, 1000.142, 1000.238, 1000.328, and 1000.504 require or permit 
additional items to be set forth in the IHP for HUD determinations 
required by those sections. Recipients are only required to provide IHPs 
that contain these minimum elements in a form prescribed by HUD. If a 
TDHE is submitting a single IHP that covers two or more Indian tribes, 
the IHP must contain a separate certification in accordance with section 
102(d) of NAHASDA and IHP Tables for each Indian tribe when requested by 
such Indian tribes. However, Indian tribes are encouraged to perform 
comprehensive housing needs assessments and develop comprehensive IHPs 
and not limit their planning process to only those housing efforts 
funded by NAHASDA. An IHP should be locally driven.



Sec. 1000.222  Are there separate IHP requirements for small Indian 
tribes and small TDHEs?

    No. HUD requirements for IHPs are reasonable.



Sec. 1000.224  Can any part of the IHP be waived?

    Yes. HUD has general authority under section 101(b)(2) of NAHASDA to 
waive any IHP requirements when an Indian tribe cannot comply with IHP 
requirements due to circumstances beyond its control. The waiver 
authority under section 101(b)(2) of NAHASDA provides flexibility to 
address the needs of every Indian tribe, including small Indian tribes. 
The waiver may be requested by the Indian tribe or its TDHE (if such 
authority is delegated by the Indian tribe).



Sec. 1000.226  Can the certification requirements of section 102(c)(5) 
of NAHASDA be waived by HUD?

    Yes. HUD may waive these certification requirements as provided in 
section 101(b)(2) of NAHASDA.



Sec. 1000.228  If HUD changes its IHP format will Indian tribes be involved?

    Yes. HUD will first consult with Indian tribes before making any 
substantial changes to HUD's IHP format.



Sec. 1000.230  What is the process for HUD review of IHPs and IHP 
amendments?

    HUD will conduct the IHP review in the following manner:
    (a) HUD will conduct a limited review of the IHP to ensure that its 
contents:
    (1) Comply with the requirements of section 102 of NAHASDA which 
outlines the IHP submission requirements;
    (2) Are consistent with information and data available to HUD;
    (3) Are not prohibited by or inconsistent with any provision of 
NAHASDA or other applicable law; and
    (4) Include the appropriate certifications.
    (b) If the IHP complies with the provisions of paragraphs (a)(1), 
(a)(2), and (a)(3) of this section, HUD will notify the recipient of IHP 
compliance within 60 days after receiving the IHP. If HUD fails to 
notify the recipient, the IHP

[[Page 751]]

shall be considered to be in compliance with the requirements of section 
102 of NAHASDA and the IHP is approved.
    (c) If the submitted IHP does not comply with the provisions of 
paragraphs (a)(1), and (a)(3) of this section, HUD will notify the 
recipient of the determination of non-compliance. HUD will provide this 
notice no later than 60 days after receiving the IHP. This notice will 
set forth:
    (1) The reasons for noncompliance;
    (2) The modifications necessary for the IHP to meet the submission 
requirements; and
    (3) The date by which the revised IHP must be submitted.
    (d) If the recipient does not submit a revised IHP by the date 
indicated in the notice provided under paragraph (c) of this section, 
the IHP will be determined by HUD to be in non-compliance unless a 
waiver is requested and approved under section 101(b)(2) of NAHASDA. If 
the IHP is determined by HUD to be in non-compliance and no waiver is 
granted, the recipient may appeal this determination following the 
appeal process in Sec. 1000.234.
    (e)(1) If the IHP does not contain the certifications identified in 
paragraph (a)(4) of this section, the recipient will be notified within 
60 days of submission of the IHP that the plan is incomplete. The 
notification will include a date by which the certification must be 
submitted.
    (2) If the recipient has not complied or cannot comply with the 
certification requirements due to circumstances beyond the control of 
the Indian tribe(s), within the timeframe established, the recipient can 
request a waiver in accordance with section 101(b)(2) of NAHASDA. If the 
waiver is approved, the recipient is eligible to receive its grant in 
accordance with any conditions of the waiver.



Sec. 1000.232  Can an Indian tribe or TDHE amend its IHP?

    Yes. Section 103(c) of NAHASDA specifically provides that a 
recipient may submit modifications or revisions of its IHP to HUD. 
Unless the initial IHP certification provided by an Indian tribe allowed 
for the submission of IHP amendments without further tribal 
certifications, a tribal certification must accompany submission of IHP 
amendments by a TDHE to HUD. HUD's review of an amendment and 
determination of compliance will be limited to modifications of an IHP 
which adds new activities or involve a decrease in the amount of funds 
provided to protect and maintain the viability of housing assisted under 
the 1937 Act. HUD will consider these modifications to the IHP in 
accordance with Sec. 1000.230. HUD will act on amended IHPs within 30 
days.



Sec. 1000.234  Can HUD's determination regarding the non-compliance of 
an IHP or a modification to an IHP be appealed?

    (a) Yes. Within 30 days of receiving HUD's disapproval of an IHP or 
of a modification to an IHP, the recipient may submit a written request 
for reconsideration of the determination. The request shall include the 
justification for the reconsideration.
    (b) Within 21 days of receiving the request, HUD shall reconsider 
its initial determination and provide the recipient with written notice 
of its decision to affirm, modify, or reverse its initial determination. 
This notice will also contain the reasons for HUD's decision.
    (c) The recipient may appeal any denial of reconsideration by filing 
an appeal with the Assistant Secretary within 21 days of receiving the 
denial. The appeal shall set forth the reasons why the recipient does 
not agree with HUD's decision and include justification for the 
reconsideration.
    (d) Within 21 days of receipt of the appeal, the Assistant Secretary 
shall review the recipient's appeal and act on the appeal. The Assistant 
Secretary will provide written notice to the recipient setting forth the 
reasons for the decision. The Assistant Secretary's decision constitutes 
final agency action.



Sec. 1000.236  What are eligible administrative and planning expenses?

    (a) Eligible administrative and planning expenses of the IHBG 
program include, but are not limited to:
    (1) Costs of overall program and/or administrative management;
    (2) Coordination monitoring and evaluation;

[[Page 752]]

    (3) Preparation of the IHP including data collection and transition 
costs;
    (4) Preparation of the annual performance report; and
    (5) Challenge to and collection of data for purposes of challenging 
the formula.
    (b) Staff and overhead costs directly related to carrying out 
affordable housing activities can be determined to be eligible costs of 
the affordable housing activity or considered administration or planning 
at the discretion of the recipient.



Sec. 1000.238  What percentage of the IHBG funds can be used for 
administrative and planning expenses?

    The recipient can use up to 20 percent of its annual grant amount 
for administration and planning. The recipient shall identify the 
percentage of grant funds which will be used in the IHP. HUD approval is 
required if a higher percentage is requested by the recipient. When HUD 
approval is required, HUD must take into consideration any cost of 
preparing the IHP, challenges to and collection of data, the recipient's 
grant amount, approved cost allocation plans, and any other relevant 
information with special consideration given to the circumstances of 
recipients receiving minimal funding.



Sec. 1000.240  When is a local cooperation agreement required for 
affordable housing activities?

    The requirement for a local cooperation agreement applies only to 
rental and lease-purchase homeownership units assisted with IHBG funds 
which are owned by the Indian tribe or TDHE.



Sec. 1000.242  When does the requirement for exemption from taxation 
apply to affordable housing activities?

    The requirement for exemption from taxation applies only to rental 
and lease-purchase homeownership units assisted with IHBG funds which 
are owned by the Indian tribe or TDHE.



                      Subpart D_Allocation Formula



Sec. 1000.301  What is the purpose of the IHBG formula?

    The IHBG formula is used to allocate equitably and fairly funds made 
available through NAHASDA among eligible Indian tribes. A TDHE may be a 
recipient on behalf of an Indian tribe.



Sec. 1000.302  What are the definitions applicable for the IHBG formula?

    Allowable Expense Level (AEL) factor. In rental projects, AEL is the 
per-unit per-month dollar amount of expenses which was used to compute 
the amount of operating subsidy used prior to October 1, 1997 for the 
Low Rent units developed under the 1937 Act. The ``AEL factor'' is the 
relative difference between a local area AEL and the national weighted 
average for AEL.
    Date of Full Availability (DOFA) means the last day of the month in 
which substantially all the units in a housing development are available 
for occupancy.
    Fair Market Rent (FMR) factors are gross rent estimates; they 
include shelter rent plus the cost of all utilities, except telephones. 
HUD estimates FMRs on an annual basis for 354 metropolitan FMR areas and 
2,355 non-metropolitan county FMR areas. The ``FMR factor'' is the 
relative difference between a local area FMR and the national weighted 
average for FMR.
    Formula Annual Income. For purposes of the IHBG formula, annual 
income is a household's total income as currently defined by the U.S. 
Census Bureau.
    Formula area. (1) Formula area is the geographic area over which an 
Indian tribe could exercise court jurisdiction or is providing 
substantial housing services and, where applicable, the Indian tribe or 
TDHE has agreed to provide housing services pursuant to a Memorandum of 
Agreement with the governing entity or entities (including Indian 
tribes) of the area, including but not limited to:
    (i) A reservation;
    (ii) Trust land;
    (iii) Alaska Native Village Statistical Area;
    (iv) Alaska Native Claims Settlement Act Corporation Service Area;

[[Page 753]]

    (v) Department of the Interior Near-Reservation Service Area;
    (vi) Former Indian Reservation Areas in Oklahoma as defined by the 
Census as Tribal Jurisdictional Statistical Area;
    (vii) Congressionally Mandated Service Area; and
    (viii) State legislatively defined Tribal Areas as defined by the 
Census as Tribal Designated Statistical Areas.
    (2) For additional areas beyond those identified in the above list 
of eight, the Indian tribe must submit on the Formula Response Form the 
area that it wishes to include in its Formula Area and what previous and 
planned investment it has made in the area. HUD will review this 
submission and determine whether or not to include this area. HUD will 
make its judgment using as its guide whether this addition is fair and 
equitable for all Indian tribes in the formula.
    (3) In some cases the population data for an Indian tribe within its 
formula area is greater than its tribal enrollment. In general, for 
those cases to maintain fairness for all Indian tribes, the population 
data will not be allowed to exceed twice an Indian tribe's enrolled 
population. However, an Indian tribe subject to this cap may receive an 
allocation based on more than twice its total enrollment if it can show 
that it is providing housing assistance to substantially more non-member 
Indians and Alaska Natives who are members of another Federally 
recognized Indian tribe than it is to members.
    (4) In cases where an Indian tribe is seeking to receive an 
allocation more than twice its total enrollment, the tribal enrollment 
multiplier will be determined by the total number of Indians and Alaska 
Natives the Indian tribe is providing housing assistance (on July 30 of 
the year before funding is sought) divided by the number of members the 
Indian tribe is providing housing assistance. For example, an Indian 
tribe which provides housing to 300 Indians and Alaska Natives, of which 
100 are members, would then be able to receive an allocation for up to 
three times its tribal enrollment if the Indian and Alaska Native 
population in the area is three or more times the tribal enrollment.
    Formula Median Income. For purposes of the formula median income is 
determined in accordance with section 567 of the Housing and Community 
Development Act of 1987 (42 U.S.C. 1437a note).
    Formula Response Form is the form recipients use to report changes 
to their Formula Current Assisted stock, formula area, and other formula 
related information before each year's formula allocation.
    Indian Housing Authority (IHA) financed means a homeownership 
program where title rests with the homebuyer and a security interest 
rests with the IHA.
    Mutual Help Occupancy Agreement (MHOA) means a lease with option to 
purchase contract between an IHA and a homebuyer under the 1937 Act.
    Overcrowded means households with more than 1.01 persons per room as 
defined by the U.S. Decennial Census.
    Section 8 means the making of housing assistance payments to 
eligible families leasing existing housing pursuant to the provisions of 
the 1937 Act.
    Section 8 unit means the contract annualized housing assistance 
payments (certificates, vouchers, and project based) under the Section 8 
program.
    Total Development Cost (TDC) is the sum of all costs for a project 
including all undertakings necessary for administration, planning, site 
acquisition, demolition, construction or equipment and financing 
(including payment of carrying charges) and for otherwise carrying out 
the development of the project, excluding off site water and sewer. 
Total Development Cost amounts will be based on a moderately designed 
house and will be determined by averaging the current construction costs 
as listed in not less than two nationally recognized residential 
construction cost indices.
    Without kitchen or plumbing means, as defined by the U.S. Decennial 
Census, an occupied house without one or more of the following items:
    (1) Hot and cold piped water;
    (2) A flush toilet;
    (3) A bathtub or shower;
    (4) A sink with piped water;
    (5) A range or cookstove; or
    (6) A refrigerator.

[[Page 754]]



Sec. 1000.304  May the IHBG formula be modified?

    Yes, as long as any modification does not conflict with the 
requirements of NAHASDA.



Sec. 1000.306  How can the IHBG formula be modified?

    (a) The IHBG formula can be modified upon development of a set of 
measurable and verifiable data directly related to Indian and Alaska 
Native housing need. Any data set developed shall be compiled with the 
consultation and involvement of Indian tribes and examined and/or 
implemented not later than 5 years from the date of issuance of these 
regulations and periodically thereafter.
    (b) Furthermore, the IHBG formula shall be reviewed within five 
years to determine if subsidy is needed to operate and maintain NAHASDA 
units or any other changes are needed in respect to funding under the 
Formula Current Assisted Stock component of the formula.
    (c) During the five year review of housing stock for formula 
purposes, the Section 8 units shall be reduced by the same percentage as 
the current assisted rental stock has diminished since September 30, 
1999.



Sec. 1000.308  Who can make modifications to the IHBG formula?

    HUD can make modifications in accordance with Sec. 1000.304 and 
Sec. 1000.306 provided that any changes proposed by HUD are published 
and made available for public comment in accordance with applicable law 
before their implementation.



Sec. 1000.310  What are the components of the IHBG formula?

    The IHBG formula consists of two components:
    (a) Formula Current Assisted Housing Stock (FCAS); and
    (b) Need.



Sec. 1000.312  What is current assisted stock?

    Current assisted stock consists of housing units owned or operated 
pursuant to an ACC. This includes all low rent, Mutual Help, and Turnkey 
III housing units under management as of September 30, 1997, as 
indicated in the Formula Response Form.



Sec. 1000.314  What is formula current assisted stock?

    Formula current assisted stock is current assisted stock as 
described in Sec. 1000.312 plus 1937 Act units in the development 
pipeline when they become owned or operated by the recipient and are 
under management as indicated in the Formula Response Form. Formula 
current assisted stock also includes Section 8 units when their current 
contract expires and the Indian tribe continues to manage the assistance 
in a manner similar to the Section 8 program, as reported on the Formula 
Response Form.



Sec. 1000.316  How is the Formula Current Assisted Stock (FCAS) 
Component developed?

    The Formula Current Assisted Stock component consists of two 
elements. They are:
    (a) Operating subsidy. The operating subsidy consists of three 
variables which are:
    (1) The number of low-rent FCAS units multiplied by the FY 1996 
national per unit subsidy (adjusted to full funding level) multiplied by 
an adjustment factor for inflation;
    (2) The number of Section 8 units whose contract has expired but had 
been under contract on September 30, 1997, multiplied by the FY 1996 
national per unit subsidy adjusted for inflation; and
    (3) The number of Mutual Help and Turnkey III FCAS units multiplied 
by the FY 1996 national per unit subsidy (adjusted to full funding 
level) multiplied by an adjustment factor for inflation.
    (b) Modernization allocation. Modernization allocation consists of 
the number of Low Rent, Mutual Help, and Turnkey III FCAS units 
multiplied by the national per unit amount of allocation for FY 1996 
modernization multiplied by an adjustment factor for inflation.

[[Page 755]]



Sec. 1000.317  Who is the recipient for funds for current assisted 

stock which is owned by state-created Regional Native Housing 
Authorities in Alaska?

    If housing units developed under the 1937 Act are owned by a state-
created Regional Native Housing Authority in Alaska, and are not located 
on an Indian reservation, then the recipient for funds allocated for the 
current assisted stock portion of NAHASDA funds for the units is the 
regional Indian tribe.



Sec. 1000.318  When do units under Formula Current Assisted Stock 
cease to be counted or expire from the inventory used for the formula?

    (a) Mutual Help and Turnkey III units shall no longer be considered 
Formula Current Assisted Stock when the Indian tribe, TDHE, or IHA no 
longer has the legal right to own, operate, or maintain the unit, 
whether such right is lost by conveyance, demolition, or otherwise, 
provided that:
    (1) Conveyance of each Mutual Help or Turnkey III unit occurs as 
soon as practicable after a unit becomes eligible for conveyance by the 
terms of the MHOA; and
    (2) The Indian tribe, TDHE, or IHA actively enforce strict 
compliance by the homebuyer with the terms and conditions of the MHOA, 
including the requirements for full and timely payment.
    (b) Rental units shall continue to be included for formula purposes 
as long as they continue to be operated as low income rental units by 
the Indian tribe, TDHE, or IHA.
    (c) Expired contract Section 8 units shall continue as rental units 
and be included in the formula as long as they are operated as low 
income rental units as included in the Indian tribe's or TDHE's Formula 
Response Form.



Sec. 1000.320  How is Formula Current Assisted Stock adjusted for 
local area costs?

    There are two adjustment factors that are used to adjust the 
allocation of funds for the Current Assisted Stock portion of the 
formula. They are:
    (a) Operating Subsidy as adjusted by the greater of the AEL factor 
or FMR factor (AELFMR); and
    (b) Modernization as adjusted by TDC.



Sec. 1000.322  Are IHA financed units included in the determination 
of Formula Current Assisted Stock?

    No. If these units are not owned or operated at the time (September 
30, 1997) pursuant to an ACC then they are not included in the 
determination of Formula Current Assisted Stock.



Sec. 1000.324  How is the need component developed?

    After determining the FCAS allocation, remaining funds are allocated 
by need component. The need component consists of seven criteria. They 
are:
    (a) American Indian and Alaskan Native (AIAN) Households with 
housing cost burden greater than 50 percent of formula annual income 
weighted at 22 percent;
    (b) AIAN Households which are overcrowded or without kitchen or 
plumbing weighted at 25 percent;
    (c) Housing Shortage which is the number of AIAN households with an 
annual income less than or equal to 80 percent of formula median income 
reduced by the combination of current assisted stock and units developed 
under NAHASDA weighted at 15 percent;
    (d) AIAN households with annual income less than or equal to 30 
percent of formula median income weighted at 13 percent;
    (e) AIAN households with annual income between 30 percent and 50 
percent of formula median income weighted at 7 percent;
    (f) AIAN households with annual income between 50 percent and 80 
percent of formula median income weighted at 7 percent;
    (g) AIAN persons weighted at 11 percent.



Sec. 1000.325  How is the need component adjusted for local area costs?

    The need component is adjusted by the TDC.



Sec. 1000.326  What if a formula area is served by more than one Indian 
tribe?

    (a) If an Indian tribe's formula area overlaps with the formula area 
of one or more other Indian tribes, the funds

[[Page 756]]

allocated to that Indian tribe for the geographic area in which the 
formula areas overlap will be divided based on:
    (1) The Indian tribe's proportional share of the population in the 
overlapping geographic area; and
    (2) The Indian tribe's commitment to serve that proportional share 
of the population in such geographic area.
    (3) In cases where a State recognized Indian tribe's formula area 
overlaps with a Federally recognized Indian tribe, the Federally 
recognized Indian tribe receives the allocation for the overlapping 
area.
    (b) Tribal membership in the geographic area (not to include dually 
enrolled tribal members) will be based on data that all Indian tribes 
involved agree to use. Suggested data sources include tribal enrollment 
lists, Indian Health Service User Data, and Bureau of Indian Affairs 
data.
    (c) If the Indian tribes involved cannot agree on what data source 
to use, HUD will make the decision on what data will be used to divide 
the funds between the Indian tribes by August 1.



Sec. 1000.327  What is the order of preference for allocating the IHBG 

formula needs data for Indian tribes in Alaska not located on 
reservations due to the unique circumstances in Alaska?

    (a) Data in areas without reservations. The data on population and 
housing within an Alaska Native Village is credited to the Alaska Native 
Village. Accordingly, the village corporation for the Alaska Native 
Village has no needs data and no formula allocation. The data on 
population and housing outside the Alaska Native Village is credited to 
the regional Indian tribe, and if there is no regional Indian tribe, the 
data will be credited to the regional corporation.
    (b) Deadline for notification on whether an IHP will be submitted. 
By September 15 of each year, each Indian tribe in Alaska not located on 
a reservation, including each Alaska Native village, regional Indian 
tribe, and regional corporation, or its TDHE must notify HUD in writing 
whether it or its TDHE intends to submit an IHP. If an Alaska Native 
village notifies HUD that it does not intend either to submit an IHP or 
to designate a TDHE to do so, or if HUD receives no response from the 
Alaska Native village or its TDHE, the formula data which would have 
been credited to the Alaska Native village will be credited to the 
regional Indian tribe, or if there is no regional Indian tribe, to the 
regional corporation.



Sec. 1000.328  What is the minimum amount an Indian tribe can receive 
under the need component of the formula?

    In the first year of NAHASDA participation, an Indian tribe whose 
allocation is less than $50,000 under the need component of the formula 
shall have its need component of the grant adjusted to $50,000. An 
Indian tribe's IHP shall contain a certification of the need for the 
$50,000 funding. In subsequent years, but not to extend beyond Federal 
Fiscal Year 2003, an Indian tribe whose allocation is less than $25,000 
under the need component of the formula shall have its need component of 
the grant adjusted to $25,000. The need for this section will be 
reviewed in accordance with Sec. 1000.306.

[68 FR 37661, June 24, 2003]



Sec. 1000.330  What are data sources for the need variables?

    The sources of data for the need variables shall be data available 
that is collected in a uniform manner that can be confirmed and verified 
for all AIAN households and persons living in an identified area. 
Initially, the data used are U.S. Decennial Census data.



Sec. 1000.332  Will data used by HUD to determine an Indian tribe's 

or TDHE's formula allocation be provided to the Indian tribe or TDHE 
before the allocation?

    Yes. HUD shall provide notice to the Indian tribe or TDHE of the 
data to be used for the formula and projected allocation amount by 
August 1.



Sec. 1000.334  May Indian tribes, TDHEs, or HUD challenge the data 
from the U.S. Decennial Census or provide an alternative source of data?

    Yes. Provided that the data are gathered, evaluated, and presented 
in a manner acceptable to HUD and that the standards for acceptability 
are consistently applied throughout the Country.

[[Page 757]]



Sec. 1000.336  How may an Indian tribe, TDHE, or HUD challenge data?

    (a) An Indian tribe, TDHE, or HUD may challenge data used in the 
IHBG formula. The challenge and collection of data for this purpose is 
an allowable cost for IHBG funds.
    (b) An Indian tribe or TDHE that has data in its possession that it 
contends are more accurate than data contained in the U.S. Decennial 
Census, and the data were collected in a manner acceptable to HUD, may 
submit the data and proper documentation to HUD. Beginning with the 
Fiscal Year 1999 allocation, in order for the challenge to be considered 
for the upcoming Fiscal Year allocation, documentation must be submitted 
by June 15. HUD shall respond to such data submittal not later than 45 
days after receipt of the data and either approve or challenge the 
validity of such data. Pursuant to HUD's action, the following shall 
apply:
    (1) In the event HUD challenges the validity of the submitted data, 
the Indian tribe or TDHE and HUD shall attempt in good faith to resolve 
any discrepancies so that such data may be included in formula 
allocation. Should the Indian tribe or TDHE and HUD be unable to resolve 
any discrepancy by the date of formula allocation, the dispute shall be 
carried forward to the next funding year and resolved in accordance with 
the dispute resolution procedures set forth in this part for model 
housing activities (Sec. 1000.118).
    (2) Pursuant to resolution of the dispute:
    (i) If the Indian tribe or TDHE prevails, an adjustment to the 
Indian tribe's or TDHE's subsequent allocation for the subsequent year 
shall be made retroactive to include only the disputed Fiscal Year(s); 
or
    (ii) If HUD prevails, no further action shall be required.
    (c) In the event HUD questions that the data contained in the 
formula does not accurately represent the Indian tribe's need, HUD shall 
request the Indian tribe to submit supporting documentation to justify 
the data and provide a commitment to serve the population indicated in 
the geographic area.



Sec. 1000.340  What if an Indian tribe is allocated less funding under 

the block grant formula than it received in Fiscal Year 1996 for operating 
subsidy and modernization?

    If an Indian tribe is allocated less funding under the formula than 
an IHA received on its behalf in Fiscal Year 1996 for operating subsidy 
and modernization, its grant is increased to the amount received in 
Fiscal Year 1996 for operating subsidy and modernization. The remaining 
grants are adjusted to keep the allocation within available 
appropriations.



 Subpart E_Federal Guarantees for Financing of Tribal Housing Activities



Sec. 1000.401  What terms are used throughout this subpart?

    As used throughout title VI of NAHASDA and in this subpart:
    Applicant means the entity that requests a HUD guarantee under the 
provisions of this subpart.
    Borrower means an Indian tribe or TDHE that receives funds in the 
form of a loan with the obligation to repay in full, with interest, and 
has executed notes or other obligations that evidence that transaction.
    Issuer means an Indian tribe or TDHE that issues or executes notes 
or other obligations. An issuer can also be a borrower.



Sec. 1000.402  Are State recognized Indian tribes eligible for guarantees 
under title VI of NAHASDA?

    Those State recognized Indian tribes that meet the definition set 
forth in section 4(12)(C) of NAHASDA are eligible for guarantees under 
title VI of NAHASDA.



Sec. 1000.404  What lenders are eligible for participation?

    Eligible lenders are those approved under and meeting the 
qualifications established in this subpart, except that loans otherwise 
insured or guaranteed by an agency of the United States, or made by an 
organization of Indians from amounts borrowed from the United States, 
shall not be eligible for

[[Page 758]]

guarantee under this part. The following lenders are deemed to be 
eligible under this subpart:
    (a) Any mortgagee approved by HUD for participation in the single 
family mortgage insurance program under title II of the National Housing 
Act;
    (b) Any lender whose housing loans under chapter 37 of title 38, 
United States Code, are automatically guaranteed pursuant to section 
1802(d) of such title;
    (c) Any lender approved by the Department of Agriculture to make 
guaranteed loans for single family housing under the Housing Act of 
1949;
    (d) Any other lender that is supervised, approved, regulated, or 
insured by any agency of the United States; and
    (e) Any other lender approved by the Secretary.



Sec. 1000.406  What constitutes tribal approval to issue notes or other 
obligations under title VI of NAHASDA?

    Tribal approval is evidenced by a written tribal resolution that 
authorizes the issuance of notes or obligations by the Indian tribe or a 
TDHE on behalf of the Indian tribe.



Sec. 1000.408  How does an Indian tribe or TDHE show that it has made 

efforts to obtain financing without a guarantee and cannot complete 
such financing in a timely manner?

    The Indian tribe or TDHE shall submit a certification that states 
that the Indian tribe has attempted to obtain financing and cannot 
complete such financing consistent with the timely execution of the 
program plans without such guarantee. Written documentation shall be 
maintained by the Indian tribe or TDHE to support the certification.



Sec. 1000.410  What conditions shall HUD prescribe when providing a 
guarantee for notes or other obligations issued by an Indian tribe?

    HUD shall provide that:
    (a) Any loan, note or other obligation guaranteed under title VI of 
NAHASDA may be sold or assigned by the lender to any financial 
institution that is subject to examination and supervision by an agency 
of the Federal government, any State, or the District of Columbia 
without destroying or otherwise negatively affecting the guarantee; and
    (b) Indian tribes and housing entities are encouraged to explore 
creative financing mechanisms and in so doing shall not be limited in 
obtaining a guarantee. These creative financing mechanisms include but 
are not limited to:
    (1) Borrowing from private or public sources or partnerships;
    (2) Issuing tax exempt and taxable bonds where permitted; and
    (3) Establishing consortiums or trusts for borrowing or lending, or 
for pooling loans.
    (c) The repayment period may exceed twenty years and the length of 
the repayment period cannot be the sole basis for HUD disapproval; and
    (d) Lender and issuer/borrower must certify that they acknowledge 
and agree to comply with all applicable tribal laws.



Sec. 1000.412  Can an issuer obtain a guarantee for more than one note 
or other obligation at a time?

    Yes. To obtain multiple guarantees, the issuer shall demonstrate 
that:
    (a) The issuer will not exceed a total for all notes or other 
obligations in an amount equal to five times its grant amount, excluding 
any amount no longer owed on existing notes or other obligations; and
    (b) Issuance of additional notes or other obligations is within the 
financial capacity of the issuer.



Sec. 1000.414  How is an issuer's financial capacity demonstrated?

    An issuer must demonstrate its financial capacity to:
    (a) Meet its obligations; and
    (b) Protect and maintain the viability of housing developed or 
operated pursuant to the 1937 Act.



Sec. 1000.416  What is a repayment contract in a form acceptable to HUD?

    (a) The Secretary's signature on a contract shall signify HUD's 
acceptance of the form, terms and conditions of the contract.
    (b) In loans under title VI of NAHASDA, involving a contract between 
an issuer and a lender other than

[[Page 759]]

HUD, HUD's approval of the loan documents and guarantee of the loan 
shall be deemed to be HUD's acceptance of the sufficiency of the 
security furnished. No other security can or will be required by HUD at 
a later date.



Sec. 1000.418  Can grant funds be used to pay costs incurred when issuing 
notes or other obligations?

    Yes. Other costs that can be paid using grant funds include but are 
not limited to the costs of servicing and trust administration, and 
other costs associated with financing of debt obligations.



Sec. 1000.420  May grants made by HUD under section 603 of NAHASDA be used 
to pay net interest costs incurred when issuing notes or other obligations?

    Yes. Other costs that can be paid using grant funds include but are 
not limited to the costs of servicing and trust administration, and 
other costs associated with financing of debt obligations, not to exceed 
30 percent of the net interest cost.



Sec. 1000.422  What are the procedures for applying for loan guarantees 
under title VI of NAHASDA?

    (a) The borrower applies to the lender for a loan using a guarantee 
application form prescribed by HUD.
    (b) The lender provides the loan application to HUD to determine if 
funds are available for the guarantee. HUD will reserve these funds for 
a period of 90 days if the funds are available and the applicant is 
otherwise eligible under this subpart. HUD may extend this reservation 
period for an extra 90 days if additional documentation is necessary.
    (c) The borrower and lender negotiate the terms and conditions of 
the loan in consultation with HUD.
    (d) The borrower and lender execute documents.
    (e) The lender formally applies for the guarantee.
    (f) HUD reviews and provides a written decision on the guarantee.



Sec. 1000.424  What are the application requirements for guarantee 
assistance under title VI of NAHASDA?

    The application for a guarantee must include the following:
    (a) An identification of each of the activities to be carried out 
with the guaranteed funds and a description of how each activity 
qualifies as an affordable housing activity as defined in section 202 of 
NAHASDA.
    (b) A schedule for the repayment of the notes or other obligations 
to be guaranteed that identifies the sources of repayment, together with 
a statement identifying the entity that will act as the borrower.
    (c) A copy of the executed loan documents, if applicable, including, 
but not limited to, any contract or agreement between the borrower and 
the lender.
    (d) Certifications by the borrower that:
    (1) The borrower possesses the legal authority to pledge and that it 
will, if approved, make the pledge of grants required by section 
602(a)(2) of NAHASDA.
    (2) The borrower has made efforts to obtain financing for the 
activities described in the application without use of the guarantee; 
the borrower will maintain documentation of such efforts for the term of 
the guarantee; and the borrower cannot complete such financing 
consistent with the timely execution of the program plans without such 
guarantee.
    (3) It possesses the legal authority to borrow or issue obligations 
and to use the guaranteed funds in accordance with the requirements of 
this subpart.
    (4) Its governing body has duly adopted or passed as an official act 
a resolution, motion, or similar official action that:
    (i) Identifies the official representative of the borrower, and 
directs and authorizes that person to provide such additional 
information as may be required; and
    (ii) Authorizes such official representative to issue the obligation 
or to execute the loan or other documents, as applicable.
    (5) The borrower has complied with section 602(a) of NAHASDA.
    (6) The borrower will comply with the requirements described in 
subpart

[[Page 760]]

A of this part and other applicable laws.



Sec. 1000.426  How does HUD review a guarantee application?

    The procedure for review of a guarantee application includes the 
following steps:
    (a) HUD will review the application for compliance with title VI of 
NAHASDA and these implementing regulations.
    (b) HUD will accept the certifications submitted with the 
application. HUD may, however, consider relevant information that 
challenges the certifications and require additional information or 
assurances from the applicant as warranted by such information.



Sec. 1000.428  For what reasons may HUD disapprove an application or 
approve an application for an amount less than that requested?

    HUD may disapprove an application or approve a lesser amount for any 
of the following reasons:
    (a) HUD determines that the guarantee constitutes an unacceptable 
risk. Factors that will be considered in assessing financial risk shall 
include, but not be limited to, the following:
    (1) The ratio of the expected annual debt service requirements to 
the expected available annual grant amount, taking into consideration 
the obligations of the borrower under the provisions of section 203(b) 
of NAHASDA;
    (2) Evidence that the borrower will not continue to receive grant 
assistance under this part during the proposed repayment period;
    (3) The borrower's inability to furnish adequate security pursuant 
to section 602(a) of NAHASDA; and
    (4) The amount of program income the proposed activities are 
reasonably estimated to contribute toward repayment of the guaranteed 
loan or other obligations.
    (b) The loan or other obligation for which the guarantee is 
requested exceeds any of the limitations specified in sections 601(d) or 
section 605(d) of NAHASDA.
    (c) Funds are not available in the amount requested.
    (d) Evidence that the performance of the borrower under this part 
has been determined to be unacceptable pursuant to the requirements of 
subpart F of this part, and that the borrower has failed to take 
reasonable steps to correct performance.
    (e) The activities to be undertaken are not eligible under section 
202 of NAHASDA.
    (f) The loan or other obligation documents for which a guarantee is 
requested do not meet the requirements of this subpart.



Sec. 1000.430  When will HUD issue notice to the applicant if the 
application is approved at the requested or reduced amount?

    (a) HUD shall make every effort to approve a guarantee within 30 
days of receipt of a completed application including executed documents 
and, if unable to do so, will notify the applicant within the 30 day 
timeframe of the need for additional time and/or if additional 
information is required.
    (b) HUD shall notify the applicant in writing that the guarantee has 
either been approved, reduced, or disapproved. If the request is reduced 
or disapproved, the applicant will be informed of the specific reasons 
for reduction or disapproval.
    (c) HUD shall issue a certificate to guarantee the debt obligation 
of the issuer subject to compliance with NAHASDA including but not 
limited to sections 105, 601(a), and 602(c) of NAHASDA, and such other 
reasonable conditions as HUD may specify in the commitment documents in 
a particular case.



Sec. 1000.432  Can an amendment to an approved guarantee be made?

    (a) Yes. An amendment to an approved guarantee can occur if an 
applicant wishes to allow a borrower/issuer to carry out an activity not 
described in the loan or other obligation documents, or substantially to 
change the purpose, scope, location, or beneficiaries of an activity.
    (b) Any changes to an approved guarantee must be approved by HUD.



Sec. 1000.434  How will HUD allocate the availability of loan guarantee 
assistance?

    (a) Each fiscal year HUD may allocate a percentage of the total 
available loan guarantee assistance to each Area

[[Page 761]]

ONAP equal to the percentage of the total NAHASDA grant funds allocated 
to the Indian tribes in the geographic area of operation of that office.
    (b) These allocated amounts shall remain exclusively available for 
loan guarantee assistance for Indian tribes or TDHEs in the area of 
operation of that office until committed by HUD for loan guarantees or 
until the end of the second quarter of the fiscal year. At the beginning 
of the third quarter of the fiscal year, any residual loan guarantee 
commitment amount shall be made available to guarantee loans for Indian 
tribes or TDHEs regardless of their location. Applications for residual 
loan guarantee money must be submitted on or after April 1.
    (c) In approving applications for loan guarantee assistance, HUD 
shall seek to maximize the availability of such assistance to all 
interested Indian tribes or TDHEs. HUD may limit the proportional share 
approved to any one Indian tribe or TDHE to its proportional share of 
the block grant allocation based upon the annual plan submitted by the 
Indian tribe or TDHE indicating intent to participate in the loan 
guarantee allocation process.



Sec. 1000.436  How will HUD monitor the use of funds guaranteed under 
this subpart?

    HUD will monitor the use of funds guaranteed under this subpart as 
set forth in section 403 of NAHASDA, and the lender is responsible for 
monitoring performance with the documents.



      Subpart F_Recipient Monitoring, Oversight and Accountability



Sec. 1000.501  Who is involved in monitoring activities under NAHASDA?

    The recipient, the grant beneficiary and HUD are involved in 
monitoring activities under NAHASDA.



Sec. 1000.502  What are the monitoring responsibilities of the recipient, 
the grant beneficiary and HUD under NAHASDA?

    (a) The recipient is responsible for monitoring grant activities, 
ensuring compliance with applicable Federal requirements and monitoring 
performance goals under the IHP. The recipient is responsible for 
preparing at least annually: a compliance assessment in accordance with 
section 403(b) of NAHASDA; a performance report covering the assessment 
of program progress and goal attainment under the IHP; and an audit in 
accordance with the Single Audit Act, as applicable. The recipient's 
monitoring should also include an evaluation of the recipient's 
performance in accordance with performance objectives and measures. At 
the request of a recipient, other Indian tribes and/or TDHEs may provide 
assistance to aid the recipient in meeting its performance goals or 
compliance requirements under NAHASDA.
    (b) Where the recipient is a TDHE, the grant beneficiary (Indian 
tribe) is responsible for monitoring programmatic and compliance 
requirements of the IHP and NAHASDA by requiring the TDHE to prepare 
periodic progress reports including the annual compliance assessment, 
performance and audit reports.
    (c) HUD is responsible for reviewing the recipient as set forth in 
Sec. 1000.520.
    (d) HUD monitoring will consist of on-site as well as off-site 
review of records, reports and audits. To the extent funding is 
available, HUD or its designee will provide technical assistance and 
training, or funds to the recipient to obtain technical assistance and 
training. In the absence of funds, HUD shall make best efforts to 
provide technical assistance and training.



Sec. 1000.504  What are the recipient performance objectives?

    Performance objectives are developed by each recipient. Performance 
objectives are criteria by which the recipient will monitor and evaluate 
its performance. For example, if in the IHP the recipient indicates it 
will build new houses, the performance objective may be the completion 
of the homes within a certain time period and within a certain budgeted 
amount.



Sec. 1000.506  If the TDHE is the recipient, must it submit its monitoring 
evaluation/results to the Indian tribe?

    Yes. The Indian tribe as the grant beneficiary must receive a copy 
of the monitoring evaluation/results so that

[[Page 762]]

it can fully carry out its oversight responsibilities under NAHASDA.



Sec. 1000.508  If the recipient monitoring identifies programmatic 
concerns, what happens?

    If the recipient's monitoring activities identify areas of concerns, 
the recipient will take corrective actions which may include but are not 
limited to one or more of the following actions:
    (a) Depending upon the nature of the concern, the recipient may 
obtain additional training or technical assistance from HUD, other 
Indian tribes or TDHEs, or other entities.
    (b) The recipient may develop and/or revise policies, or ensure that 
existing policies are better enforced.
    (c) The recipient may take appropriate administrative action to 
remedy the situation.
    (d) The recipient may refer the concern to an auditor or to HUD for 
additional corrective action.



Sec. 1000.510  What happens if tribal monitoring identifies compliance 
concerns?

    The Indian tribe shall have the responsibility to ensure that 
appropriate corrective action is taken.



Sec. 1000.512  Are performance reports required?

    Yes. An annual report shall be submitted by the recipient to HUD and 
the Indian tribe being served in a format acceptable by HUD. Annual 
performance reports shall contain:
    (a) The information required by sections 403(b) and 404(b) of 
NAHASDA;
    (b) Brief information on the following:
    (1) A comparison of actual accomplishments to the objectives 
established for the period;
    (2) The reasons for slippage if established objectives were not met; 
and
    (3) Analysis and explanation of cost overruns or high unit costs; 
and
    (c) Any information regarding the recipient's performance in 
accordance with HUD's performance measures, as set forth in section 
Sec. 1000.524.



Sec. 1000.514  When must the annual performance report be submitted?

    The annual performance report must be submitted within 60 days of 
the end of the recipient's program year. If a justified request is 
submitted by the recipient, the Area ONAP may extend the due date for 
submission of the performance report.



Sec. 1000.516  What reporting period is covered by the annual performance 
report?

    For the first annual performance report to be submitted under 
NAHASDA, the period to be covered is October 1, 1997, through September 
30, 1998. This first report must be submitted by January 31, 1999. 
Subsequent annual performance reports must cover the period that 
coincides with the recipient's program year.

[64 FR 3015, Jan. 20, 1999]



Sec. 1000.518  When must a recipient obtain public comment on its 
annual performance report?

    The recipient must make its report publicly available to tribal 
members, non-Indians served under NAHASDA, and other citizens in the 
Indian area, in sufficient time to permit comment before submission of 
the report to HUD. The recipient determines the manner and times for 
making the report available.
    The recipient shall include a summary of any comments received by 
the grant beneficiary or recipient from tribal members, non-Indians 
served under NAHASDA, and other citizens in the Indian area.



Sec. 1000.520  What are the purposes of HUD review?

    At least annually, HUD will review each recipient's performance to 
determine whether the recipient:
    (a) Has carried out its eligible activities in a timely manner, has 
carried out its eligible activities and certifications in accordance 
with the requirements and the primary objective of NAHASDA and with 
other applicable laws and has a continuing capacity to carry out those 
activities in a timely manner;
    (b) Has complied with the IHP of the grant beneficiary; and
    (c) Whether the performance reports of the recipient are accurate.

[[Page 763]]



Sec. 1000.521  After the receipt of the recipient's performance report, 

how long does HUD have to make recommendations under section 404(c) 
of NAHASDA?

    60 days.



Sec. 1000.522  How will HUD give notice of on-site reviews?

    HUD shall generally provide a 30 day written notice of an impending 
on-site review to the Indian tribe and TDHE. Prior written notice will 
not be required in emergency situations. All notices shall state the 
general nature of the review.



Sec. 1000.524  What are HUD's performance measures for the review?

    HUD has the authority to develop performance measures which the 
recipient must meet as a condition for compliance under NAHASDA. The 
performance measures are:
    (a) Within 2 years of grant award under NAHASDA, no less than 90 
percent of the grant must be obligated.
    (b) The recipient has complied with the required certifications in 
its IHP and all policies and the IHP have been made available to the 
public.
    (c) Fiscal audits have been conducted on a timely basis and in 
accordance with the requirements of the Single Audit Act, as applicable. 
Any deficiencies identified in audit reports have been addressed within 
the prescribed time period.
    (d) Accurate annual performance reports were submitted to HUD within 
60 days after the completion of the recipient's program year.
    (e) The recipient has met the IHP goals and objectives in the 1-year 
plan and demonstrated progress on the 5-year plan goals and objectives.
    (f) The recipient has substantially complied with the requirements 
of 24 CFR part 1000 and all other applicable Federal statutes and 
regulations.



Sec. 1000.526  What information will HUD use for its review?

    In reviewing each recipient's performance, HUD may consider the 
following:
    (a) The approved IHP and any amendments thereto;
    (b) Reports prepared by the recipient;
    (c) Records maintained by the recipient;
    (d) Results of HUD's monitoring of the recipient's performance, 
including on-site evaluation of the quality of the work performed;
    (e) Audit reports;
    (f) Records of drawdown(s) of grant funds;
    (g) Records of comments and complaints by citizens and organizations 
within the Indian area;
    (h) Litigation; and
    (i) Any other reliable relevant information which relates to the 
performance measures under Sec. 1000.524.



Sec. 1000.528  What are the procedures for the recipient to comment on 

the result of HUD's review when HUD issues a report under section 405(b) 
of NAHASDA?

    HUD will issue a draft report to the recipient and Indian tribe 
within thirty (30) days of the completion of HUD's review. The recipient 
will have at least thirty (30) days to review and comment on the draft 
report as well as provide any additional information relating to the 
draft report. HUD shall consider the comments and any additional 
information provided by the recipient. HUD may also revise the draft 
report based on the comments and any additional information provided by 
the recipient. HUD shall make the recipient's comments and a final 
report readily available to the recipient, grant beneficiary, and the 
public not later than thirty (30) days after receipt of the recipient's 
comments and additional information.



Sec. 1000.530  What corrective and remedial actions will HUD request 

or recommend to address performance problems prior to taking action 
under Sec. 1000.532 or Sec. 1000.538?

    (a) The following actions are designed, first, to prevent the 
continuance of the performance problem(s); second, to mitigate any 
adverse effects or consequences of the performance problem(s); and 
third, to prevent a recurrence of the same or similar performance 
problem. The following actions, at least one of which must be taken 
prior to a sanction under paragraph (b), may be taken by HUD singly

[[Page 764]]

or in combination, as appropriate for the circumstances:
    (1) Issue a letter of warning advising the recipient of the 
performance problem(s), describing the corrective actions that HUD 
believes should be taken, establishing a completion date for corrective 
actions, and notifying the recipient that more serious actions may be 
taken if the performance problem(s) is not corrected or is repeated;
    (2) Request the recipient to submit progress schedules for 
completing activities or complying with the requirements of this part;
    (3) Recommend that the recipient suspend, discontinue, or not incur 
costs for the affected activity;
    (4) Recommend that the recipient redirect funds from affected 
activities to other eligible activities;
    (5) Recommend that the recipient reimburse the recipient's program 
account in the amount improperly expended; and
    (6) Recommend that the recipient obtain appropriate technical 
assistance using existing grant funds or other available resources to 
overcome the performance problem(s).
    (b) Failure of a recipient to address performance problems specified 
in paragraph (a) above may result in the imposition of sanctions as 
prescribed in Sec. 1000.532 (providing for adjustment, reduction, or 
withdrawal of future grant funds, or other appropriate actions), or 
Sec. 1000.538 (providing for termination, reduction, or limited 
availability of payments, or replacement of the TDHE).



Sec. 1000.532  What are the adjustments HUD makes to a recipient's future 
year's grant amount under section 405 of NAHASDA?

    (a) HUD may, subject to the procedures in paragraph (b) below, make 
appropriate adjustments in the amount of the annual grants under NAHASDA 
in accordance with the findings of HUD pursuant to reviews and audits 
under section 405 of NAHASDA. HUD may adjust, reduce, or withdraw grant 
amounts, or take other action as appropriate in accordance with the 
reviews and audits, except that grant amounts already expended on 
affordable housing activities may not be recaptured or deducted from 
future assistance provided on behalf of an Indian tribe.
    (b) Before undertaking any action in accordance with paragraphs (a) 
and (c) of this section, HUD will notify the recipient in writing of the 
actions it intends to take and provide the recipient an opportunity for 
an informal meeting to resolve the deficiency. In the event the 
deficiency is not resolved, HUD may take any of the actions available 
under paragraphs (a) and (c) of this section. However, the recipient may 
request, within 30 days of notice of the action, a hearing in accordance 
with Sec. 1000.540. The amount in question shall not be reallocated 
under the provisions of Sec. 1000.536, until 15 days after the hearing 
has been held and HUD has rendered a final decision.
    (c) Absent circumstances beyond the recipient's control, when a 
recipient is not complying significantly with a major activity of its 
IHP, HUD shall make appropriate adjustment, reduction, or withdrawal of 
some or all of the recipient's subsequent year grant in accordance with 
this section.



Sec. 1000.534  What constitutes substantial noncompliance?

    HUD will review the circumstances of each noncompliance with NAHASDA 
and the regulations on a case-by-case basis to determine if the 
noncompliance is substantial. This review is a two step process. First, 
there must be a noncompliance with NAHASDA or these regulations. Second, 
the noncompliance must be substantial. A noncompliance is substantial 
if:
    (a) The noncompliance has a material effect on the recipient meeting 
its major goals and objectives as described in its Indian Housing Plan;
    (b) The noncompliance represents a material pattern or practice of 
activities constituting willful noncompliance with a particular 
provision of NAHASDA or the regulations, even if a single instance of 
noncompliance would not be substantial;
    (c) The noncompliance involves the obligation or expenditure of a 
material amount of the NAHASDA funds budgeted by the recipient for a 
material activity; or

[[Page 765]]

    (d) The noncompliance places the housing program at substantial risk 
of fraud, waste or abuse.



Sec. 1000.536  What happens to NAHASDA grant funds adjusted, reduced, 
withdrawn, or terminated under Sec. 1000.532 or Sec. 1000.538?

    Such NAHASDA grant funds shall be distributed by HUD in accordance 
with the next NAHASDA formula allocation.



Sec. 1000.538  What remedies are available for substantial noncompliance?

    (a) If HUD finds after reasonable notice and opportunity for hearing 
that a recipient has failed to comply substantially with any provisions 
of NAHASDA, HUD shall:
    (1) Terminate payments under NAHASDA to the recipient;
    (2) Reduce payments under NAHASDA to the recipient by an amount 
equal to the amount of such payments that were not expended in 
accordance with NAHASDA;
    (3) Limit the availability of payments under NAHASDA to programs, 
projects, or activities not affected by the failure to comply; or
    (4) In the case of noncompliance described in Sec. 1000.542, 
provide a replacement TDHE for the recipient.
    (b) HUD may, upon due notice, suspend payments at any time after the 
issuance of the opportunity for hearing pending such hearing and final 
decision, to the extent HUD determines such action necessary to preclude 
the further expenditure of funds for activities affected by such failure 
to comply.
    (c) If HUD determines that the failure to comply substantially with 
the provisions of NAHASDA is not a pattern or practice of activities 
constituting willful noncompliance, and is a result of the limited 
capability or capacity of the recipient, HUD may provide technical 
assistance for the recipient (directly or indirectly) that is designed 
to increase the capability or capacity of the recipient to administer 
assistance under NAHASDA in compliance with the requirements under 
NAHASDA.
    (d) In lieu of, or in addition to, any action described in this 
section, if HUD has reason to believe that the recipient has failed to 
comply substantially with any provisions of NAHASDA, HUD may refer the 
matter to the Attorney General of the United States, with a 
recommendation that appropriate civil action be instituted.



Sec. 1000.540  What hearing procedures will be used under NAHASDA?

    The hearing procedures in 24 CFR part 26 shall be used.



Sec. 1000.542  When may HUD require replacement of a recipient?

    (a) In accordance with section 402 of NAHASDA, as a condition of HUD 
making a grant on behalf of an Indian tribe, the Indian tribe shall 
agree that, notwithstanding any other provisions of law, HUD may, only 
in the circumstances discussed below, require that a replacement TDHE 
serve as the recipient for the Indian tribe.
    (b) HUD may require a replacement TDHE for an Indian tribe only upon 
a determination by HUD on the record after opportunity for hearing that 
the recipient for the Indian tribe has engaged in a pattern or practice 
of activities that constitute substantial or willful noncompliance with 
the requirements of NAHASDA.



Sec. 1000.544  What audits are required?

    The recipient must comply with the requirements of the Single Audit 
Act and OMB Circular A-133 which require annual audits of recipients 
that expend Federal funds equal to or in excess of an amount specified 
by the U.S. Office of Management and Budget, which is currently set at 
$300,000.



Sec. 1000.546  Are audit costs eligible program or administrative expenses?

    Yes, audit costs are an eligible program or administrative expense. 
If the Indian tribe is the recipient then program funds can be used to 
pay a prorated share of the tribal audit or financial review cost that 
is attributable to NAHASDA funded activities. For a recipient not 
covered by the Single Audit Act, but which chooses to obtain a periodic 
financial review, the cost of such a review would be an eligible program 
expense.

[[Page 766]]



Sec. 1000.548  Must a copy of the recipient's audit pursuant to the Single 
Audit Act relating to NAHASDA activities be submitted to HUD?

    Yes. A copy of the latest recipient audit under the Single Audit Act 
relating to NAHASDA activities must be submitted with the Annual 
Performance Report.



Sec. 1000.550  If the TDHE is the recipient, does it have to submit a 
copy of its audit to the Indian tribe?

    Yes. The Indian tribe as the grant beneficiary must receive a copy 
of the audit report so that it can fully carry out its oversight 
responsibilities with NAHASDA.



Sec. 1000.552  How long must the recipient maintain program records?

    (a) This section applies to all financial and programmatic records, 
supporting documents, and statistical records of the recipient which are 
required to be maintained by the statute, regulation, or grant 
agreement.
    (b) Except as otherwise provided herein, records must be retained 
for three years from the date the recipient submits to HUD the annual 
performance report that covers the last expenditure of grant funds under 
a particular grant.
    (c) If any litigation, claim, negotiation, audit or other action 
involving the records has been started before the expiration of the 3-
year period, the records must be retained until completion of the action 
and resolution of all issues which arise from it, or until the end of 
the regular 3-year period, whichever is later.



Sec. 1000.554  Which agencies have right of access to the recipient's 
records relating to activities carried out under NAHASDA?

    (a) HUD and the Comptroller General of the United States, and any of 
their authorized representatives, shall have the right of access to any 
pertinent books, documents, papers, or other records of recipients which 
are pertinent to NAHASDA assistance, in order to make audits, 
examinations, excerpts, and transcripts.
    (b) The right of access in this section lasts as long as the records 
are maintained.



Sec. 1000.556  Does the Freedom of Information Act (FOIA) apply to 
recipient records?

    FOIA does not apply to recipient records. However, there may be 
other applicable State and tribal access laws or recipient policies 
which may apply.



Sec. 1000.558  Does the Federal Privacy Act apply to recipient records?

    The Federal Privacy Act does not apply to recipient records. 
However, there may be other applicable State and tribal access laws or 
recipient policies which may apply.

  Appendix A to Part 1000--Indian Housing Block Grant Formula Mechanics

    This appendix shows the different components of the IHBG formula. 
The following text explains how each component of the IHBG formula 
works.
    1. The Indian Housing Block Grant (IHBG) formula is calculated by 
initially determining the amount a tribe receives for Formula Current 
Assisted Stock (FCAS) (See Sec. Sec. 1000.310 and 1000.312. FCAS 
funding is comprised of two components, operating subsidy (Sec. 
1000.316(a)) and modernization (Sec. 1000.316(b)). The operating 
subsidy component is calculated based on the national per unit subsidy 
provided in FY 1996 (adjusted to a 100 percent funding level) for each 
of the following types of programs--Low Rent, Homeownership (Mutual Help 
and Turnkey III), and Section 8. A tribe's total units in each of the 
above categories is multiplied times the relevant national per unit 
subsidy amount. That amount is summed and multiplied times a local area 
cost adjustment factor for management.
    2. The local area cost adjustment factor for management is called 
AELFMR. AELFMR is the greater of a tribe's Allowable Expense Level (AEL) 
or Fair Market Rent (FMR) factor, where the AEL and FMR factors are 
determined by dividing each tribe's AEL and FMR by their respective 
national weighted average (weighted on the unadjusted allocation under 
FCAS operating subsidy). The adjustment made to the FCAS component of 
the IHBG formula is then the new AELFMR factor divided by the national 
weighted average of the AELFMR (See Sec. 1000.320).
    3. The modernization component of FCAS is based on the national per 
unit modernization funding provided in FY 1996 to Indian Housing 
Authorities (IHAs). The per unit

[[Page 767]]

amount is determined by dividing the modernization funds by the total 
Low Rent, Mutual Help, and Turnkey III units operated by IHAs in 1996. A 
tribe's total Low Rent, Mutual Help, and Turnkey III units are 
multiplied times the per unit modernization amount. That amount is then 
multiplied times a local area cost adjustment factor for construction 
(e.g. the Total Development Cost) (See Sec. 1000.320).
    4. The construction adjustment factor is Total Development Cost 
(TDC) for the area divided by the weighted national average for TDC 
(weighted on the unadjusted allocation for modernization) (See Sec. 
1000.320).
    5. After determining the total amount allocated under FCAS for each 
tribe, it is summed for every tribe. The national total amount for FCAS 
is subtracted from the Fiscal Year appropriation to determine the total 
amount to be allocated under the Need component of the IHBG formula.
    6. The Need component of the IHBG formula is calculated using seven 
factors weighted as set forth in Sec. 1000.324 as follows: 22 percent 
of the allocated funds will be allocated by a tribe's share of the total 
Native American households paying more than 50 percent of their income 
for housing living in the Indian tribe's formula area, 25 percent of the 
funds allocated under Need will be allocated by a tribe's share of the 
total Native American households overcrowded and or without kitchen or 
plumbing living in their formula area, and so on. The current national 
totals for each of the need variables will be distributed annually by 
HUD with the Formula Response Form (See Sec. 1000.332). The national 
totals will change as tribes update information about their formula area 
and data for individual areas are challenged (See Sec. Sec. 1000.334 
and 1000.336). The Need component is then calculated by multiplying a 
tribe's share of housing need by a local area cost adjustment factor for 
construction (the Total Development Cost) (See Sec. 1000.338).
    7. No tribe in its first year of funding will receive less than 
$50,000 under the Need component of the formula. In subsequent 
allocations to a tribe, it will receive no less than $25,000 under the 
Need component of the formula. This increase in funding for the tribes 
receiving the minimum Need allocation is funded by a reallocation from 
all tribes receiving more than $50,000 under their Need component. This 
is necessary in order to keep the total allocation within the 
appropriation level. Such minimum Need allocations will only continue 
through FY 2002 (See Sec. 1000.328).
    8. A tribe's total grant is calculated by summing the FCAS and Need 
allocations. This preliminary grant is compared to how much a tribe 
received in FY 1996 for operating subsidy and modernization. If a tribe 
received more in FY 1996 for operating subsidy and modernization than 
they do under the IHBG formula, their grant is adjusted up to the FY 
1996 level (See Sec. 1000.340). Indian tribes receiving more under the 
IHBG formula than in FY 1996 ``pay'' for the upward adjustment for the 
other tribes by having their grants adjusted downward. Because many more 
Indian tribes have grant amounts above the FY 1996 level than those with 
grants below the FY 1996 level, each tribe contributes very little 
relative to their total grant to fund the adjustment.

[63 FR 12373, Mar. 12, 1998; 63 FR 13105, Mar. 17, 1998]

      Appendix B to Part 1000--IHBG Block Grant Formula Mechanisms

    1. The Indian Housing Block Grant Formula consists of two 
components, the Formula Current Assisted Stock (FCAS) and Need. 
Therefore, the formula allocation before adjusting for the statutory 
requirement that a tribe's minimum grant will not be less than the 
tribe's FY 1996 Operating Subsidy and Modernization funding, can be 
represented by:

unadjGRANT = FCAS + NEED.

    2. NAHASDA requires the current assisted stock be provided for 
before allocating funds based on need. Therefore, FCAS must be 
calculated first. FCAS consists to two components, Operating Subsidy 
(OPSUB) and Modernization (MOD) such that:

FCAS = OPSUB + MOD.

    3. OPSUB consists of three main parts: Number of Low-Rent units; 
Number of Section 8 units; and Number of Mutual Help and Turnkey III 
units. Each of these main parts are adjusted by the FY 1996 national per 
unit subsidy, an inflation factor, and local area costs as reflected by 
the greater of the AEL factor or FMR factor. The AEL factor as defined 
in Sec. 1000.302 as the difference between a local area Allowable 
Expense Level (AEL) and the national weighted average for AEL. The FMR 
factor is also defined in Sec. 1000.302 as the difference between a 
local area Fair Market Rent (FMR) and the national weighted average for 
FMR. So, expanding OPSUB gives:

OPSUB = [LR * LRSUB + (MH+TK) * HOSUB + S8 * S8SUB] * INF * AELFMR

Where:
LR = number of Low-Rent units.
LRSUB = FY 1996 national per unit average subsidy for Low-Rent units = 
$2,440.
MH+TK = number of Mutual Help and Turnkey III units.
HOSUB = FY 1996 national per unit average subsidy for Homeownership 
units = $528.
S8 = number of Section 8 units.
S8SUB = FY 1996 national per unit average subsidy for Section 8 units = 
$3,625.
INF = inflation adjustment determined by the Consumer Price Index for 
housing.

[[Page 768]]

AELFMR = greater of AEL Factor or FMR Factor weighted by national 
average of AEL Factor and FRM Factor.
AEL FACTOR = AEL/NAAEL.
AEL = local Allowable Expense Level.
NAAEL = national weighted average for AEL.
FMR FACTOR = FMR/NAFMR.
FMR = local Fair Market Rent.
NAFMR = national weighted average for FMR.
NAAELFMR = national weighted average for greater of AEL Factor or FMR 
factor.

    For estimating FY 1998 allocations:

NAAEL = 240.224.
NAFMR = 459.437.
NAAELFMR = 1.144.
    4. MOD considers only the number of Low-Rent, and Mutual Help and 
Turnkey III units. Each of these are adjusted by the FY 1996 national 
per unit subsidy for modernization, an inflation factor and the local 
Total Development Costs relative to the weighted national average for 
TDC. So, expanding MOD gives us:

MOD = [LR + (MH+TK)] * SUB * INF * TDC/NATDC.

Where:

LR = number of Low-Rent units.
MH+TK = number of Mutual Help and Turnkey III units.
SUB = FY 1996 national per unit average subsidy for modernization.
INF = inflation adjustment determined by the Consumer Price Index for 
housing.
TDC = Local Total Development Costs defined in Sec. 1000.302.
NATDC = weighted national average for TDC.

    For estimating FY 1998 allocations:

SUB = $1,974.
NATDC = $103,828.

    5. Now that calculation for FCAS is complete, we can determine how 
many funds will be available to allocate over the NEED component of the 
formula by calculating:

NEED FUNDS = APPROPRIATION--NATCAS.

Where:

APPROPRIATION = dollars provided by Congress for distribution by the 
IHBG formula.
NATCAS = summation of CAS allocations for all tribes.

    For estimating FY 1998 allocations:

APPROPRIATION = $590 million.
NATCAS = $236,147,110.
    6. Two iterations are necessary to compute the final Need 
allocation. The first iteration consists of seven weighted criteria that 
allocate need funds based on a tribe's population and housing data. This 
allocation is then adjusted for local area cost differences based on TDC 
relative to the national weighted average. This can be represented by:

NEED1 = [(0.11 * PER / NPER) + (0.13 * HHLE30 / NHHLE30)
 + (0.07 * HH30T50 / NHH30T50) + (0.07 * HH50T80 / NHH50T80)
 + (0.25 * OCRPR / NOCRPR) + (0.22 * SCBTOT / NSCBTOT)
 + (0.15 * HOUSHOR / NHOUSHOR)] * NEED FUNDS * (TDC/NATDC).

Where:

PER = American Indian and Alaskan Native (AIAN) persons.
NPER = national total of PER.
HHLE30 = AIAN households less than 30% of median income.
NHHLE30 = national total of HHLE30.
HH30T50 = AIAN households 30% to 50% of median income.
NHH30T50 = national total of HH30T50.
HH50T80 = AIAN households 50% to 80% of median income.
NHH50TO80 = national total of HH50T80.
OCRPR = AIAN households crowded or without complete kitchen or plumbing.
NOCRPR = national total of OCRPR.
SCBTOT = AIAN households paying more than 50% of their income for 
housing.
NSCBTOT = national total SCBTOT.
HOUSHOR = AIAN households with an annual income less than or equal to 
80% of formula median income reduced by the combination of current 
assisted stock and units developed under NAHASDA.
NHOUSHOR = national total of HOUSHOR.
TDC = Local Total Development Costs defined in Sec. 1000.302.
NATDC = weighted national average for TDC.

    For estimating FY 1998 allocations:

NPER = 953,254.
NHHLE30 = 78,496.
NHH30T50 = 52,514.
NHH50T80 = 59,793.
NOCPR = 80,581.
NSCBTOT = 34,080.
NHOUSHOR = 23,840.
NEEDFUNDS = $353,852,890.
NATDC = $104,956.

    7. The second iteration in computing Need allocation consists of 
adjusting the Need allocation computed above to take into account the 
$50,000 baseline funding for the first year only and then $25,000 per 
year for each year thereafter through FY 2002. So, if in the first Need 
computation you have less than the minimum Needs funding level, your 
Need allocation will go up. But, if you have more than the minimum Needs 
funding level, your Need allocation will go down to adjust for the other 
Need allocations going up. We can represent this by:
If NEED1 is less than MINFUNDING, then NEED = MINFUNDING.
If NEED1 is greater than or equal to MINFUNDING, then NEED = NEED1-
          {mUNDERMIN$ (NEED1-MINFUNDING)/OVERMIN${time} .


[[Page 769]]


Where:

MINFUNDING = minimum needs funding level.
UNDERMIN$ = for all tribes with NEED1 less than MINFUNDING, sum of the 
differences between MINFUNDING and NEED1.
OVERMIN$ = for all tribes with NEED1 greater than or equal to
MINFUNDING, sum of the difference between NEED1 and MINFUNDING.

    For estimating FY 1998 allocations:

MINFUNDING = $50,000.
UNDERMIN$ = $4,919,224.
OVERMIN$ = $335,022,114.

    8. Now we have computed values for FCAS and NEED. This final step in 
computing the grant allocation is to adjust the sum of FCAS and NEED to 
reflect the statutory requirement that a tribe's minimum grant will not 
be less than that tribe's FY 1996 Operating Subsidy and Modernization 
funding. So, before adjusting for the minimum grant compute:

unadjGRANT = FCAS + NEED

where both FCAS and NEED are calculated above.
    9. Now, apply test to determine if the GRANT (unadjusted for FY 
1996) levels is greater than or equal to FY 1996 Operating Subsidy and 
Modernization funding.

Let TEST = unadjGRANT--OPMOD96 .
If TEST is less than 0, then GRANT = OPMOD96.
If TEST is greater than or equal to 0, then GRANT = unadjGRANT--
[UNDER1996 * (TEST / OVER1996)].

Where:

OPMOD96 = funding received by tribe in FY 1996 for Operating Subsidy and 
Modernization
UNDER1996 = for all tribes with TEST less than 0, sum of the absolute 
value of TEST.
OVER1996 = for all tribes with TEST greater than or equal to 0, sum of 
TEST.

    For estimating FY 1998 allocations:

UNDER1996 = $5,378,558.
OVER1996 = $326,095,837.
GRANT is the approximate grant amount in any given year for any given 
tribe.

[63 FR 12373, Mar. 12, 1998; 63 FR 13105, Mar. 17, 1998]

                       PARTS 1001	1002 [RESERVED]



PART 1003_COMMUNITY DEVELOPMENT BLOCK GRANTS FOR INDIAN TRIBES AND 
ALASKA NATIVE VILLAGES--Table of Contents




                      Subpart A_General Provisions

Sec.
1003.1 Applicability and scope.
1003.2 Program objective.
1003.3 Nature of program.
1003.4 Definitions.
1003.5 Eligible applicants.
1003.6 Waivers.

                      Subpart B_Allocation of Funds

1003.100 General.
1003.101 Area ONAP allocation of funds.
1003.102 Use of recaptured and unawarded funds.

                      Subpart C_Eligible Activities

1003.200 General policies.
1003.201 Basic eligible activities.
1003.202 Eligible rehabilitation and preservation activities.
1003.203 Special economic development activities.
1003.204 Special activities by Community-Based Development Organizations 
          (CBDOs).
1003.205 Eligible planning, urban environmental design and policy-
          planning-management-capacity building activities.
1003.206 Program administration costs.
1003.207 Ineligible activities.
1003.208 Criteria for compliance with the primary objective.

    Subpart D_Single Purpose Grant Application and Selection Process

1003.300 Application requirements.
1003.301 Selection process.
1003.302 Project specific threshold requirements.
1003.303 Project rating.
1003.304 Funding process.
1003.305 Program amendments.

                    Subpart E_Imminent Threat Grants

1003.400 Criteria for funding.
1003.401 Application process.
1003.402 Availability of funds.

                     Subpart F_Grant Administration

1003.500 Responsibility for grant administration.
1003.501 Applicability of uniform administrative requirements and cost 
          principles.
1003.502 Agreements with subrecipients.
1003.503 Program income.
1003.504 Use of real property.

[[Page 770]]

1003.505 Records to be maintained.
1003.506 Reports.
1003.507 Public access to program records.
1003.508 Grant closeout procedures.
1003.509 Force account construction.
1003.510 Indian preference requirements.
1003.511 Use of escrow accounts for rehabilitation of privately owned 
          residential property.

                  Subpart G_Other Program Requirements

1003.600 Constitutional prohibition.
1003.601 Nondiscrimination.
1003.602 Relocation and real property acquisition.
1003.603 Labor standards.
1003.604 Citizen participation.
1003.605 Environment.
1003.606 Conflict of interest.
1003.607 Lead-based paint.
1003.608 Debarment and suspension.

                      Subpart H_Program Performance

1003.700 Review of grantee's performance.
1003.701 Corrective and remedial actions.
1003.702 Reduction or withdrawal of grant.
1003.703 Other remedies for noncompliance.

    Authority: 42 U.S.C. 3535(d) and 5301 et seq.

    Source: 61 FR 40090, July 31, 1996, unless otherwise noted. 
Redesignated at 62 FR 12349, Mar. 12, 1998.



                      Subpart A_General Provisions



Sec. 1003.1  Applicability and scope.

    The policies and procedures described in this part apply to grants 
to eligible applicants under the Community Development Block Grant 
(CDBG) program for Indian tribes and Alaska native villages.



Sec. 1003.2  Program objective.

    The primary objective of the Indian CDBG (ICDBG) Program and of the 
community development program of each grantee covered under the Act is 
the development of viable Indian and Alaska native communities, 
including decent housing, a suitable living environment, and economic 
opportunities, principally for persons of low and moderate income. The 
Federal assistance provided in this part is not to be used to reduce 
substantially the amount of tribal financial support for community 
development activities below the level of such support before the 
availability of this assistance.



Sec. 1003.3  Nature of program.

    The selection of single purpose grantees under subpart B of this 
part is competitive in nature. Therefore, selection of grantees for 
funds will reflect consideration of the relative adequacy of 
applications in addressing tribally determined need. The selection of 
grantees of imminent threat grants under the provisions of subpart B of 
this part is not competitive in nature. However, applicants for funding 
under either subpart must have the administrative capacity to undertake 
the community development activities proposed, including the systems of 
internal control necessary to administer these activities effectively 
without fraud, waste, or mismanagement.



Sec. 1003.4  Definitions.

    Act means Title I of the Housing and Community Development Act of 
1974, as amended (42 U.S.C. 5301 et seq.)
    Area ONAPs mean the HUD Offices of Native American Programs having 
field office responsibility for the ICDBG Program.
    Assistant Secretary means the Assistant Secretary for Public and 
Indian Housing.
    Buildings for the general conduct of government mean office 
buildings and other facilities in which the legislative, judicial or 
general administrative affairs of the government are conducted. This 
term does not include such facilities as neighborhood service centers or 
special purpose buildings located in low and moderate income areas that 
house various non-legislative functions or services provided by the 
government at decentralized locations.
    Chief executive officer means the elected official or legally 
designated official who has the prime responsibility for the conduct of 
the affairs of an Indian tribe or Alaska native village.
    Eligible Indian population means the most accurate and uniform 
population data available from data compiled and published by the United 
States Bureau of the Census available from the latest census referable 
to the same point or period of time for Indian tribes and Alaska native 
villages eligible under this part.

[[Page 771]]

    Extent of overcrowded housing means the number of housing units with 
1.01 or more persons per room, based on data compiled and published by 
the United States Bureau of the Census available from the latest census 
referable to the same point or period of time.
    Extent of poverty means the number of persons whose incomes are 
below the poverty level, based on data compiled and published by the 
United States Bureau of the Census referable to the same point or period 
in time and the latest reports from the Office of Management and Budget.
    HUD means the Department of Housing and Urban Development.
    ICDBG Program means the Indian Community Development Block Grant 
Program.
    Identified service area means:
    (1) A geographic location within the jurisdiction of a tribe (but 
not the entire jurisdiction) designated in comprehensive plans, 
ordinances, or other tribal documents as a service area;
    (2) The Bureau of Indian Affairs (BIA) service area, including 
residents of areas outside the geographic jurisdiction of the tribe; or
    (3) The entire area under the jurisdiction of a tribe which has a 
population of members of under 10,000.
    Imminent threat means a problem which if unresolved or not addressed 
will have an immediate negative impact on public health or safety.
    Low and moderate income beneficiary means a family, household, or 
individual whose income does not exceed 80 percent of the median income 
for the area, as determined by HUD, with adjustments for smaller and 
larger households or families. However, HUD may establish income 
ceilings higher or lower than 80 percent of the median for the area on 
the basis of HUD's findings that such variations are necessary because 
of unusually high or low household or family incomes. In reporting 
income levels to HUD, the applicant must include and identify the 
distributions of tribal or village income to families, households, or 
individuals.
    Microenterprise means a business that has five or fewer employees, 
one or more of whom owns the enterprise.
    Secretary means the Secretary of HUD.
    Small business means a business that meets the criteria set forth in 
section 3(a) of the Small Business Act (15 U.S.C. 631, 636, and 637).
    Subrecipient means a public or private nonprofit agency, authority 
or organization, or a for-profit entity described in Sec. 1003.201(o), 
receiving ICDBG funds from the grantee or another subrecipient to 
undertake activities eligible for assistance under subpart C of this 
part. The term excludes a CBDO receiving ICDBG funds from the grantee 
under the authority of Sec. 1003.204, unless the grantee explicitly 
designates it as a subrecipient. The term does not include contractors 
providing supplies, equipment, construction or services subject to the 
procurement requirements in 24 CFR 85.36 or in 24 CFR Part 84, as 
applicable.
    Tribal government, Tribal governing body or Tribal council means the 
governing body of an Indian tribe or Alaska native village as recognized 
by the Bureau of Indian Affairs.
    Tribal resolution means the formal manner in which the tribal 
government expresses its legislative will in accordance with its organic 
documents. In the absence of such organic documents, a written 
expression adopted pursuant to tribal practices will be acceptable.
    URA means the Uniform Relocation and Real Property Acquisition 
Policies Act of 1970, as amended (42 U.S.C. 4601 et. seq.).



Sec. 1003.5  Eligible applicants.

    (a) Eligible applicants are any Indian tribe, band, group, or 
nation, including Alaska Indians, Aleuts, and Eskimos, and any Alaska 
native village of the United States which is considered an eligible 
recipient under Title I of the Indian Self-Determination and Education 
Assistance Act (25 U.S.C. 450) or which had been an eligible recipient 
under the State and Local Fiscal Assistance Act of 1972 (31 U.S.C. 
1221). Eligible recipients under the Indian Self-Determination and 
Education Assistance Act will be determined by the Bureau of Indian 
Affairs and eligible recipients under the State and Local Fiscal 
Assistance Act of 1972 are those that have been determined eligible by

[[Page 772]]

the Department of Treasury, Office of Revenue Sharing.
    (b) Tribal organizations which are eligible under Title I of the 
Indian Self-Determination and Education Assistance Act may apply on 
behalf of any Indian tribe, band, group, nation, or Alaska native 
village eligible under that act for funds under this part when one or 
more of these entities have authorized the tribal organization to do so 
through concurring resolutions. Such resolutions must accompany the 
application for funding. Eligible tribal organizations under Title I of 
the Indian Self-Determination and Education Assistance Act will be 
determined by the Bureau of Indian Affairs or the Indian Health Service, 
as appropriate.
    (c) To apply for funding in a given fiscal year, an applicant must 
be eligible as an Indian tribe or Alaska native village, as provided in 
paragraph (a) of this section, or as a Tribal organization, as provided 
in paragraph (b) of this section, by the application submission date.

(Approved by the Office of Management and Budget under control number 
2577-0191)



Sec. 1003.6  Waivers.

    Upon determination of good cause, HUD may waive any provision of 
this part not required by statute. Each waiver must be in writing and 
must be supported by documentation of the pertinent facts and grounds.



                      Subpart B_Allocation of Funds



Sec. 1003.100  General.

    (a) Types of grants. Two types of grants are available under the 
Indian CDBG Program.
    (1) Single purpose grants provide funds for one or more single 
purpose projects consisting of an activity or set of activities designed 
to meet a specific community development need. This type of grant is 
awarded through competition with other single purpose projects.
    (2) Imminent threat grants alleviate an imminent threat to public 
health or safety that requires immediate resolution. This type of grant 
is awarded only after an Area ONAP determines that such conditions exist 
and if funds are available for such grants.
    (b) Size of grants.--(1) Ceilings. Each Area ONAP may recommend 
grant ceilings for single purpose grant applications. Single purpose 
grant ceilings for each Area ONAP shall be established in the NOFA 
(Notice of Funding Availability).
    (2) Individual grant amounts. An Area ONAP may approve a grant 
amount less than the amount requested. In doing so, the Area ONAP may 
take into account the size of the applicant, the level of demand, the 
scale of the activity proposed relative to need and operational 
capacity, the number of persons to be served, the amount of funds 
required to achieve project objectives, the reasonableness of the 
project costs, and the administrative capacity of the applicant to 
complete the activities in a timely manner.

[61 FR 40090, July 31, 1996, unless otherwise noted. Redesignated at 62 
FR 12349, Mar. 12, 1998, as amended at 66 FR 4580, Jan. 17, 2001; 66 FR 
8176, Jan. 30, 2001]



Sec. 1003.101  Area ONAP allocation of funds.

    (a) Except as provided in paragraph (b) of this section, funds will 
be allocated to the Area ONAPs responsible for the program on the 
following basis:
    (1) Each Area ONAP will be allocated $1,000,000 as a base amount, to 
which will be added a formula share of the balance of the ICDBG Program 
funds, as provided in paragraph (a)(2) of this section.
    (2) The amount remaining after the base amount is allocated and any 
amount retained by the Headquarters ONAP to fund imminent threat grants 
pursuant to the provisions of Sec. 1003.402 is subtracted, will be 
allocated to each Area ONAP based on the most recent data complied and 
published by the United States Bureau of the Census referable to the 
same point or period in time, as follows:
    (i) Forty percent (40%) of the funds will be allocated based upon 
each Area ONAP's share of the total eligible Indian population;
    (ii) Forty percent (40%) of the funds will be allocated based upon 
each Area ONAP's share of the total extent of

[[Page 773]]

poverty among the eligible Indian population; and
    (iii) Twenty percent (20%) of the funds will be allocated based upon 
each Area ONAP's share of the total extent of overcrowded housing among 
the eligible Indian population.
    (b) HUD will use other criteria to determine an allocation formula 
for distributing funds to the Area ONAPs if funds are set aside by 
statute for a specific purpose in any fiscal year if it is determined 
that the formula in paragraph (a) of this section is inappropriate to 
accomplish the purpose. HUD will use other criteria if it is determined 
that, based on a limited appropriation of funds, the use of the formula 
in paragraph (a) of this section is inappropriate to obtain an equitable 
allocation of funds.
    (c) Data used for the allocation of funds will be based upon the 
Indian population of those tribes and villages that are determined to be 
eligible ninety (90) days before the beginning of each fiscal year.



Sec. 1003.102  Use of recaptured and unawarded funds.

    (a) The Assistant Secretary will determine on a case-by-case basis 
the use of grant funds which are:
    (1) Recaptured by HUD under the provisions of Sec. 1003.703 or 
Sec. 1003.704;
    (2) Recaptured by HUD at the time of the closeout of a program; or
    (3) Unawarded after the completion by an Area ONAP of a funding 
competition.
    (b) The recaptured or unawarded funds will remain with the Area ONAP 
to which they were originally allocated unless the Assistant Secretary 
determines that there is an overriding reason to redistribute these 
funds outside of the Area ONAP's jurisdiction. The recaptured funds may 
be used to fund the highest ranking unfunded project from the most 
recent funding competition, an imminent threat, or other uses. Unawarded 
funds may be used to fund an imminent threat or other uses.



                      Subpart C_Eligible Activities



Sec. 1003.200  General policies.

    An activity may be assisted in whole or in part with ICDBG funds 
only if the activity meets the eligibility requirements of section 105 
of the Act as further defined in this subpart and if the criteria for 
compliance with the primary objective of the Act set forth under Sec. 
1003.208 have been met. The requirements for compliance with the primary 
objective of the Act do not apply to imminent threat grants funded under 
subpart E of this part.



Sec. 1003.201  Basic eligible activities.

    ICDBG funds may be used for the following activities:
    (a) Acquisition. Acquisition in whole or in part by the grantee, or 
other public or private nonprofit entity, by purchase, long-term lease, 
donation, or otherwise, of real property (including air rights, water 
rights, rights-of-way, easements, and other interests therein) for any 
public purpose, subject to the limitations of Sec. 1003.207.
    (b) Disposition. Disposition, through sale, lease, donation, or 
otherwise, of any real property acquired with ICDBG funds or its 
retention for public purposes, including reasonable costs of temporarily 
managing such property or property acquired under urban renewal, 
provided that the proceeds from any such disposition shall be program 
income subject to the requirements set forth in Sec. 1003.503.
    (c) Public facilities and improvements. Acquisition, construction, 
reconstruction, rehabilitation or installation of public facilities and 
improvements, except as provided in Sec. 1003.207(a), carried out by 
the grantee or other public or private nonprofit entities. In 
undertaking such activities, design features and improvements which 
promote energy efficiency may be included. [However, activities under 
this paragraph may be directed to the removal of material and 
architectural barriers that restrict the mobility and accessibility of 
elderly or severely disabled persons to publicly owned and privately 
owned buildings, facilities, and improvements including those provided 
for in Sec. 1003.207(a)(1).] Such activities may also include the 
execution of architectural design features, and similar treatments 
intended to enhance the

[[Page 774]]

aesthetic quality of facilities and improvements receiving ICDBG 
assistance. Facilities designed for use in providing shelter for persons 
having special needs are considered public facilities and not subject to 
the prohibition of new housing construction described in Sec. 
1003.207(b)(3). Such facilities include shelters for the homeless; 
convalescent homes; hospitals, nursing homes; battered spouse shelters; 
halfway houses for run-away children, drug offenders or parolees; group 
homes for mentally retarded persons and temporary housing for disaster 
victims. In certain cases, nonprofit entities and subrecipients 
including those specified in Sec. 1003.204 may acquire title to public 
facilities. When such facilities are owned by nonprofit entities or 
subrecipients, they shall be operated so as to be open for use by the 
general public during all normal hours of operation. Public facilities 
and improvements eligible for assistance under this paragraph (c) are 
subject to the following policies in paragraphs (c)(1) through (c)(3) of 
this section:
    (1) Special policies governing facilities. The following special 
policies apply to:
    (i) Facilities containing both eligible and ineligible uses. A 
public facility otherwise eligible for assistance under the ICDBG 
program may be provided with ICDBG funds even if it is part of a 
multiple use building containing ineligible uses, if:
    (A) The facility which is otherwise eligible and proposed for 
assistance will occupy a designated and discrete area within the larger 
facility; and
    (B) The grantee can determine the costs attributable to the facility 
proposed for assistance as separate and distinct from the overall costs 
of the multiple-use building and/or facility. Allowable costs are 
limited to those attributable to the eligible portion of the building or 
facility.
    (ii) Equipment purchase. As stated in Sec. 1003.207(b)(1), the 
purchase of equipment with ICDBG funds is generally ineligible. However, 
the purchase of construction equipment for use as part of a solid waste 
facility is eligible. In addition, the purchase of fire protection 
equipment is considered to be an integral part of a public facility, 
and, therefore, the purchase of such equipment is also eligible.
    (2) Fees for use of facilities. Reasonable fees may be charged for 
the use of the facilities assisted with ICDBG funds, but charges such as 
excessive membership fees, which will have the effect of precluding low 
and moderate income persons from using the facilities, are not 
permitted.
    (3) Special assessments under the ICDBG program. The following 
policies relate to special assessments under the ICDBG program:
    (i) Definition of special assessment. The term special assessment 
means the recovery of the capital costs of a public improvement, such as 
streets, water or sewer lines, curbs, and gutters, through a fee or 
charge levied or filed as a lien against a parcel of real estate as a 
direct result of benefit derived from the installation of a public 
improvement, or a one-time charge made as a condition of access to a 
public improvement. This term does not relate to taxes, or the 
establishment of the value of real estate for the purpose of levying 
real estate, property, or ad valorem taxes, and does not include 
periodic charges based on the use of a public improvement, such as water 
or sewer user charges, even if such charges include the recovery of all 
or some portion of the capital costs of the public improvement.
    (ii) Special assessments to recover capital costs. Where ICDBG funds 
are used to pay all or part of the cost of a public improvement, special 
assessments may be imposed as follows:
    (A) Special assessments to recover the ICDBG funds may be made only 
against properties owned and occupied by persons not of low and moderate 
income. Such assessments constitute program income.
    (B) Special assessments to recover the non-ICDBG portion may be made 
provided that ICDBG funds are used to pay the special assessment on 
behalf of all properties owned and occupied by low and moderate income 
persons; except that ICDBG funds need not be used to pay the special 
assessments on behalf of properties owned and occupied by moderate 
income persons if the grantee certifies that it does not have

[[Page 775]]

sufficient ICDBG funds to pay the assessments in behalf of all of the 
low and moderate income owner-occupant persons. Funds collected through 
such special assessments are not program income.
    (iii) Public improvements not initially assisted with ICDBG funds. 
The payment of special assessments with ICDBG funds constitutes ICDBG 
assistance to the public improvement. Therefore, ICDBG funds may be used 
to pay special assessments provided:
    (A) The installation of the public improvements was carried out in 
compliance with requirements applicable to activities assisted under 
this part including environmental and citizen participation 
requirements; and
    (B) The installation of the public improvement meets a criterion for 
the primary objective in Sec. 1003.208; and,
    (C) The requirements of Sec. 1003.201(c)(3)(ii))(B) are met.
    (d) Clearance activities. Clearance, demolition, and removal of 
buildings and improvements, including movement of structures to other 
sites. Demolition of HUD-assisted housing units may be undertaken only 
with the prior approval of HUD.
    (e) Public services. Provision of public services (including labor, 
supplies, materials, and the purchase of personal property and 
furnishings) which are directed toward improving the community's public 
services and facilities, including but not limited to those concerned 
with employment, crime prevention, child care, health, drug abuse, 
education, fair housing counseling, energy conservation, welfare (but 
excluding the provision of income payments identified under Sec. 
1003.207(b)(4)), homebuyer downpayment assistance or recreational needs. 
To be eligible for ICDBG assistance, a public service must be either a 
new service, or a quantifiable increase in the level of an existing 
service above that which has been provided by or on behalf of the 
grantee through funds raised by the grantee, or received by the grantee 
from the Federal government in the twelve calendar months before the 
submission of the application for ICDBG assistance. (An exception to 
this requirement may be made if HUD determines that any decrease in the 
level of a service was the result of events not within the control of 
the grantee.) The amount of ICDBG funds used for public services shall 
not exceed 15 percent of the grant. Such projects must therefore be 
submitted with one or more other projects, which must comprise at least 
85 percent of the total requested ICDBG grant amount.
    (f) Interim assistance. (1) The following activities may be 
undertaken on an interim basis in areas exhibiting objectively 
determinable signs of physical deterioration where the grantee has 
determined that immediate action is necessary to arrest the 
deterioration and that permanent improvements will be carried out as 
soon as practicable:
    (i) The repairing of streets, sidewalks, parks, playgrounds, 
publicly owned utilities, and public buildings; and
    (ii) The execution of special garbage, trash, and debris removal, 
including neighborhood cleanup campaigns, but not the regular curbside 
collection of garbage or trash in an area.
    (2) In order to alleviate emergency conditions threatening the 
public health and safety in areas where the chief executive officer of 
the grantee determines that such an emergency condition exists and 
requires immediate resolution, ICDBG funds may be used for:
    (i) The activities specified in paragraph (f)(1) of this section, 
except for the repair of parks and playgrounds;
    (ii) The clearance of streets, including snow removal and similar 
activities; and
    (iii) The improvement of private properties.
    (3) All activities authorized under paragraph (f)(2) of this section 
are limited to the extent necessary to alleviate emergency conditions.
    (g) Payment of non-Federal share. Payment of the non-Federal share 
required in connection with a Federal grant-in-aid program undertaken as 
part of ICDBG activities, provided, that such payment shall be limited 
to activities otherwise eligible and in compliance with applicable 
requirements under this subpart.
    (h) Relocation. Relocation payments and other assistance for 
permanently and temporarily relocated individuals

[[Page 776]]

families, businesses, nonprofit organizations, and farm operations where 
the assistance is:
    (1) Required under the provisions of Sec. 1003.602 (b) or (c); or
    (2) Determined by the grantee to be appropriate under the provisions 
of Sec. 1003.602(d).
    (i) Loss of rental income. Payments to housing owners for losses of 
rental income incurred in holding, for temporary periods, housing units 
to be used for the relocation of individuals and families displaced by 
program activities assisted under this part.
    (j) Housing services. Housing services, as provided in section 
105(a)(21) of the Housing and Community Development Act of 1974 [42 
U.S.C. 5305(a)(21)].
    (k) Privately owned utilities. ICDBG funds may be used to acquire, 
construct, reconstruct, rehabilitate, or install the distribution lines 
and facilities of privately owned utilities, including the placing 
underground of new or existing distribution facilities and lines.
    (l) The provision of assistance to facilitate economic development. 
(1) The provision of assistance either through the grantee directly or 
through public and private organizations, agencies, and other 
subrecipients (including nonprofit and for-profit subrecipients) to 
facilitate economic development by:
    (i) Providing credit, including, but not limited to, grants, loans, 
loan guarantees, and other forms of financial support, for the 
establishment, stabilization, and expansion of microenterprises;
    (ii) Providing technical assistance, advice, and business support 
services to owners of microenterprises and persons developing 
microenterprises; and
    (iii) Providing general support, including, but not limited to, peer 
support programs, counseling, child care, transportation, and other 
similar services, to owners of microenterprises and persons developing 
microenterprises.
    (2) Services provided under paragraph (l)(1) of this section shall 
not be subject to the restrictions on public services contained in Sec. 
1003.201(e).
    (3) For purposes of this paragraph (l), persons developing 
microenterprises means such persons who have expressed interest and who 
are, or after an initial screening process are expected to be, actively 
working toward developing businesses, each of which is expected to be a 
microenterprise at the time it is formed.
    (m) Technical assistance. Provision of technical assistance to 
public or nonprofit entities to increase the capacity of such entities 
to carry out eligible neighborhood revitalization or economic 
development activities. Capacity building for private or public entities 
(including grantees) for other purposes may be eligible as a planning 
cost under Sec. 1003.205.
    (n) Assistance to institutions of higher education. Provision of 
assistance by the grantee to institutions of higher education where the 
grantee determines that such an institution has demonstrated a capacity 
to carry out eligible activities under this subpart.
    (o) Homeownership assistance. ICDBG funds may be used to provide 
direct homeownership assistance to low- and moderate-income households 
to:
    (1) Subsidize interest rates and mortgage principal amounts for low-
and moderate-income homebuyers;
    (2) Finance the acquisition by low-and moderate-income homebuyers of 
housing that is occupied by the homebuyers;
    (3) Acquire guarantees for mortgage financing obtained by low-and 
moderate-income homebuyers form private lenders (except that ICDBG funds 
may not be used to guarantee such mortgage financing directly, and 
grantees may not provide such guarantees directly);
    (4) Provide up to 50 percent of any downpayment required from a low-
and moderate-income homebuyer; or
    (5) Pay reasonable closing costs (normally associated with the 
purchase of a home) incurred by a low-or moderate-income homebuyer.



Sec. 1003.202  Eligible rehabilitation and preservation activities.

    (a) Types of buildings and improvements eligible for rehabilitation 
or reconstruction assistance. ICDBG funds may be used to finance the 
rehabilitation of:
    (1) Privately owned buildings and improvements for residential 
purposes;

[[Page 777]]

improvements to a single-family residential property which is also used 
as a place of business, which are required in order to operate the 
business, need not be considered to be rehabilitation of a commercial or 
industrial building, if the improvements also provide general benefit to 
the residential occupants of the building;
    (2) Low-income public housing and other publicly owned residential 
buildings and improvements;
    (3) Publicly or privately owned commercial or industrial buildings, 
except that the rehabilitation of such buildings owned by a private for-
profit business is limited to improvements to the exterior of the 
building and the correction of code violations (further improvements to 
such buildings may be undertaken pursuant to Sec. 1003.203(b)); and
    (4) Nonprofit-owned nonresidential buildings and improvements not 
eligible under Sec. 1003.201(c);
    (5) Manufactured housing when such housing constitutes part of the 
community's permanent housing stock.
    (b) Types of assistance. ICDBG funds may be used to finance the 
following types of rehabilitation or reconstruction activities, and 
related costs, either singly, or in combination, through the use of 
grants, loans, loan guarantees, interest supplements, or other means for 
buildings and improvements described in paragraph (a) of this section, 
except that rehabilitation of commercial or industrial buildings is 
limited as described in paragraph (a)(3) of this section.
    (1) Assistance to private individuals and entities, including profit 
making and nonprofit organizations, to acquire for the purpose of 
rehabilitation, and to rehabilitate properties, for use or resale for 
residential purposes;
    (2) Labor, materials, and other costs of rehabilitation of 
properties, including repair directed toward an accumulation of deferred 
maintenance, replacement of principal fixtures and components of 
existing structures, installation of security devices, including smoke 
detectors and dead bolt locks, and renovation through alterations, 
additions to, or enhancement of existing structures, which may be 
undertaken singly, or in combination;
    (3) Loans for refinancing existing indebtedness secured by a 
property being rehabilitated with ICDBG funds if such financing is 
determined by the grantee to be necessary or appropriate to achieve the 
grantee's community development objectives;
    (4) Improvements to increase the efficient use of energy in 
structures through such means as installation of storm windows and 
doors, siding, wall and attic insulation, and conversion, modification, 
or replacement of heating and cooling equipment, including the use of 
solar energy equipment;
    (5) Improvements to increase the efficient use of water through such 
means as water saving faucets and shower heads and repair of water 
leaks;
    (6) Connection of residential structures to water distribution lines 
or local sewer collection lines;
    (7) For rehabilitation carried out with ICDBG funds, costs of:
    (i) Initial homeowner warranty premiums;
    (ii) Hazard insurance premiums, except where assistance is provided 
in the form of a grant; and
    (iii) Flood insurance premiums for properties covered by the Flood 
Disaster Protection Act of 1973, pursuant to 24 CFR 58.6(a).
    (iv) Lead-based paint activities in part 35 of this title.
    (8) Costs of acquiring tools to be lent to owners, tenants, and 
others who will use such tools to carry out rehabilitation;
    (9) Rehabilitation services, such as rehabilitation counseling, 
energy auditing, preparation of work specifications, loan processing, 
inspections, and other services related to assisting owners, tenants, 
contractors, and other entities, participating or seeking to participate 
in rehabilitation activities authorized under this section;
    (10) Improvements designed to remove material and architectural 
barriers that restrict the mobility and accessibility of elderly or 
severely disabled persons to buildings and improvements eligible for 
assistance under paragraph (a) of this section.
    (c) Code enforcement. Code enforcement in deteriorating or 
deteriorated areas where such enforcement together with public or 
private improvements,

[[Page 778]]

rehabilitation, or services to be provided, may be expected to arrest 
the decline of the area.
    (d) Historic preservation. ICDBG funds may be used for the 
rehabilitation, preservation or restoration of historic properties, 
whether publicly or privately owned. Historic properties are those sites 
or structures that are either listed in or eligible to be listed in the 
National Register of Historic Places, listed in a State or local 
inventory of historic places, or designated as a State or local landmark 
or historic district by appropriate law or ordinance. Historic 
preservation, however, is not authorized for buildings for the general 
conduct of government.
    (e) Renovation of closed buildings. ICDBG funds may be used to 
renovate closed buildings, such as closed school buildings, for use as 
an eligible public facility or to rehabilitate such buildings for 
housing.

[61 FR 40090, July 31, 1996, as amended at 64 FR 50230, Sept. 15, 1999]



Sec. 1003.203  Special economic development activities.

    A grantee may use ICDBG funds for special economic development 
activities in addition to other activities authorized in this subpart 
which may be carried out as part of an economic development project. 
Special activities authorized under this section do not include 
assistance for the construction of new housing. Special economic 
development activities include:
    (a) The acquisition, construction, reconstruction, rehabilitation or 
installation of commercial or industrial buildings, structures, and 
other real property equipment and improvements, including railroad spurs 
or similar extensions. Such activities may be carried out by the grantee 
or public or private nonprofit subrecipients.
    (b) The provision of assistance to a private for-profit business, 
including, but not limited to, grants, loans, loan guarantees, interest 
supplements, technical assistance, and other forms of support, for any 
activity where the assistance is necessary or appropriate to carry out 
an economic development project, excluding those described as ineligible 
in Sec. 1003.207(a). In order to ensure that any such assistance does 
not unduly enrich the for-profit business, the grantee shall conduct an 
analysis to determine that the amount of any financial assistance to be 
provided is not excessive, taking into account the actual needs of the 
business in making the project financially feasible and the extent of 
public benefit expected to be derived from the economic development 
project. The grantee shall document the analysis as well as any factors 
it considered in making its determination that the assistance is 
necessary or appropriate to carry out the project. The requirement for 
making such a determination applies whether the business is to receive 
assistance from the grantee or through a subrecipient.

(Approved by the Office of Management and Budget under control number 
2577-0191)



Sec. 1003.204  Special activities by Community-Based Development 
Organizations (CBDOs).

    (a) Eligible activities. The grantee may provide ICDBG funds as 
grants or loans to any CBDO qualified under this section to carry out a 
neighborhood revitalization, community economic development, or energy 
conservation project. The funded project activities may include those 
listed as eligible under this subpart, and, except as described in 
paragraph (b) of this section, activities not otherwise listed as 
eligible under this subpart. For purposes of qualifying as a project 
under paragraphs (a)(1), (a)(2), and (a)(3) of this section, the funded 
activity or activities may be considered either alone or in concert with 
other project activities either being carried out or for which funding 
has been committed. For purposes of this section:
    (1) Neighborhood revitalization project includes activities of 
sufficient size and scope to have an impact on the decline of a 
geographic location within the jurisdiction of a grantee (but not the 
entire jurisdiction) designated in comprehensive plans, ordinances, or 
other local documents as a neighborhood, village, or similar 
geographical designation; or the entire jurisdiction of a grantee which 
is under 25,000 population;
    (2) Community economic development project includes activities that

[[Page 779]]

increase economic opportunity, principally for persons of low- and 
moderate-income, or that stimulate or retain businesses or permanent 
jobs, including projects that include one or more such activities that 
are clearly needed to address a lack of affordable housing accessible to 
existing or planned jobs;
    (3) Energy conservation project includes activities that address 
energy conservation, principally for the benefit of the residents of the 
grantee's jurisdiction; and
    (4) To carry out a project means that the CBDO undertakes the funded 
activities directly or through contract with an entity other than the 
grantee, or through the provision of financial assistance for activities 
in which it retains a direct and controlling involvement and 
responsibilities.
    (b) Ineligible activities. Notwithstanding that CBDOs may carry out 
activities that are not otherwise eligible under this subpart, this 
section does not authorize:
    (1) Carrying out an activity described as ineligible in Sec. 
1003.207(a);
    (2) Carrying out public services that do not meet the requirements 
of Sec. 1003.201(e), except services carried out under this section 
that are specifically designed to increase economic opportunities 
through job training and placement and other employment support 
services, including, but not limited to, peer support programs, 
counseling, child care, transportation, and other similar services;
    (3) Carrying out an activity that would otherwise be eligible under 
Sec. 1003.205 or Sec. 1003.206, but that would result in the grantee's 
exceeding the spending limitation in Sec. 1003.206.
    (c) Eligible CBDOs. (1) A CBDO qualifying under this section is an 
organization which has the following characteristics:
    (i) Is an association or corporation organized under State or local 
law to engage in community development activities (which may include 
housing and economic development activities) primarily within an 
identified geographic area of operation within the jurisdiction of the 
grantee; and
    (ii) Has as its primary purpose the improvement of the physical, 
economic or social environment of its geographic area of operation by 
addressing one or more critical problems of the area, with particular 
attention to the needs of persons of low and moderate income; and
    (iii) May be either non-profit or for-profit, provided any monetary 
profits to its shareholders or members must be only incidental to its 
operations; and
    (iv) Maintains at least 51 percent of its governing body's 
membership for low- and moderate-income residents of its geographic area 
of operation, owners or senior officers of private establishments and 
other institutions located in and serving its geographic area of 
operation, or representatives of low- and moderate-income neighborhood 
organizations located in its geographic area of operation; and
    (v) Is not an agency or instrumentality of the grantee and does not 
permit more than one-third of the membership of its governing body to be 
appointed by, or to consist of, elected or other public officials or 
employees or officials of an ineligible entity (even though such persons 
may be otherwise qualified under paragraph (c)(1)(iv) of this section); 
and
    (vi) Except as otherwise authorized in paragraph (c)(1)(v) of this 
section, requires the members of its governing body to be nominated and 
approved by the general membership of the organization, or by its 
permanent governing body; and
    (vii) Is not subject to requirements under which its assets revert 
to the grantee upon dissolution; and
    (viii) Is free to contract for goods and services from vendors of 
its own choosing.
    (2) A CBDO that does not meet the criteria in paragraph (c)(1) of 
this section may also qualify as an eligible entity under this section 
if it meets one of the following requirements:
    (i) Is an entity organized pursuant to section 301(d) of the Small 
Business Investment Act of 1958 (15 U.S.C. 681(d)), including those 
which are profit making; or
    (ii) Is an SBA-approved Section 501 State Development Company or 
Section 502 Local Development Company,

[[Page 780]]

or an SBA Certified Section 503 Company under the Small Business 
Investment Act of 1958, as amended; or
    (iii) Is a Community Housing Development Organization (CHDO) under 
24 CFR 92.2, designated as a CHDO by the HOME Investment Partnerships 
program participating jurisdiction, with a geographic area of operation 
of no more than one neighborhood, and has received HOME funds under 24 
CFR 92.300 or is expected to receive HOME funds as described in and 
documented in accordance with 24 CFR 92.300(e); or
    (iv) Is a tribal-based nonprofit organization. Such organizations 
are associations or corporations duly organized to promote and undertake 
community development activities on a not-for-profit basis within an 
identified service area.
    (3) A CBDO that does not qualify under paragraphs (c)(1) or (2) of 
this section may also be determined to qualify as an eligible entity 
under this section if the grantee demonstrates to the satisfaction of 
HUD, through the provision of information regarding the organization's 
charter and by-laws, that the organization is sufficiently similar in 
purpose, function, and scope to those entities qualifying under 
paragraphs (c)(1) or (2) of this section.



Sec. 1003.205  Eligible planning, urban environmental design and 
policy-planning-management-capacity building activities.

    (a) Planning activities which consist of all costs of data 
gathering, studies, analysis, and preparation of plans and the 
identification of actions that will implement such plans, including, but 
not limited to comprehensive plans, community development plans and 
functional plans in areas such as housing and economic development. In 
addition, other plans and studies such as capital improvements programs, 
individual project plans, general environmental studies, and strategies 
and action programs to implement plans, including the development of 
codes and ordinances are also eligible activities. With respect to the 
costs of individual project plans, engineering and design costs related 
to a specific activity are eligible as part of the cost of such activity 
under Sec. Sec. 1003.201 through 1003.204 and are not considered 
planning costs. Also, costs necessary to comply with the requirements of 
24 CFR part 58, including project specific environmental assessments and 
clearances for activities eligible under this part are eligible as part 
of the cost of such activities under Sec. Sec. 1003.201 through 
1003.204.
    (b) Policy--planning--management--capacity building activities 
including those which will enable the grantee to determine its needs, 
set long term goals and short term objectives, devise programs to meet 
these goals and objectives, evaluate the progress being made in 
accomplishing the goals and objectives. In addition, actions necessary 
to carry out management, coordination and monitoring of activities 
necessary for effective planning implementation are eligible planning 
activities, however the costs necessary to implement the plans are not.



Sec. 1003.206  Program administration costs.

    ICDBG funds may be used for the payment of reasonable administrative 
costs and carrying charges related to the planning and execution of 
community development activities assisted in whole or in part with funds 
provided under this part. No more than 20 percent of the sum of any 
grant plus program income received shall be expended for activities 
described in this section and in Sec. 1003.205--Eligible planning, 
urban environmental design and policy-planning-management capacity 
building activities. This does not include staff and overhead costs 
directly related to carrying out activities eligible under Sec. Sec. 
1003.201 through 1003.204, since those costs are eligible as part of 
such activities. In addition, technical assistance costs associated with 
developing the capacity to undertake a specific funded activity are also 
not considered program administration costs. These costs must not, 
however, exceed 10% of the total grant award.
    (a) General management, oversight and coordination. Reasonable costs 
of overall program management, coordination, monitoring, and evaluation. 
Such costs include, but are not necessarily limited to, necessary 
expenditures for the following:

[[Page 781]]

    (1) Salaries, wages, and related costs of the grantee's staff, the 
staff of local public agencies, or other staff engaged in program 
administration. In charging costs to this category the grantee may 
either include the entire salary, wages, and related costs allocable to 
the program of each person whose primary responsibilities with regard to 
the program involve program administration assignments, or the pro rata 
share of the salary, wages, and related costs of each person whose job 
includes any program administration assignments. The grantee may use 
only one of these methods during the grant period. Program 
administration includes the following types of assignments:
    (i) Providing tribal officials and citizens with information about 
the program;
    (ii) Preparing program budgets and schedules, and amendments 
thereto;
    (iii) Developing systems for assuring compliance with program 
requirements;
    (iv) Developing interagency agreements and agreements with 
subrecipients and contractors to carry out program activities;
    (v) Monitoring program activities for progress and compliance with 
program requirements;
    (vi) Preparing reports and other documents related to the program 
for submission to HUD;
    (vii) Coordinating the resolution of audit and monitoring findings;
    (viii) Evaluating program results against stated objectives; and
    (ix) Managing or supervising persons whose primary responsibilities 
with regard to the program include such assignments as those described 
in paragraph (a)(1) (i) through (viii) of this section.
    (2) Travel costs incurred for official business in carrying out the 
program;
    (3) Administrative services performed under third party contracts or 
agreements, including such services as general legal services, 
accounting services, and audit services; and
    (4) Other costs for goods and services required for administration 
of the program, including such goods and services as rental or purchase 
of equipment, furnishings, or other personal property (or the payment of 
depreciation or use allowances for such items in accordance with OMB 
Circulars A-21, A-87 or A-122, as applicable), insurance, utilities, 
office supplies, and rental and maintenance (but not purchase) of office 
space. (OMB Circulars are available from the Executive Office of the 
President, Publication Service, 725 17th Street, N.W., Suite G-2200, 
Washington, DC 20503, Telephone, 202-395-7332.)
    (b) Public information. The provisions of information and other 
resources to residents and citizen organizations participating in the 
planning, implementation, or assessment of activities being assisted 
with ICDBG funds.
    (c) Indirect costs. Indirect costs may be charged to the ICDBG 
program under a cost allocation plan prepared in accordance with OMB 
Circular A-21, A-87, or A-122 as applicable.
    (d) Submission of applications for Federal programs. Preparation of 
documents required for submission to HUD to receive funds under the 
ICDBG program. In addition, ICDBG funds may be used to prepare 
applications for other Federal programs where the grantee determines 
that such activities are necessary or appropriate to achieve its 
community development objectives.



Sec. 1003.207  Ineligible activities.

    The general rule is that any activity that is not authorized under 
the provisions of Sec. Sec. 1003.201 through 1003.206 is ineligible to 
be assisted with ICDBG funds. This section identifies specific 
activities that are ineligible and provides guidance in determining the 
eligibility of other activities frequently associated with housing and 
community development.
    (a) The following activities may not be assisted with ICDBG funds:
    (1) Buildings or portions thereof used for the general conduct of 
government as defined at Sec. 1003.4 cannot be assisted with ICDBG 
funds. This does not include, however, the removal of architectural 
barriers under Sec. 1003.201(c) involving any such building. Also, 
where acquisition of real property includes an existing improvement 
which is to be used in the provision of a building for the general 
conduct of government, the portion of the acquisition cost attributable 
to the land is eligible, provided

[[Page 782]]

such acquisition meets the primary objective described in Sec. 
1003.208.
    (2) General government expenses. Except as otherwise specifically 
authorized in this subpart or under OMB Circular A-87, expenses required 
to carry out the regular responsibilities of the grantee are not 
eligible for assistance under this part.
    (3) Political activities. ICDBG funds shall not be used to finance 
the use of facilities or equipment for political purposes or to engage 
in other partisan political activities, such as candidate forums, voter 
transportation, or voter registration. However, a facility originally 
assisted with ICDBG funds may be used on an incidental basis to hold 
political meetings, candidate forums, or voter registration campaigns, 
provided that all parties and organizations have access to the facility 
on an equal basis, and are assessed equal rent or use charges, if any.
    (b) The following activities may not be assisted with ICDBG funds 
unless authorized under provisions of Sec. 1003.203 or as otherwise 
specifically noted herein, or when carried out by a CBDO under the 
provisions of Sec. 1003.204.
    (1) Purchase of equipment. The purchase of equipment with ICDBG 
funds is generally ineligible.
    (i) Construction equipment. The purchase of construction equipment 
is ineligible, but compensation for the use of such equipment through 
leasing, depreciation, or use allowances pursuant to OMB Circular A-21, 
A-87 or A-122 as applicable for an otherwise eligible activity is an 
eligible use of ICDBG funds.
    (ii) Furnishings and personal property. The purchase of equipment, 
fixtures, motor vehicles, furnishings, or other personal property not an 
integral structural fixture is generally ineligible. Exceptions to this 
general prohibition are set forth in Sec. 1003.201(o).
    (2) Operating and maintenance expenses. The general rule is that any 
expense associated with repairing, operating or maintaining public 
facilities, improvements and services is ineligible. Specific exceptions 
to this general rule are operating and maintenance expenses associated 
with public service activities, interim assistance, and office space for 
program staff employed in carrying out the ICDBG program. For example, 
the use of ICDBG funds to pay the allocable costs of operating and 
maintaining a facility used in providing a public service would be 
eligible under Sec. 1003.201(e), even if no other costs of providing 
such a service are assisted with such funds. Examples of ineligible 
operating and maintenance expenses are:
    (i) Maintenance and repair of streets, parks, playgrounds, water and 
sewer facilities, neighborhood facilities, senior centers, centers for 
persons with a disability, parking and similar public facilities; and
    (ii) Payment of salaries for staff, utility costs and similar 
expenses necessary for the operation of public works and facilities.
    (3) New housing construction. ICDBG funds may not be used for the 
construction of new permanent residential structures or for any program 
to subsidize or assist such new construction, except:
    (i) As provided under the last resort housing provisions set forth 
in 24 CFR part 42; or
    (ii) When carried out by a CBDO pursuant to Sec. 1003.204(a);
    (4) Income payments. The general rule is that ICDBG funds may not be 
used for income payments. For purposes of the ICDBG program, income 
payments means a series of subsistence-type grant payments made to an 
individual or family for items such as food, clothing, housing (rent or 
mortgage) or utilities, but excludes emergency payments made over a 
period of up to three months to the provider of such items or services 
on behalf of an individual or family.



Sec. 1003.208  Criteria for compliance with the primary objective.

    The Act establishes as its primary objective the development of 
viable communities by providing decent housing and a suitable living 
environment and expanding economic opportunities, principally for 
persons of low and moderate income. Consistent with this objective, not 
less than 70 percent of the expenditures of each single purpose grant 
shall be for activities which meet the criteria set forth in paragraphs 
(a),

[[Page 783]]

(b), (c) and (d) of this section. Activities meeting these criteria as 
applicable will be considered to benefit low and moderate income persons 
unless there is substantial evidence to the contrary. In assessing any 
such evidence, the full range of direct effects of the assisted activity 
will be considered. (The grantee shall appropriately ensure that 
activities that meet these criteria do not benefit moderate income 
persons to the exclusion of low income persons.)
    (a) Area benefit activities. (1) An activity, the benefits of which 
are available to all the residents in a particular area, where at least 
51 percent of the residents are low and moderate income persons. Such an 
area need not be coterminous with census tracts or other officially 
recognized boundaries but must be the entire area served by the 
activity. An activity that serves an area that is not primarily 
residential in character shall not qualify under this criterion.
    (2) For purposes of determining qualification under this criterion, 
activities of the same type that serve different areas will be 
considered separately on the basis of their individual service area.
    (3) In determining whether there is a sufficiently large percentage 
of low and moderate income persons residing in the area served by an 
activity to qualify under paragraph (a) (1) or (2) of this section, the 
most recently available decennial census information shall be used to 
the fullest extent feasible, together with the Section 8 income limits 
that would have applied at the time the income information was collected 
by the Census Bureau. Grantees that believe that the census data does 
not reflect current relative income levels in an area, or where census 
boundaries do not coincide sufficiently well with the service area of an 
activity, may conduct (or have conducted) a current survey of the 
residents of the area to determine the percent of such persons that are 
low and moderate income. HUD will accept information obtained through 
such surveys, to be used in lieu of the decennial census data, where it 
determines that the survey was conducted in such a manner that the 
results meet standards of statistical reliability that are comparable to 
that of the decennial census data for areas of similar size. Where there 
is substantial evidence that provides a clear basis to believe that the 
use of the decennial census data would substantially overstate the 
proportion of persons residing there that are low and moderate income, 
HUD may require that the grantee rebut such evidence in order to 
demonstrate compliance with section 105(c)(2) of the Act.
    (b) Limited clientele activities. (1) An activity which benefits a 
limited clientele, at least 51 percent of whom are low or moderate 
income persons. (The following kinds of activities may not qualify under 
paragraph (b) of this section: Activities, the benefits of which are 
available to all the residents of an area; activities involving the 
acquisition, construction or rehabilitation of property for housing; or 
activities where the benefit to low and moderate income persons to be 
considered is the creation or retention of jobs except as provided in 
paragraph (b)(4) of this section.) To qualify under paragraph (b) of 
this section, the activity must meet one of the following tests:
    (i) Benefit a clientele who are generally presumed to be principally 
low and moderate income persons. Activities that exclusively serve a 
group of persons in any one of the following categories may be presumed 
to benefit persons, 51 percent of whom are low-and moderate-income: 
abused children, battered spouses, elderly persons, adults meeting the 
Bureau of the Census' current Population Reports definition of 
``severely disabled'', homeless persons, illiterate adults, persons 
living with AIDS, and migrant workers; or
    (ii) Require information on family size and income so that it is 
evident that at least 51 percent of the clientele are persons whose 
family income does not exceed the low and moderate income limit; or
    (iii) Have income eligibility requirements which limit the activity 
exclusively to low and moderate income persons; or
    (iv) Be of such nature and be in such location that it may be 
concluded that the activity's clientele will primarily be low and 
moderate income persons.

[[Page 784]]

    (2) An activity that serves to remove material or architectural 
barriers to the mobility or accessibility of elderly persons or adults 
meeting the Bureau of the Census' Current Population Reports definition 
of ``severely disabled'' will be presumed to qualify under this 
criterion if it is restricted, to the extent practicable, to the removal 
of such barriers by assisting:
    (i) The reconstruction of a public facility or improvement, or 
portion thereof, that does not qualify under Sec. 1003.208(a); or
    (ii) The rehabilitation of a privately-owned nonresidential building 
or improvement that does not qualify under Sec. 1003.208 (a) or (d); or
    (iii) The rehabilitation of the common areas of a residential 
structure that contains more than one dwelling unit.
    (3) A microenterprise assistance activity carried out in accordance 
with the provisions of Sec. 1003.201(l) with respect to those owners of 
microenterprises and persons developing microenterprises assisted under 
the activity during the grant period who are low and moderate income 
persons. For purposes of this paragraph, persons determined to be low 
and moderate income may be presumed to continue to qualify for up to a 
three year period.
    (4) An activity designed to provide job training and placement and/
or other employment support services, including but not limited to, peer 
support programs, counseling, child care, transportation, and other 
similar services, in which the percentage of low and moderate income 
persons assisted is less than 51 percent may qualify under this 
paragraph in the following limited circumstance:
    (i) In such cases where such training or provision of supportive 
services assists business(es), the only use of ICDBG assistance for the 
project is to provide the job training and/or supportive services; and
    (ii) The proportion of the total cost of the project borne by ICDBG 
funds is no greater than the proportion of the total number of persons 
assisted who are low or moderate income.
    (c) Housing activities. An eligible activity carried out for the 
purpose of providing or improving permanent residential structures 
which, upon completion, will be occupied by low and moderate income 
households. This would include, but not necessarily be limited to, the 
acquisition or rehabilitation of property, conversion of non-residential 
structures, and new housing construction. Funds expended for activities 
which qualify under the provisions of this paragraph shall be counted as 
benefiting low and moderate income persons but shall be limited to an 
amount determined by multiplying the total cost (including ICDBG and 
non-ICDBG costs) of the acquisition, construction or rehabilitation by 
the percent of units in such housing to be occupied by low and moderate 
income persons. If the structure assisted contains two dwelling units, 
at least one must be occupied by low and moderate income households, and 
if the structure contains more than two dwelling units, at least 51 
percent of the units must be so occupied. Where two or more rental 
buildings being assisted are or will be located on the same or 
contiguous properties, and the buildings will be under common ownership 
and management, the grouped buildings may be considered for this purpose 
as a single structure. For rental housing, occupancy by low and moderate 
income households must be at affordable rents to qualify under this 
criterion. The grantee shall adopt and make public its standards for 
determining ``affordable rents'' for this purpose. The following shall 
also qualify under this criterion:
    (1) When less than 51 percent of the units in a structure will be 
occupied by low and moderate income households, ICDBG assistance may be 
provided in the following limited circumstances:
    (i) The assistance is for an eligible activity to reduce the 
development cost of the new construction of a multifamily, non-elderly 
rental housing project;
    (ii) Not less than 20 percent of the units will be occupied by low 
and moderate income households at affordable rents; and
    (iii) The proportion of the total cost of developing the project to 
be borne by ICDBG funds is no greater than the proportion of units in 
the project that will be occupied by low and moderate income households.

[[Page 785]]

    (2) When ICDBG funds are used for housing services eligible under 
Sec. 1003.201(j), such funds shall be considered to benefit low-and 
moderate-income persons if the housing for which the services are 
provided is to be occupied by low-and moderate-income households.
    (d) Job creation or retention activities. An activity designed to 
create or retain permanent jobs where at least 51 percent of the jobs, 
computed on a full time equivalent basis, involve the employment of low 
and moderate persons. For purposes of determining whether a job is held 
by or made available to a low or moderate income person, the person may 
be presumed to be a low or moderate income person if: he/she resides 
within a census tract (or block numbering area) where not less than 70 
percent of the residents have incomes at or below 80 percent of the area 
median; or, if he/she resides in a census tract (or block numbering 
area) which meets the Federal Empowerment Zone or Enterprise Community 
eligibility criteria; or, if the assisted business is located in and the 
job under consideration is to be located in such a tract or area. As a 
general rule, each assisted business shall be considered to be a 
separate activity for purposes of determining whether the activity 
qualifies under this paragraph. However, in certain cases such as where 
ICDBG funds are used to acquire, develop or improve a real property 
(e.g., a business incubator or an industrial park) the requirement may 
be met by measuring jobs in the aggregate for all the businesses which 
locate on the property, provided such businesses are not otherwise 
assisted by ICDBG funds. Where ICDBG funds are used to pay for the staff 
and overhead costs of a CBDO under the provisions of Sec. 1003.204 
making loans to businesses from non-ICDBG funds, this requirement may be 
met by aggregating the jobs created by all of the businesses receiving 
loans during any one year period. For an activity that creates jobs, the 
grantee must document that at least 51 percent of the jobs will be held 
by, or will be available to, low and moderate income persons. For an 
activity that retains jobs, the grantee must document that the jobs 
would actually be lost without the ICDBG assistance and that either or 
both of the following conditions apply with respect to at least 51 
percent of the jobs at the time the ICDBG assistance is provided: The 
job is known to be held by a low or moderate income person; or the job 
can reasonably be expected to turn over within the following two years 
and that steps will be taken to ensure that it will be filled by, or 
made available to, a low or moderate income person upon turnover. Jobs 
will be considered to be available to low and moderate income persons 
for these purposes only if:
    (1) Special skills that can only be acquired with substantial 
training or work experience or education beyond high school are not a 
prerequisite to fill such jobs, or the business agrees to hire 
unqualified persons and provide training; and
    (2) The grantee and the assisted business take actions to ensure 
that low and moderate income persons receive first consideration for 
filling such jobs.
    (e) Additional criteria. (1) Where the assisted activity is 
acquisition of real property, a preliminary determination of whether the 
activity addresses the primary objective may be based on the planned use 
of the property after acquisition. A final determination shall be based 
on the actual use of the property, excluding any short-term, temporary 
use.
    (2) Where the assisted activity is relocation assistance that the 
grantee is required to provide, such relocation assistance shall be 
considered to address the primary objective as addressed by the 
displacing activity.
    (3) In any case where the activity undertaken for the purpose of 
creating or retaining jobs is a public improvement and the area served 
is primarily residential, the activity must meet the requirements of 
paragraph (a) of this section as well as those of paragraph (d) of this 
section in order to qualify as benefiting low and moderate income 
persons.
    (4) Expenditures for activities meeting the criteria for benefiting 
low and moderate income persons shall be used in determining the extent 
to which the grantee's overall program benefits such persons. In 
determining the percentage of funds expended for such activities:

[[Page 786]]

    (i) Costs of administration and planning, eligible under Sec. 
1003.205 and Sec. 1003.206 respectively, will be assumed to benefit low 
and moderate income persons in the same proportion as the remainder of 
the ICDBG funds and, accordingly, shall be excluded from the 
calculation.
    (ii) Funds expended for the acquisition, new construction or 
rehabilitation of property for housing those qualified under Sec. 
1003.208(c) shall be counted for this purpose, but shall be limited to 
an amount determined by multiplying the total cost (including ICDBG and 
non-ICDBG costs) of the acquisition, construction, or rehabilitation by 
the percent of units in such housing occupied by low and moderate income 
persons.
    (iii) Funds expended for any other activity which qualifies under 
Sec. 1003.208 shall be counted for this purpose in their entirety.



    Subpart D_Single Purpose Grant Application and Selection Process



Sec. 1003.300  Application requirements.

    (a) Application information. A Notice of Funding Availability (NOFA) 
shall be published in the Federal Register not less than 30 days before 
the deadline for application submission. The NOFA will provide 
information relating to the date and time for application submission, 
the form and content requirements of the application, specific 
information regarding the rating and ranking criteria to be used, and 
any other information pertinent to the application process.
    (b) Costs incurred by applicant. Costs incurred by an applicant 
prior to the submission of the single purpose grant application to HUD 
will not be recognized by HUD as eligible ICDBG expenses.
    (c) HUD will not normally reimburse or recognize costs incurred 
before HUD approval of the application for funding. However, under 
unusual circumstances, the Area ONAP may consider and approve written 
requests to recognize and reimburse costs incurred after submission of 
the application where failure to do so would impose undue hardship on 
the applicant. Such written authorization will be made only before the 
costs are incurred and where the requirements for reimbursement have 
been met in accordance with 24 CFR 58.22 and with the understanding that 
HUD has no obligation whatsoever to approve the application or to 
reimburse the applicant should the application be disapproved.

(Approved by the Office of Management and Budget under control number 
2577-0191)



Sec. 1003.301  Selection process.

    (a) Threshold requirement. An applicant that has an outstanding 
ICDBG obligation to HUD that is in arrears, or one that has not agreed 
to a repayment schedule, will be disqualified from the competition.
    (b) Application rating. NOFAs will define and establish weights for 
the selection criteria, will specify the maximum points available, and 
will describe how point awards will be made.

[66 FR 4581, Jan. 17, 2001; 66 FR 8176, Jan. 30, 2001]



Sec. 1003.302  Project specific threshold requirements.

    (a) Housing rehabilitation projects. All applicants for housing 
rehabilitation projects shall adopt rehabilitation standards and 
rehabilitation policies before submitting an application. The applicant 
shall assure that it will use project funds to rehabilitate units only 
when the homeowner's payments are current or the homeowner is current in 
a repayment agreement that is subject to approval by the Area ONAP. The 
Area ONAP administrator may grant exceptions to this requirement on a 
case-by-case basis.
    (b) New housing construction projects. New housing construction can 
only be implemented through a nonprofit organization that is eligible 
under Sec. 1003.204 or is otherwise eligible under Sec. 
1003.207(b)(3). All applicants for new housing construction projects 
shall adopt, by current tribal resolution, construction standards before 
submitting an application. All applications which include new housing 
construction projects must document that:
    (1) No other housing is available in the immediate reservation area 
that is suitable for the household(s) to be assisted; and

[[Page 787]]

    (2) No other sources can meet the needs of the household(s) to be 
assisted; and
    (3) Rehabilitation of the unit occupied by the household(s) to be 
assisted is not economically feasible; or
    (4) The household(s) to be housed currently is in an overcrowded 
housing unit (sharing with another household); or
    (5) The household(s) to be assisted has no current residence.
    (c) Economic development projects. All applicants for economic 
development projects must provide an analysis which shows public benefit 
commensurate with the ICDBG assistance requested will result from the 
assisted project. This analysis should also establish that to the extent 
practicable: reasonable financial support will be committed from non-
Federal sources prior to disbursement of Federal funds; any grant amount 
provided will not substantially reduce the amount of non-Federal 
financial support for the activity; not more than a reasonable rate of 
return on investment is provided to the owner; and, that grant funds 
used for the project will be disbursed on a pro rata basis with amounts 
from other sources. In addition, it must be established that the project 
is financially feasible and that it has a reasonable chance of success.



Sec. 1003.303  Project rating.

    Each project included in an application that meets the threshold 
requirements shall be competitively rated within each Area ONAP's 
jurisdiction under the five following rating factors. Additional details 
regarding the rating factors will be provided in the periodic NOFAs.
    (a) Capacity. This factor will address the applicant's 
organizational resources necessary to successfully implement the 
proposed activities in a timely manner.
    (b) Need/Extent of the problem. This factor will address the extent 
to which there is a need for the proposed project to address a 
documented problem among the intended beneficiaries.
    (c) Soundness of Approach. This factor will address the quality and 
cost effectiveness of the proposed project, the commitment to sustain 
the proposed activities, and the degree to which the proposed project 
provides other benefits to community members.
    (d) Leveraging of resources. This factor will address the level of 
tribal resources and resources from other entities that are used in 
conjunction with ICDBG funds to support the proposed project. HUD will 
evaluate the level of non-ICDBG resources based on the percentage of 
non-ICDBG resources provided relative to project costs.
    (e) Comprehensiveness and coordination. This factor will address the 
extent to which the applicant's proposed activities are consistent with 
the strategic plans or policy goals of the community and further on-
going priorities and activities of the community.

[66 FR 4581, Jan. 17, 2001, as amended at 66 FR 8176, Jan. 30, 2001]



Sec. 1003.304  Funding process.

    (a) Notification. Area ONAPs will notify applicants of the approval 
or disapproval of their applications. Grant amounts offered may reflect 
adjustments made by the Area ONAPs in accordance with Sec. 
1003.100(b)(2).
    (b) Grant award. (1) As soon as the Area ONAP determines that the 
applicant has complied with any pre-award requirements and absent 
information which would alter the threshold determinations under Sec. 
1003.302, the grant will be awarded. The regulations become part of the 
grant agreement.
    (2) All grants shall be conditioned upon the completion of all 
environmental obligations and approval of release of funds by HUD in 
accordance with the requirements of part 58 of this title and, in 
particular, subpart J of part 58 of this title, except as otherwise 
provided in part 58 of this title.
    (3) HUD may impose other grant conditions where additional actions 
or approvals are required before the use of funds.

(Approved by the Office of Management and Budget under OMB Control No. 
2577-0191)



Sec. 1003.305  Program amendments.

    (a) Grantees shall request prior HUD approval for program amendments 
which will significantly change the scope, location, objective, or class 
of beneficiaries of the approved activities,

[[Page 788]]

as originally described in the application.
    (b) Amendment requests of $100,000 or more shall include all 
application components required by the NOFA published for the last 
application cycle; those requests of less than $100,000 do not have to 
include the components which address the selection criteria.
    (c) Approval of an amendment request is subject to the following:
    (1) A rating equal to or greater than the lowest rating received by 
a funded project during the most recent funding competition must be 
attained by the amended project if the request is for $100,000 or more;
    (2) Demonstration by the grantee of the capacity to promptly 
complete the modified or new activities;
    (3) Demonstration by the grantee of compliance with the requirements 
of Sec. 1003.604 for citizen participation; and
    (4) The preparation of an amended or new environmental review in 
accordance with part 58 of this title, if there is a significant change 
in the scope or location of approved activities.
    (d) Amendments which address imminent threats to health and safety 
shall be reviewed and approved in accordance with the requirements of 
subpart E of this part.
    (e) If a program amendment fails to be approved and the original 
project is no longer feasible, the grant funds proposed for amendment 
shall be recaptured by HUD.



                    Subpart E_Imminent Threat Grants



Sec. 1003.400  Criteria for funding.

    The following criteria apply to requests for assistance under this 
subpart:
    (a) In response to requests for assistance, HUD may make funds 
available under this subpart to applicants to alleviate or remove 
imminent threats to health or safety. The urgency and immediacy of the 
threat shall be independently verified before the approval of an 
application. Funds may only be used to deal with imminent threats that 
are not of a recurring nature and which represent a unique and unusual 
circumstance, and which impact on an entire service area.
    (b) Funds to alleviate imminent threats may be granted only if the 
applicant can demonstrate to the satisfaction of HUD that other tribal 
or Federal funding sources cannot be made available to alleviate the 
threat.
    (c) HUD will establish grant ceilings for imminent threat 
applications.



Sec. 1003.401  Application process.

    (a) Letter to proceed. The Area ONAP may issue the applicant a 
letter to proceed to incur costs to alleviate imminent threats to health 
and safety only if the assisted activities do not alter environmental 
conditions and are for temporary or permanent improvements limited to 
protection, repair, or restoration actions necessary only to control or 
arrest the effects of imminent threats or physical deterioration. 
Reimbursement of such costs is dependent upon HUD approval of the 
application.
    (b) Applications. Applications shall include the information 
specified in the Notice of Funding Availability (NOFA).
    (c) Application approval. Applications which meet the requirement of 
this section may be approved by the Area ONAP without competition in 
accordance with the applicable requirements of Sec. 1003.304.

(Approved by the Office of Management and Budget under control number 
2577-0191)



Sec. 1003.402  Availability of funds.

    Of the funds made available by the NOFA for the ICDBG program, an 
amount to be determined by the Assistant Secretary may be reserved by 
HUD for grants under this subpart. The amount of funds reserved for 
imminent threat funding during each funding cycle will be stated in the 
NOFA. If any of the reserved funds are not used to fund imminent threat 
grants during a fiscal year, they will be added to the allocation of 
ICDBG funds for the subsequent fiscal year and will be used as if they 
were a part of the new allocation.



                     Subpart F_Grant Administration



Sec. 1003.500  Responsibility for grant administration.

    (a) One or more tribal departments or authorities, including 
existing tribal

[[Page 789]]

public agencies, may be designated by the chief executive officer of the 
grantee to undertake activities assisted by this part. A public agency 
so designated shall be subject to the same requirements as are 
applicable to subrecipients.
    (b) The grantee is responsible for ensuring that ICDBG funds are 
used in accordance with all program requirements. The use of designated 
public agencies, subrecipients, or contractors does not relieve the 
grantee of this responsibility. The grantee is also responsible for 
determining the adequacy of performance under subrecipient agreements 
and procurement contracts, and for taking appropriate action when 
performance problems arise, such as the actions described in Sec. 
1003.701.



Sec. 1003.501  Applicability of uniform administrative requirements 
and cost principles.

    (a) Grantees and subrecipients which are governmental entities 
(including public agencies) shall comply with the requirements and 
standards of OMB Circular No. A-87, ``Principles for Determining Costs 
Applicable to Grants and Contracts with State, Local and Federally 
recognized Indian Tribal Governments'', OMB Circular A-128, ``Audits of 
State and Local Governments'' (implemented at 24 CFR part 44) and with 
the following sections of 24 CFR part 85 ``Uniform Administrative 
Requirements for Grants and Cooperative Agreements to State and Local 
Governments''.
    (1) Section 85.3, ``Definitions''.
    (2) Section 85.6, ``Exceptions''.
    (3) Section 85.12, ``Special grant or subgrant conditions for `high-
risk' grantees''.
    (4) Section 85.20, ``Standards for financial management systems,'' 
except paragraph (a).
    (5) Section 85.21, ``Payment''.
    (6) Section 85.22, ``Allowable costs''.
    (7) Section 85.25, ``Program income,'' except as modified by Sec. 
1003.503.
    (8) Section 85.26, ``Non-federal audits''.
    (9) Section 85.32, ``Equipment,'' except in all cases in which the 
equipment is sold, the proceeds shall be program income.
    (10) Section 85.33, ``Supplies''.
    (11) Section 85.34, ``Copyrights''.
    (12) Section 85.35, ``Subawards to debarred and suspended parties''.
    (13) Section 85.36, ``Procurement,'' except paragraphs (a) States, 
(i)(5) Compliance with the Davis Bacon Act (40 U.S.C. 276a to a-7) and 
(i)(6) Compliance with sections 103 and 107 of the Contract Work Hours 
and Safety Standards Act (40 U.S.C. 327-330). There may be circumstances 
under which the bonding requirements of Sec. 85.36(h) are inconsistent 
with other responsibilities and obligations of the grantee. In such 
circumstances, acceptable methods to provide performance and payment 
assurance may include:
    (i) Deposit with the grantee of a cash escrow of not less than 20 
percent of the total contract price, subject to reduction during the 
warranty period, commensurate with potential risk; or
    (ii) Letter of credit for 25 percent of the total contract price, 
unconditionally payable upon demand of the grantee, subject to reduction 
during the warranty period commensurate with potential risk.
    (14) Section 85.37, ``Subgrants''.
    (15) Section 85.40, ``Monitoring and reporting program 
performance,'' except paragraphs (b) through (d) and paragraph (f).
    (16) Section 85.41, ``Financial reporting,'' except paragraphs (a), 
(b), and (e).
    (17) Section 85.42, ``Retention and access requirements for 
records''. The retention period referenced in Sec. 85.42(b) pertaining 
to individual ICDBG activities starts from the date of the submission of 
the final status and evaluation report as prescribed in Sec. 
1003.506(a) in which the specific activity is reported.
    (18) Section 85.43, ``Enforcement''.
    (19) Section 85.44, ``Termination for convenience''.
    (20) Section 85.51 ``Later disallowances and adjustments''.
    (21) Section 85.52, ``Collection of amounts due''.
    (b) Subrecipients, except subrecipients that are governmental 
entities, shall comply with the requirements and standards of OMB 
Circular No. A-122, ``Cost Principles for Nonprofit Organizations,'' or 
OMB Circular No. A-21, ``Cost Principles for Educational Institutions,'' 
as applicable, and OMB

[[Page 790]]

Circular A-133, ``Audits of Institutions of Higher Education and Other 
Nonprofit Institutions'' (implemented at 24 CFR part 45). Audits shall 
be conducted annually. Such subrecipients shall also comply with the 
following provisions of 24 CFR part 84 ``Uniform Administrative 
Requirements for Grants and Agreements With Institutions of Higher 
Education, Hospitals and Other Non-Profit Organizations'').
    (1) Subpart A--``General''.
    (2) Subpart B--``Pre-Award Requirements,'' except for Sec. 84.12, 
``Forms for Applying for Federal Assistance''.
    (3) Subpart C--``Post-Award Requirements,'' except for Sec. 84.22, 
``Payment Requirements,'' grantees shall follow the standards of 
Sec. Sec. 85.20(7) and 85.21 in making payments to subrecipients.
    (4) Section 84.23, ``Cost Sharing and Matching''.
    (5) Section 84.24, ``Program Income'', as modified by Sec. 
1003.503.
    (6) Section 84.25, ``Revision of Budget and Program Plans''.
    (7) Section 84.32, ``Real Property.'' In lieu of Sec. 84.32, ICDBG 
subrecipients shall follow Sec. 1003.504 of the ICDBG regulations.
    (8) Section 84.34(g) ``Equipment,'' except that in lieu of the 
disposition provisions of this paragraph:
    (i) In all cases in which equipment is sold during the grant period 
as defined in 24 CFR 85.25, the proceeds shall be program income; and
    (ii) Equipment not needed by the subrecipient for ICDBG activities 
shall be transferred to the grantee for the ICDBG program or shall be 
retained after compensating the grantee.
    (9) Section 84.51, ``Monitoring and Reporting Program Performance.'' 
Only Sec. 84.51(a) applies to ICDBG subrecipients.
    (10) Section 84.52, ``Financial Reporting''.
    (11) Section 84.53(b), ``Retention and access requirements for 
records.'' The retention period referenced in Sec. 84.53(b) pertaining 
to individual ICDBG activities starts from the date of the submission of 
the final status and evaluation report as prescribed in Sec. 
1003.506(a), in which the specific activity is reported.
    (12) Section 84.61, ``Termination.'' In lieu of the provisions of 
this section, ICDBG subrecipients shall comply with Sec. 1003.502 
(b)(7) of the ICDBG regulations.
    (13) Subpart D--``After-the-Award Requirements,'' except for Sec. 
84.71, ``Closeout Procedures''.
    (c) Cost principles. (1) All items of cost listed in Attachment B of 
OMB Circulars A-21, A-87, or A-123, as applicable, which require prior 
Federal agency approval are allowable without the prior approval of HUD 
to the extent that they comply with the general policies and principles 
stated in Attachment A of such circulars and are otherwise eligible 
under subpart C of this part, except for the following:
    (i) Depreciation methods for fixed assets shall not be changed 
without specific approval of HUD or, if charged through a cost 
allocation plan, the Federal cognizant agency.
    (ii) Fines and penalties are unallowable costs to the ICDBG program.
    (2) No person providing consultant services in an employer-employee 
type of relationship shall receive more than a reasonable rate of 
compensation for personal services paid with ICDBG funds. In no event, 
however, shall such compensation exceed the equivalent of the daily rate 
paid for Level IV of the Executive Schedule.

(Approved by the Office of Management and Budget under control number 
2577-0191)



Sec. 1003.502  Agreements with subrecipients.

    (a) Before disbursing any ICDBG funds to a subrecipient, the grantee 
shall sign a written agreement with the subrecipient. The agreement 
shall remain in effect during any period that the subrecipient has 
control over ICDBG funds, including program income.
    (b) At a minimum, the written agreement with the subrecipient shall 
include provisions concerning the following items:
    (1) Statement of work. The agreement shall include a description of 
the work to be performed, a schedule for completing the work, and a 
budget. These items shall be in sufficient detail to provide a sound 
basis for the grantee effectively to monitor performance under the 
agreement.

[[Page 791]]

    (2) Records and reports. The grantee shall specify in the agreement 
the particular records the subrecipient must maintain and the particular 
reports the subrecipient must submit in order to assist the grantee in 
meeting its recordkeeping and reporting requirements.
    (3) Program income. The agreement shall include the program income 
requirements set forth in Sec. 85.25 as modified by Sec. 1003.503.
    (4) Uniform administrative requirements. The agreement shall require 
the subrecipient to comply with applicable administrative requirements, 
as described in Sec. 1003.501.
    (5) Other program requirements. The agreement shall require the 
subrecipient to carry out each activity in compliance with all Federal 
laws and regulations described in subpart G of this part, except that 
the subrecipient does not assume the grantee's environmental 
responsibilities described at Sec. 1003.605.
    (6) Conditions for religious organizations. Where applicable, the 
conditions prescribed by HUD for the use of ICDBG funds by religious 
organizations shall be included in the agreement.
    (7) Suspension and termination. The agreement shall specify that, in 
accordance with 24 CFR 85.43, suspension or termination may occur if the 
subrecipient materially fails to comply with any term of the award, and 
that the award may be terminated for convenience in accordance with 24 
CFR 85.44.
    (8) Reversion of assets. The agreement shall specify that upon its 
expiration the subrecipient shall transfer to the grantee any ICDBG 
funds on hand at the time of expiration and any accounts receivable 
attributable to the use of ICDBG funds. It shall also include provisions 
designed to ensure that any real property under the subrecipient's 
control that was acquired or improved in whole or in part with ICDBG 
funds (including ICDBG funds provided to the subrecipient in the form of 
a loan) in excess of $25,000 is either:
    (i) Used to meet the primary objective as stated in Sec. 1003.208 
until five years after expiration of the agreement, or for such longer 
period of time as determined to be appropriate by the grantee; or
    (ii) Not used in accordance with paragraph (b)(8)(i) of this 
section, in which event the subrecipient shall pay to the grantee an 
amount equal to the current market value of the property less any 
portion of the value attributable to expenditures of non-ICDBG funds for 
the acquisition of, or improvement to, the property. The payment is 
program income to the grantee if it is received during the grant period. 
(No payment is required after the period of time specified in paragraph 
(b)(8)(i) of this section.)

(Approved by the Office of Management and Budget under control number 
2577-0191)



Sec. 1003.503  Program income.

    (a) Program income requirements for ICDBG grantees are set forth in 
24 CFR 85.25, as modified by this section.
    (b) Program income means gross income received by the grantee or a 
subrecipient directly generated from the use of ICDBG funds during the 
grant period, except as provided in paragraph (b)(4) of this section. 
When program income is generated by an activity that is only partially 
assisted with ICDBG funds, the income shall be prorated to reflect the 
percentage of ICDBG funds used.
    (1) Program income includes, but is not limited to, the following:
    (i) Proceeds from the disposition by sale or long-term lease of real 
property purchased or improved with ICDBG funds;
    (ii) Proceeds from the disposition of equipment purchased with ICDBG 
funds;
    (iii) Gross income from the use or rental of real or personal 
property acquired by the grantee or by a subrecipient with ICDBG funds, 
less costs incidental to generation of the income;
    (iv) Gross income from the use or rental of real property, owned by 
the grantee or by a subrecipient, that was constructed or improved with 
ICDBG funds, less costs incidental to generation of the income;
    (v) Payments of principal and interest on loans made using ICDBG 
funds, except as provided in paragraph (b)(3) of this section;

[[Page 792]]

    (vi) Proceeds from the sale of loans made with ICDBG funds except as 
provided in paragraph (b)(4) of this section;
    (vii) Proceeds from sale of obligations secured by loans made with 
ICDBG funds;
    (viii) Interest earned on funds held in a revolving fund account;
    (ix) Interest earned on program income pending its disposition; and
    (x) Funds collected through special assessments made against 
properties owned and occupied by households not of low and moderate 
income, where the assessments are used to recover all or part of the 
ICDBG portion of a public improvement.
    (2) Program income does not include income earned on grant advances 
from the U.S. Treasury. The following items of income earned on grant 
advances must be remitted to HUD for transmittal to the U.S. Treasury 
and will not be reallocated:
    (i) Interest earned from the investment of the initial proceeds of a 
grant advance by the U.S. Treasury;
    (ii) Income (e.g., interest) earned on loans or other forms of 
assistance provided with ICDBG funds that are used for activities 
determined by HUD either to be ineligible or that fail substantially to 
meet any other requirement of this part.
    (3) The calculation of the amount of program income for the 
grantee's ICDBG program as a whole (i.e., comprising activities carried 
out by a grantee and its subrecipients) shall exclude payments made by 
subrecipients of principal and/or interest on loans received from 
grantees where such payments are made from program income received by 
the subrecipient. (By making such payments, the subrecipient shall be 
deemed to have transferred program income to the grantee.) The amount of 
program income derived from this calculation shall be used for reporting 
purposes and in determining limitations on planning and administration 
and public services activities to be paid for with ICDBG funds.
    (4) Program income does not include any income received in a single 
year by the grantee and all its subrecipients if the total amount of 
such income does not exceed $25,000.
    (5) Examples of other receipts that are not considered program 
income are proceeds from fundraising activities carried out by 
subrecipients receiving ICDBG assistance; funds collected through 
special assessments used to recover the non-ICDBG portion of a public 
improvement; and proceeds from the disposition of real property acquired 
or improved with ICDBG funds when the disposition occurs after the 
applicable time period specified in Sec. 1003.502(b)(8) for 
subrecipient-controlled property, or in Sec. 1003.504 for grantee-
controlled property.
    (6) For purposes of determining the applicability of the program 
income requirements included in this part and in 24 CFR 85.25, the grant 
period is the time between the effective date of the grant agreement and 
the close-out of the grant pursuant to the requirements of Sec. 
1003.508.
    (7) As provided for in 24 CFR 85.25(g)(2), program income received 
will be added to the funds committed to the grant agreement and shall be 
used for purposes and under the conditions of the grant agreement.
    (8) Recording program income. The receipt and expenditure of program 
income as defined in Sec. 1003.503(b) shall be recorded as part of the 
financial transactions of the grant program.

(Approved by the Office of Management and Budget under control number 
2577-0191)



Sec. 1003.504  Use of real property.

    The standards described in this section apply to real property 
within the grantee's control which was acquired or improved in whole or 
in part using ICDBG funds in excess of $25,000. These standards shall 
apply from the date ICDBG funds are first spent for the property until 
five years after the closeout of the grant from which the assistance to 
the property was provided.
    (a) A grantee may not change the use or planned use of any such 
property (including the beneficiaries of such use) from that for which 
the acquisition or improvement was made unless the grantee provides 
affected citizens with reasonable notice of, and opportunity to comment 
on, any proposed change, and either:

[[Page 793]]

    (1) The new use of such property qualifies as meeting the primary 
objective set forth in Sec. 1003.208 and is not a building for the 
general conduct of government; or
    (2) The requirements in paragraph (b) of this section are met.
    (b) If the grantee determines, after consultation with affected 
citizens, that it is appropriate to change the use of the property to a 
use which does not qualify under paragraph (a)(1) of this section, it 
may retain or dispose of the property for the changed use if the 
grantee's ICDBG program is reimbursed in the amount of the current fair 
market value of the property, less any portion of the value attributable 
to expenditures of non-ICDBG funds for acquisition of, and improvements 
to, the property.
    (c) If the change of use occurs after program closeout, the proceeds 
from the disposition of the real property shall be used for activities 
which meet the eligibility requirements set forth in subpart C of this 
part and the primary objective set forth in Sec. 1003.208.
    (d) Following the reimbursement of the ICDBG program in accordance 
with paragraph (b) of this section, the property no longer will be 
subject to any ICDBG requirements.



Sec. 1003.505  Records to be maintained.

    Each grantee shall establish and maintain sufficient records to 
enable the Secretary to determine whether the grantee has met the 
requirements of this part.

(Approved by the Office of Management and Budget under control number 
2577-0191)



Sec. 1003.506  Reports.

    (a) Status and evaluation report. Grantees shall submit a status and 
evaluation report on previously funded open grants 45 days after the end 
of the Federal fiscal year and at the time of grant close-out. The 
report shall be in a narrative form addressing these areas.
    (1) Progress. The progress made in completing approved activities 
should be described. This description should include a listing of work 
remaining together with a revised implementation schedule, if necessary.
    (2) Expenditure of funds. A breakdown of funds spent on each major 
project activity or category should be provided.
    (3) Grantee assessment. If the project has been completed, an 
evaluation of the effectiveness of the project in meeting the community 
development needs of the grantee should be provided.
    (b) Minority business enterprise reports. Grantees shall submit to 
HUD, by April 10, a report on contract and subcontract activity during 
the first half of the fiscal year and by October 10 a report on such 
activity during the second half of the year.

(Approved by the Office of Management and Budget under control number 
2577-0191)



Sec. 1003.507  Public access to program records.

    Notwithstanding the provisions of 24 CFR 85.42(f), grantees shall 
provide citizens with reasonable access to records regarding the past 
use of ICDBG funds, consistent with applicable State and tribal laws 
regarding privacy and obligations of confidentiality.



Sec. 1003.508  Grant closeout procedures.

    (a) Criteria for closeout. A grant will be closed out when the Area 
ONAP determines, in consultation with the grantee, that the following 
criteria have been met:
    (1) All costs to be paid with ICDBG funds have been incurred, with 
the exception of closeout costs (e.g., audit costs) and costs resulting 
from contingent liabilities described in the closeout agreement pursuant 
to paragraph (c) of this section. Contingent liabilities include, but 
are not limited to, third-party claims against the grantee, as well as 
related administrative costs.
    (2) With respect to activities which are financed by means of escrow 
accounts, loan guarantees, or similar mechanisms, the work to be 
assisted with ICDBG funds has actually been completed.
    (3) Other responsibilities of the grantee under the grant agreement 
and applicable laws and regulations appear to have been carried out 
satisfactorily or there is no further Federal interest in keeping the 
grant agreement open

[[Page 794]]

for the purpose of securing performance.
    (b) Closeout actions. (1) Within 90 days of the date it is 
determined that the criteria for closeout have been met, the grantee 
shall submit to the Area ONAP a copy of the final status and evaluation 
report described in Sec. 1003.506(a) and a completed Financial Status 
Report (SF-269). If acceptable reports are not submitted, an audit of 
the grantee's program activities may be conducted by HUD.
    (2) Based on the information provided in the status report and other 
relevant information, the grantee, in consultation with the Area ONAP, 
will prepare a closeout agreement in accordance with paragraph (c) of 
this section.
    (3) The Area ONAP will cancel any unused portion of the awarded 
grant, as shown in the signed grant closeout agreement. Any unused grant 
funds disbursed from the U.S. Treasury which are in the possession of 
the grantee shall be refunded to HUD.
    (4) Any costs paid with ICDBG funds which were not audited 
previously shall be subject to coverage in the grantee's next single 
audit performed in accordance with 24 CFR part 44. The grantee may be 
required to repay HUD any disallowed costs based on the results of the 
audit, or on additional HUD reviews provided for in the closeout 
agreement.
    (c) Closeout agreement. Any obligations remaining as of the date of 
the closeout shall be covered by the terms of a closeout agreement. The 
agreement shall be prepared by the grantee in consultation with the Area 
ONAP. The agreement shall identify the grant being closed out, and 
include provisions with respect to the following:
    (1) Identification of any closeout costs or contingent liabilities 
subject to payment with ICDBG funds after the closeout agreement is 
signed;
    (2) Identification of any unused grant funds to be canceled by HUD;
    (3) Identification of any program income on deposit in financial 
institutions at the time the closeout agreement is signed;
    (4) Description of the grantee's responsibility after closeout for:
    (i) Compliance with all program requirements, certifications and 
assurances in using program income on deposit at the time the closeout 
agreement is signed and in using any other remaining ICDBG funds 
available for closeout costs and contingent liabilities;
    (ii) Use of real property assisted with ICDBG funds in accordance 
with the principles described in Sec. 1003.504; and
    (iii) Ensuring that flood insurance coverage for affected property 
owners is maintained for the mandatory period;
    (5) Other provisions appropriate to any special circumstances of the 
grant closeout, in modification of or in addition to the obligations in 
paragraphs (c) (1) through (4) of this section. The agreement shall 
authorize monitoring by HUD, and shall provide that findings of 
noncompliance may be taken into account by HUD as unsatisfactory 
performance of the grantee in the consideration of any future grant 
award under this part.
    (d) Termination of grant for convenience. Grant assistance provided 
under this part may be terminated for convenience in whole or in part 
before the completion of the assisted activities, in accordance with the 
provisions of 24 CFR 85.44. The grantee shall not incur new obligations 
for the terminated portions after the effective date, and shall cancel 
as many outstanding obligations as possible. HUD shall allow full credit 
to the grantee for those portions of obligations which could not be 
canceled and which had been properly incurred by the grantee in carrying 
out the activities before the termination. The closeout policies 
contained in this section shall apply in such cases, except where the 
approved grant is terminated in its entirety. Responsibility for the 
environmental review to be performed under 24 CFR part 50 or 24 CFR part 
58, as applicable, shall be determined as part of the closeout process.
    (e) Termination for cause. In cases in which HUD terminates the 
grantee's grant under the authority of subpart H of this part, or under 
the terms of the grant agreement, the closeout policies contained in 
this section shall apply, except where the approved grant is canceled in 
its entirety. The provisions in 24 CFR 85.43(c) on the effects of 
termination shall also apply. HUD shall

[[Page 795]]

determine whether an environmental review is required, and if so, HUD 
shall perform it in accordance with 24 CFR part 50.



Sec. 1003.509  Force account construction.

    (a) The use of tribal work forces for construction or renovation 
activities performed as part of the activities funded under this part 
shall be approved by the Area ONAP before the start of project 
implementation. In reviewing requests for an approval of force account 
construction or renovation, the area ONAP may require that the grantee 
provide the following:
    (1) Documentation to indicate that it has carried out or can carry 
out successfully a project of the size and scope of the proposal;
    (2) Documentation to indicate that it has obtained or can obtain 
adequate supervision for the workers to be used;
    (3) Information showing that the workers to be used are, or will be, 
listed on the tribal payroll and are employed directly by a unit, 
department or other governmental instrumentality of the tribe or 
village.
    (b) Any and all excess funds derived from the force account 
construction or renovation activities shall accrue to the grantee and 
shall be reprogrammed for other activities eligible under this part in 
accordance with Sec. 1003.305 or returned to HUD promptly.
    (c) Insurance coverage for force account workers and activities 
shall, where applicable, include worker's compensation, public 
liability, property damage, builder's risk, and vehicular liability.
    (d) The grantee shall specify and apply reasonable labor 
performance, construction, or renovation standards to work performed 
under the force account.
    (e) The contracting and procurement standards set forth in 24 CFR 
85.36 apply to material, equipment, and supply procurement from outside 
vendors under this section.

(Approved by the Office of Management and Budget under control number 
2577-0191)



Sec. 1003.510  Indian preference requirements.

    (a) Applicability. HUD has determined that grants under this part 
are subject to Section 7(b) of the Indian Self-Determination and 
Education Assistance Act (25 U.S.C. 450b). Section 7(b) provides that 
any contract, subcontract, grant or subgrant pursuant to an act 
authorizing grants to Indian organizations or for the benefit of Indians 
shall require that, to the greatest extent feasible:
    (1) Preference and opportunities for training and employment shall 
be given to Indians; and
    (2) Preference in the award of contracts and subcontracts shall be 
given to Indian organizations and Indian-owned economic enterprises as 
defined in section 3 of the Indian Financing Act of 1974 (25 U.S.C. 
1452).
    (b) Definitions. (1) The Indian Self-Determination and Education 
Assistance Act [25 U.S.C. 450b] defines ``Indian'' to mean a person who 
is a member of an Indian tribe and defines ``Indian tribe'' to mean any 
Indian tribe, band, nation, or other organized group or community 
including any Alaska native village or regional or village corporation 
as defined or established pursuant to the Alaska Native Claims 
Settlement Act, which is recognized as eligible for the special programs 
and services provided by the United States to Indians because of their 
status as Indians.
    (2) In section 3 of the Indian Financing Act of 1974 (25 U.S.C. 
1452) economic enterprise is defined as any Indian--owned commercial, 
industrial, or business activity established or organized for the 
purpose of profit, except that Indian ownership must constitute not less 
than 51 percent of the enterprise. This act defines Indian organization 
to mean the governing body of any Indian tribe or entity established or 
recognized by such governing body.
    (c) Preference in administration of grant. To the greatest extent 
feasible, preference and opportunities for training and employment in 
connection with the administration of grants awarded under this part 
shall be given to Indians.
    (d) Preference in contracting. To the greatest extent feasible, 
grantees shall give preference in the award of contracts for projects 
funded under this part to Indian organizations and Indian-owned economic 
enterprises.
    (1) Each grantee shall:

[[Page 796]]

    (i) Advertise for bids or proposals limited to qualified Indian 
organizations and Indian-owned enterprises; or
    (ii) Use a two-stage preference procedure, as follows:
    (A) Stage 1. Invite or otherwise solicit Indian-owned economic 
enterprises to submit a statement of intent to respond to a bid 
announcement or request for proposals limited to Indian-owned firms.
    (B) Stage 2. If responses are received from more than one Indian 
enterprise found to be qualified, advertise for bids or proposals 
limited to Indian organizations and Indian-owned economic enterprises; 
or
    (iii) Develop, subject to Area ONAP one-time approval, the grantee's 
own method of providing preference.
    (2) If the grantee selects a method of providing preference that 
results in fewer than two responsible qualified organizations or 
enterprises submitting a statement of intent, a bid or a proposal to 
perform the contract at a reasonable cost, then the grantee shall:
    (i) Re-advertise the contract, using any of the methods described in 
paragraph (d)(1) of this section; or
    (ii) Re-advertise the contract without limiting the advertisement 
for bids or proposals to Indian organizations and Indian-owned economic 
enterprises; or
    (iii) If one approvable bid or proposal is received, request Area 
ONAP review and approval of the proposed contract and related 
procurement documents, in accordance with 24 CFR 85.36, in order to 
award the contract to the single bidder or offeror.
    (3) Procurements that are within the dollar limitations established 
for small purchases under 24 CFR 85.36 need not follow the formal bid or 
proposal procedures of paragraph (d) of this section, since these 
procurements are governed by the small purchase procedures of 24 CFR 
85.36. However, a grantee's small purchase procurement shall, to the 
greatest extent feasible, provide Indian preference in the award of 
contracts.
    (4) All preferences shall be publicly announced in the advertisement 
and bidding or proposal solicitation documents and the bidding and 
proposal documents.
    (5) A grantee, at its discretion, may require information of 
prospective contractors seeking to qualify as Indian organizations or 
Indian-owned economic enterprises. Grantees may require prospective 
contractors to include the following information prior to submitting a 
bid or proposal, or at the time of submission:
    (i) Evidence showing fully the extent of Indian ownership and 
interest;
    (ii) Evidence of structure, management and financing affecting the 
Indian character of the enterprise, including major subcontracts and 
purchase agreements; materials or equipment supply arrangements; and 
management salary or profit-sharing arrangements; and evidence showing 
the effect of these on the extent of Indian ownership and interest; and
    (iii) Evidence sufficient to demonstrate to the satisfaction of the 
grantee that the prospective contractor has the technical, 
administrative, and financial capability to perform contract work of the 
size and type involved.
    (6) The grantee shall incorporate the following clause (referred to 
as the Section 7(b) clause) in each contract awarded in connection with 
a project funded under this part:
    (i) The work to be performed under this contract is on a project 
subject to Section 7(b) of the Indian Self-Determination and Education 
Assistance Act (25 U.S.C. 450b) (Indian Act). Section 7(b) requires that 
to the greatest extent feasible:
    (A) Preferences and opportunities for training and employment shall 
be given to Indians; and
    (B) Preferences in the award of contracts and subcontracts shall be 
given to Indian organizations and Indian-owned economic enterprises.
    (ii) The parties to this contract shall comply with the provisions 
of Section 7(b) of the Indian Act.
    (iii) In connection with this contract, the contractor shall, to the 
greatest extent feasible, give preference in the award of any 
subcontracts to Indian organizations and Indian-owned economic 
enterprises, and preferences and opportunities for training and 
employment to Indians.
    (iv) The contractor shall include this Section 7(b) clause in every 
subcontract in connection with the

[[Page 797]]

project, and shall, at the direction of the grantee, take appropriate 
action pursuant to the subcontract upon a finding by the grantee or HUD 
that the subcontractor has violated the Section 7(b) clause of the 
Indian Act.
    (e) Complaint procedures. The following complaint procedures are 
applicable to complaints arising out of any of the methods of providing 
for Indian preference contained in this part, including alternate 
methods enacted and approved in a manner described in this section:
    (1) Each complaint shall be in writing, signed, and filed with the 
grantee.
    (2) A complaint must be filed with the grantee no later than 20 
calendar days from the date of the action (or omission) upon which the 
complaint is based.
    (3) Upon receipt of a complaint, the grantee shall promptly stamp 
the date and time of receipt upon the complaint, and immediately 
acknowledge its receipt.
    (4) Within 20 calendar days of receipt of a complaint, the grantee 
shall either meet, or communicate by mail or telephone, with the 
complainant in an effort to resolve the matter. The grantee shall make a 
determination on a complaint and notify the complainant, in writing, 
within 30 calendar days of the submittal of the complaint to the 
grantee. The decision of the grantee shall constitute final 
administrative action on the complaint.

(Approved by the Office of Management and Budget under control number 
2577-0191)



Sec. 1003.511  Use of escrow accounts for rehabilitation of privately 
owned residential property.

    (a) Limitations. A grantee may withdraw funds from its line of 
credit for immediate deposit into an escrow account for use in funding 
loans and grants for the rehabilitation of privately owned residential 
property under Sec. 1003.202(a)(1). The following additional 
limitations apply to the use of escrow accounts for residential 
rehabilitation loans and grants closed after September 7, 1990:
    (1) The use of escrow accounts under this section is limited to 
loans and grants for the rehabilitation of primarily residential 
properties containing no more than four dwelling units (and accessory 
neighborhood-scale non-residential space within the same structure, if 
any, e.g., a store front below a dwelling unit).
    (2) An escrow account shall not be used unless the contract between 
the property owner and the contractor selected to do the rehabilitation 
work specifically provides that payment to the contractor shall be made 
through an escrow account maintained by the grantee, by a subrecipient 
as defined in Sec. 1003.4, by a public agency designated under Sec. 
1003.500(a), or by an agent under a procurement contact governed by the 
requirements of 24 CFR 85.36. No deposit to the escrow account shall be 
made until after the contract has been executed between the property 
owner and the rehabilitation contractor.
    (3) All funds withdrawn under this section shall be deposited into 
one interest earning account with a financial institution. Separate bank 
accounts shall not be established for individual loans and grants.
    (4) The amount of funds deposited into an escrow account shall be 
limited to the amount expected to be disbursed within 10 working days 
from the date of deposit. If the escrow account, for whatever reason, at 
any time contains funds exceeding 10 days cash needs, the grantee 
immediately shall transfer the excess funds to its program account. In 
the program account, the excess funds shall be treated as funds 
erroneously drawn in accordance with the requirements of U.S. Treasury 
Financial Manual, paragraph 6-2075.30.
    (5) Funds deposited into an escrow account shall be used only to pay 
the actual costs of rehabilitation incurred by the owner under the 
contract with a private contractor. Other eligible costs related to the 
rehabilitation loan or grant, e.g., the grantee's administrative costs 
under Sec. 1003.206 or rehabilitation services costs under Sec. 
1003.202(b)(9), are not permissible uses of escrowed funds. Such other 
eligible rehabilitation costs shall be paid under normal ICDBG payment 
procedures (e.g., from withdrawals of grant funds under the grantee's 
line of credit with the Treasury).
    (b) Interest. Interest earned on escrow accounts established in 
accordance

[[Page 798]]

with this section, less any service charges for the account, shall be 
remitted to HUD at least quarterly but not more frequently than monthly. 
Interest earned on escrow accounts is not required to be remitted to HUD 
to the extent the interest is attributable to the investment of program 
income.
    (c) Remedies for noncompliance. If HUD determines that a grantee has 
failed to use an escrow account in accordance with this section, HUD 
may, in addition to imposing any other sanctions provided for under this 
part, require the grantee to discontinue the use of escrow accounts, in 
whole or in part.



                  Subpart G_Other Program Requirements



Sec. 1003.600  Constitutional prohibition.

    In accordance with First Amendment Church/State Principles, as a 
general rule, ICDBG assistance may not be used for religious activities 
or provided to primarily religious entities for any activities, 
including secular activities. The following restrictions and limitations 
therefore apply to the use of ICDBG funds.
    (a) ICDBG funds may not be used for the acquisition of property or 
the construction or rehabilitation (including historic preservation and 
removal of architectural barriers) of structures to be used for 
religious purposes or which will otherwise promote religious interests. 
This limitation includes the acquisition of property for ownership by 
primarily religious entities and the construction or rehabilitation 
(including historic preservation and removal of architectural barriers) 
of structures owned by such entities (except as permitted under 
paragraph (b) of this section with respect to rehabilitation and under 
paragraph (d) of this section with respect to repairs undertaken in 
connection with public services) regardless of the use to be made of the 
property or structure. Property owned by primarily religious entities 
may be acquired with ICDBG funds at no more than fair market value for a 
non-religious use.
    (b) ICDBG funds may be used to rehabilitate buildings owned by 
primarily religious entities to be used for a wholly secular purpose 
under the following conditions:
    (1) The building (or portion thereof) that is to be improved with 
the ICDBG assistance has been leased to an existing or newly established 
wholly secular entity (which may be an entity established by the 
religious entity);
    (2) The ICDBG assistance is provided to the lessee (and not the 
lessor) to make the improvements;
    (3) The leased premises will be used exclusively for secular 
purposes available to persons regardless of religion;
    (4) The lease payments do not exceed the fair market rent of the 
premises as they were before the improvements are made;
    (5) The portion of the cost of any improvements that also serve a 
non-leased part of the building will be allocated to and paid for by the 
lessor;
    (6) The lessor enters into a binding agreement that unless the 
lessee, or a qualified successor lessee, retains the use of the leased 
premises for a wholly secular purpose for at least the useful life of 
the improvements, the lessor will pay to the lessee an amount equal to 
the residual value of the improvements;
    (7) The lessee must remit the amount received from the lessor under 
paragraph (b)(6) of this section to the grantee or subrecipient from 
which the ICDBG funds were derived.
    (8) The lessee can also enter into a management contract authorizing 
the lessor religious entity to use the building for its intended secular 
purpose, e.g., homeless shelter, provision of public services. In such 
case, the religious entity must agree in the management contract to 
carry out the secular purpose in a manner free from religious influences 
in accordance with the principles set forth in paragraph (c) of this 
section.
    (c) As a general rule, ICDBG funds may be used for eligible public 
services to be provided through a primarily religious entity, where the 
religious entity enters into an agreement with the grantee or 
subrecipient from which the ICDBG funds are derived that, in connection 
with the provision of such services:

[[Page 799]]

    (1) It will not discriminate against any employee or applicant for 
employment on the basis of religion and will not limit employment or 
give preference in employment to persons on the basis of religion;
    (2) It will not discriminate against any person applying for such 
public services on the basis of religion and will not limit such 
services or give preference to persons on the basis of religion;
    (3) It will provide no religious instruction or counseling, conduct 
no religious worship or services, engage in no religious proselytizing, 
and exert no other religious influence in the provision of such public 
services;
    (d) Where the public services provided under paragraph (c) of this 
section are carried out on property owned by the primarily religious 
entity, ICDBG funds may also be used for minor repairs to such property 
which are directly related to carrying out the public services where the 
cost constitutes in dollar terms only an incidental portion of the ICDBG 
expenditure for the public services.



Sec. 1003.601  Nondiscrimination.

    (a) Under the authority of section 107(e)(2) of the Act, the 
Secretary waives the requirement that grantees comply with section 109 
of the Act except with respect to the prohibition of discrimination 
based on age, sex, religion, or against an otherwise qualified disabled 
individual.
    (b) A grantee shall comply with the provisions of title II of Pub. 
L. 90-284 (24 U.S.C. 1301--the Indian Civil Rights Act) in the 
administration of a program or activity funded in whole or in part with 
funds made available under this part. For purposes of this section, 
``program or activity'' is defined as any function conducted by an 
identifiable administrative unit of the grantee; and ``funded in whole 
or in part with funds made available under this part'' means that ICDBG 
funds in any amount have been transferred by the grantee to an 
identifiable administrative unit and disbursed in a program or activity.



Sec. 1003.602  Relocation and real property acquisition.

    (a) Minimize displacement. Consistent with the other goals and 
objectives of this part, grantees shall assure that they have taken all 
reasonable steps to minimize the displacement of persons (households, 
businesses, nonprofit organizations, and farms) as a result of a project 
assisted under this part.
    (b) Temporary relocation. The following policies cover residential 
tenants who will not be required to move permanently but who must 
relocate temporarily for the project. Such tenants must be provided:
    (1) Reimbursement for all reasonable out-of-pocket expenses incurred 
in connection with the temporary relocation, including the cost of 
moving to and from the temporarily occupied housing and any increase in 
monthly housing costs (e.g., rent/utility costs).
    (2) Appropriate advisory services, including reasonable advance 
written notice of:
    (i) The date and approximate duration of the temporary relocation;
    (ii) The location of the suitable, decent, safe and sanitary 
dwelling to be made available for the temporary period;
    (iii) The terms and conditions under which the tenant may occupy a 
suitable, decent, safe, and sanitary dwelling in the building/complex 
following completion of the repairs; and
    (iv) The provisions of paragraph (b)(1) of this section.
    (c) Relocation assistance for displaced persons. A displaced person 
(defined in paragraph (g) of this section) must be provided relocation 
assistance at the levels described in, and in accordance with the 
requirements of, the Uniform Relocation Assistance and Real Property 
Acquisition Policies Act of 1970, as amended (URA)(42 U.S.C. 4601-4655) 
and implementing regulations at 49 CFR part 24.
    (d) Optional relocation assistance. Under section 105(a)(11) of the 
Act, the grantee may provide relocation payments and other relocation 
assistance to persons displaced by a project that is not subject to 
paragraph (c) of this section. The grantee may also provide relocation 
assistance to persons receiving assistance under paragraph (c) of

[[Page 800]]

this section at levels in excess of those required. For assistance that 
is not required by State or tribal law, the grantee shall adopt a 
written policy available to the public that describes the relocation 
assistance that it has elected to furnish and provides for equal 
relocation assistance within each class of displaced persons.
    (e) Real Property acquisition requirements. The acquisition of real 
property for an assisted activity is subject to 49 CFR part 24, subpart 
B. Whenever the grantee does not have the authority to acquire the real 
property through condemnation, it shall:
    (1) Before discussing the purchase price, inform the owner:
    (i) Of the amount it believes to be the fair market value of the 
property. Such amount shall be based upon one or more appraisals 
prepared by a qualified appraiser. However, this provision does not 
prevent the grantee from accepting a donation or purchasing the real 
property at less than its fair market value.
    (ii) That it will be unable to acquire the property if negotiations 
fail to result in an amicable agreement.
    (2) Request HUD approval of the proposed acquisition price before 
executing a firm commitment to purchase the property. The grantee shall 
include with its request a copy of the appraisal(s) and, when 
applicable, a justification for any proposed acquisition payment that 
exceeds the fair market value of the property. HUD will promptly review 
the proposal and inform the grantee of its approval or disapproval.
    (f) Appeals. A person who disagrees with the grantee's determination 
concerning whether the person qualifies as a ``displaced person,'' or 
the amount of relocation assistance for which the person is eligible, 
may file a written appeal of that determination with the grantee. A 
person who is dissatisfied with the grantee's determination on his or 
her appeal may submit a written request for review of that determination 
to the HUD Area ONAP.
    (g) Responsibility of grantee. (1) The grantee shall certify that it 
will comply with the URA, the regulations at 49 CFR part 24, and the 
requirements of this section, i.e., provide assurance of compliance as 
required by 49 CFR part 24. The grantee shall ensure such compliance 
notwithstanding any third party's contractual obligation to the grantee 
to comply with these provisions.
    (2) The cost of required relocation assistance is an eligible 
project cost in the same manner and to the same extent as other project 
costs. However, such assistance may also be paid for with funds 
available to the grantee from any other source.
    (3) The grantee shall maintain records in sufficient detail to 
demonstrate compliance with this section.
    (h) Definition of displaced person. (1) For purposes of this 
section, the term displaced person means any person (household, 
business, nonprofit organization, or farm) that moves from real 
property, or moves his or her personal property from real property, 
permanently, as a direct result of rehabilitation, demolition, or 
acquisition for a project assisted under this part. The term ``displaced 
person'' includes, but is not limited to:
    (i) A tenant-occupant of a dwelling unit who moves from the 
building/complex permanently after the submission to HUD of an 
application for financial assistance that is later approved.
    (ii) Any person, including a person who moves before the date 
described in paragraph (h)(1)(i) of this section, that either HUD or the 
grantee determines was displaced as a direct result of acquisition, 
rehabilitation, or demolition for the assisted project.
    (iii) A tenant-occupant of a dwelling who moves from the building/
complex permanently, after the execution of the agreement between the 
grantee and HUD, if the move occurs before the tenant is provided 
written notice offering him or her the opportunity to lease and occupy a 
suitable, decent, safe and sanitary dwelling in the same building/
complex, under reasonable terms and conditions, upon completion of the 
project. Such reasonable terms and conditions include a monthly rent and 
estimated average monthly utility costs that do not exceed the greater 
of:
    (A) The tenant's monthly rent and estimated average monthly utility 
costs before the agreement; or
    (B) 30 percent of gross household income.

[[Page 801]]

    (iv) A tenant-occupant of a dwelling who is required to relocate 
temporarily, but does not return to the building/complex, if either:
    (A) The tenant is not offered payment for all reasonable out-of-
pocket expenses incurred in connection with the temporary relocation, 
including the cost of moving to and from the temporarily occupied unit, 
any increased housing costs and incidental expenses; or
    (B) Other conditions of the temporary relocation are not reasonable.
    (v) A tenant-occupant of a dwelling who moves from the building/
complex after he or she has been required to move to another dwelling 
unit in the same building/complex in order to carry out the project, if 
either:
    (A) The tenant is not offered reimbursement for all reasonable out-
of-pocket expenses incurred in connection with the move; or
    (B) Other conditions of the move are not reasonable.
    (2) Notwithstanding the provisions of paragraph (h)(1) of this 
section, a person does not qualify as a ``displaced person'' (and is not 
eligible for relocation assistance under the URA or this section), if:
    (i) The person moved into the property after the submission of the 
application for financial assistance to HUD, but, before signing a lease 
or commencing occupancy, was provided written notice of the project, its 
possible impact on the person (e.g., the person may be displaced, 
temporarily relocated or suffer a rent increase) and the fact that the 
person would not qualify as a ``displaced person'' or for any assistance 
provided under this section as a result of the project;
    (ii) The person is ineligible under 49 CFR 24.2(g)(2).
    (iii) The grantee determines the person is not displaced as a direct 
result of acquisition, rehabilitation, or demolition for an assisted 
project. To exclude a person on this basis, HUD must concur in that 
determination.
    (3) A grantee may at any time ask HUD to determine whether a 
specific displacement is or would be covered under this section.
    (i) Definition of initiation of negotiations. For purposes of 
determining the formula for computing the replacement housing assistance 
to be provided to a person displaced as a direct result of 
rehabilitation or demolition of the real property, the term ``initiation 
of negotiations'' means the execution of the agreement covering the 
rehabilitation or demolition.

(Approved by the Office of Management and Budget under control number 
2577-0191)



Sec. 1003.603  Labor standards.

    In accordance with the authority under section 107(e)(2) of the Act, 
the Secretary waives the provisions of section 110 of the Act (Labor 
Standards) with respect to this part, including the requirement that 
laborers and mechanics employed by the contractor or subcontractor in 
the performance of construction work financed in whole or in part with 
assistance received under this part be paid wages at rates not less than 
those prevailing on similar construction in the locality, as determined 
by the Secretary of Labor in accordance with the Davis-Bacon Act (40 
U.S.C. 276 a to a-7).



Sec. 1003.604  Citizen participation.

    (a) In order to permit residents of Indian tribes and Alaska native 
villages to examine and appraise the applicant's application for funds 
under this part, the applicant shall follow traditional means of 
resident involvement which, at the least, include the following:
    (1) Furnishing residents with information concerning the amounts of 
funds available for proposed community development and housing 
activities and the range of activities that may be undertaken.
    (2) Holding one or more meetings to obtain the views of residents on 
community development and housing needs. Meetings shall be scheduled in 
ways and at times that will allow participation by residents.
    (3) Developing and publishing or posting a community development 
statement in such a manner as to afford affected residents an 
opportunity to examine its contents and to submit comments.
    (4) Affording residents an opportunity to review and comment on the

[[Page 802]]

applicant's performance under any active community development block 
grant.
    (b) Prior to submission of the application to HUD, the applicant 
shall certify by an official Tribal resolution that it has met the 
requirements of paragraph (a) of this section; and
    (1) Considered any comments and views expressed by residents and, if 
it deems it appropriate, modified the application accordingly; and
    (2) Made the modified application available to residents.
    (c) No part of the requirement under paragraph (a) of this section 
shall be construed to restrict the responsibility and authority of the 
applicant for the development of the application and the execution of 
the grant. Accordingly, the citizen participation requirements of this 
section do not include concurrence by any person or group in making 
final determinations on the contents of the application.

(Approved by the Office of Management and Budget under control number 
2577-0191)



Sec. 1003.605  Environment.

    (a) In order to assure that the policies of the National 
Environmental Policy Act of 1969 and other provisions of Federal law 
which further the purposes of that act (as specified in 24 CFR 58.5) are 
most effectively implemented in connection with the expenditure of ICDBG 
funds, the grantee shall comply with the Environment Review Procedures 
for Entities Assuming HUD Environmental Responsibilities (24 CFR part 
58). Upon completion of an environmental review, the grantee shall 
submit a certification and request for release of funds for particular 
projects in accordance with 24 CFR part 58. The grantee shall also be 
responsible for compliance with flood insurance, coastal barrier 
resource and airport clear zone requirements under 24 CFR 58.6.
    (b) In accordance with 24 CFR 58.34(a)(8), grants for imminent 
threats to health or safety approved under the provisions of subpart E 
of this part are exempt from some or all of the environmental review 
requirements of 24 CFR part 58, to the extent provided in that section.



Sec. 1003.606  Conflict of interest.

    (a) Applicability. (1) In the procurement of supplies, equipment, 
construction, and services by grantees and subgrantees, the conflict of 
interest provisions in 24 CFR 85.36 and 24 CFR 84.42 shall apply.
    (2) In all cases not governed by 24 CFR 85.36 and 24 CFR 84.42, the 
provisions of this section shall apply. Such cases include the provision 
of assistance by the grantee or by its subrecipients to businesses, 
individuals, and other private entities under eligible activities that 
authorize such assistance (e.g., rehabilitation, preservation, and other 
improvements of private properties or facilities under Sec. 1003.202; 
or grants, loans, and other assistance to businesses, individuals, and 
other private entities under Sec. 1003.203 or Sec. 1003.204.).
    (b) Conflicts prohibited. Except for the use of ICDBG funds to pay 
salaries and other related administrative or personnel costs, the 
general rule is that no persons described in paragraph (c) of this 
section who exercise or have exercised any functions or responsibilities 
with respect to ICDBG activities assisted under this part or who are in 
a position to participate in a decision-making process or gain inside 
information with regard to such activities, may obtain a personal or 
financial interest or benefit from an ICDBG assisted activity, or have 
an interest in any contract, subcontract or agreement with respect 
thereto, or the proceeds thereunder, either for themselves or those with 
whom they have family or business ties, during their tenure or for one 
year thereafter.
    (c) Persons covered. The conflict of interest provisions of 
paragraph (b) of this section apply to any person who is an employee, 
agent, consultant, officer, or elected or appointed official of the 
grantee, or of any designated public agencies, or CBDOs under Sec. 
1003.204, receiving funds under this part.
    (d) Exceptions requiring HUD approval.--(1) Threshold requirements. 
Upon the written request of a grantee, HUD may grant an exception to the 
provisions of paragraph (b) of this section on a case-by-case basis, 
when it determines that such an exception will serve to further the 
purposes of the Act

[[Page 803]]

and the effective and efficient administration of the grantee's program 
or project. An exception may be considered only after the grantee has 
provided the following:
    (i) A disclosure of the nature of the possible conflict, accompanied 
by an assurance that there has been public disclosure of the conflict 
and a description of how the public disclosure was made; and
    (ii) An opinion of the grantee's attorney that the interest for 
which the exception is sought would not violate Tribal laws on conflict 
of interest, or applicable State laws.
    (2) Factors to be considered for exceptions: In determining whether 
to grant a requested exception after the grantee has satisfactorily met 
the requirements of paragraph (d)(1) of this section, HUD shall consider 
the cumulative effect of the following factors, where applicable:
    (i) Whether the exception would provide a significant cost benefit 
or essential expert knowledge to the program or project which would 
otherwise not be available;
    (ii) Whether an opportunity was provided for open competitive 
bidding or negotiation;
    (iii) Whether the affected person has withdrawn from his or her 
functions or responsibilities, or from the decision-making process, with 
reference to the specific assisted activity in question;
    (iv) Whether the interest or benefit was present before the affected 
person was in a position as described in paragraph (b) of this section;
    (v) Whether undue hardship will result, either to the grantee or to 
the person affected, when weighed against the public interest served by 
avoiding the prohibited conflict;
    (vi) Any other relevant considerations.
    (e) Circumstances under which the conflict prohibition does not 
apply. (1) In instances where a person who might otherwise be deemed to 
be included under the conflict prohibition is a member of a group or 
class of beneficiaries of the assisted activity and receives generally 
the same interest or benefits as are being made available or provided to 
the group or class, the prohibition does not apply, except that if, by 
not applying the prohibition against conflict of interest, a violation 
of Tribal or State laws on conflict of interest would result, the 
prohibition does apply. However, if the assistance to be provided is 
housing rehabilitation (or repair) or new housing, a public disclosure 
of the nature of the assistance to be provided and the specific basis 
for the selection of the proposed beneficiaries must be made prior to 
the submission of an application to HUD. Evidence of this disclosure 
must be provided as a component of the application.
    (f) Record retention. All records pertaining to the grantee's 
decision under this section shall be maintained for HUD review upon 
request.

(Approved by the Office of Management and Budget under control number 
2577-0191)



Sec. 1003.607  Lead-based paint.

    The requirements of the Lead-Based Paint Poisoning Prevention Act 
(42 U.S.C. 4821-4846), the Residential Lead-Based Paint Hazard Reduction 
Act of 1992 (42 U.S.C. 4851-4856), and implementing regulations part 35, 
subparts A, B, J, K, and R of this title apply to activities conducted 
under this program.

[64 FR 50230, Sept. 15, 1999]



Sec. 1003.608  Debarment and suspension.

    As required by 24 CFR part 24, each grantee must require 
participants in lower tier covered transactions (e.g., contractors and 
sub-contractors) to include a certification that neither it nor its 
principals are currently debarred, suspended, proposed for debarment, 
declared ineligible, or voluntarily excluded from participation in the 
covered transaction, in any proposal submitted in connection with the 
lower tier covered transactions. A participant may rely on the 
certification, unless it knows the certification is erroneous.

[67 FR 15112, Mar. 29, 2002]



                      Subpart H_Program Performance



Sec. 1003.700  Review of grantee's performance.

    (a) Objective. HUD will review each grantee's performance to 
determine whether the grantee has:

[[Page 804]]

    (1) Complied with the requirements of the Act, this part, the grant 
agreement and other applicable laws and regulations;
    (2) Carried out its activities substantially as described in its 
application;
    (3) Made substantial progress in carrying out its approved program;
    (4) A continuing capacity to carry out the approved activities in a 
timely manner; and
    (5) The capacity to undertake additional activities funded under 
this part.
    (b) Basis for review. In reviewing each grantee's performance, HUD 
will consider all available evidence which may include, but not be 
limited to, the following:
    (1) The approved application and any amendments thereto;
    (2) Reports prepared by the grantee;
    (3) Records maintained by the grantee;
    (4) Results of HUD's monitoring of the grantee's performance, 
including field evaluation of the quality of the work performed;
    (5) Audit reports;
    (6) Records of drawdowns on the line of credit;
    (7) Records of comments and complaints by citizens and 
organizations; and
    (8) Litigation.



Sec. 1003.701  Corrective and remedial action.

    (a) General. One or more corrective or remedial actions will be 
taken by HUD when, on the basis of the performance review, HUD 
determines that the grantee has not:
    (1) Complied with the requirements of the Act, this part, and other 
applicable laws and regulations, including the environmental 
responsibilities assumed under section 104(g) of title I of the Act;
    (2) Carried out its activities substantially as described in its 
applications;
    (3) Made substantial progress in carrying out its approved program; 
or
    (4) Shown the continuing capacity to carry out its approved 
activities in a timely manner.
    (b) Action. The action taken by HUD will be designed, first, to 
prevent the continuance of the deficiency; second, to mitigate any 
adverse effects or consequences of the deficiency; and third, to prevent 
a recurrence of the same or similar deficiencies. The following actions 
may be taken singly or in combination, as appropriate for the 
circumstances:
    (1) Request the grantee to submit progress schedules for completing 
approved activities or for complying with the requirements of this part;
    (2) Issue a letter of warning advising the grantee of the deficiency 
(including environmental review deficiencies and housing assistance 
deficiencies), describing the corrective actions to be taken, 
establishing a date for corrective actions, and putting the grantee on 
notice that more serious actions will be taken if the deficiency is not 
corrected or is repeated;
    (3) Advise the grantee to suspend, discontinue, or not incur costs 
for the affected activity;
    (4) Advise the grantee to reprogram funds from affected activities 
to other eligible activities, provided that such action shall not be 
taken in connection with any substantial violation of part 58 and 
provided that such reprogramming is subjected to the environmental 
review procedures of part 58 of this title;
    (5) Advise the grantee to reimburse the grantee's program account or 
line of credit in any amount improperly expended;
    (6) Change the method of payment from a line of credit basis to a 
reimbursement basis; and/or
    (7) Suspend the line of credit until corrective actions are taken.



Sec. 1003.702  Reduction or withdrawal of grant.

    (a) General. A reduction or withdrawal of a grant under paragraph 
(b) of this section will not be made until at least one of the 
corrective or remedial actions specified in Sec. 1003.701(b) has been 
taken and only then if the grantee has not made an appropriate and 
timely response. Before making such a grant reduction or withdrawal, the 
grantee also shall be notified and given an opportunity within a 
prescribed time for an informal consultation regarding the proposed 
action.

[[Page 805]]

    (b) Reduction or withdrawal. When the Area ONAP determines, on the 
basis of a review of the grantee's performance, that the objectives set 
forth in Sec. 1003.700(a)(2) or (3) have not been met, the Area ONAP 
may reduce or withdraw the grant, except that funds already expended on 
eligible approved activities shall not be recaptured.



Sec. 1003.703  Other remedies for noncompliance.

    (a) Secretarial actions. If the Secretary finds a grantee has failed 
to comply with any provision of this part even after corrective actions 
authorized under Sec. 1003.701 have been applied, the following actions 
may be taken provided that reasonable notice and opportunity for hearing 
is made to the grantee. (The Administrative Procedure Act (5 U.S.C. 551 
et seq.), where applicable, shall be a guide in any situation involving 
adjudications where the Secretary desires to take actions requiring 
reasonable notice and opportunity for a hearing):
    (1) Terminate the grant to the grantee;
    (2) Reduce the grant to the grantee by an amount equal to the amount 
which was not expended in accordance with this part; or
    (3) Limit the availability of funds to projects or activities not 
affected by such failure to comply; provided, however, that the 
Secretary may on due notice revoke the grantee's line of credit in whole 
or in part at any time if the Secretary determines that such action is 
necessary to preclude the further expenditure of funds for activities 
affected by such failure to comply.
    (b) Secretarial referral to the Attorney General. If there is reason 
to believe that a grantee has failed to comply substantially with any 
provision of the Act, the Secretary may refer the matter to the Attorney 
General of the United States with a recommendation that an appropriate 
civil action be instituted. Upon such a referral, the Attorney General 
may bring a civil action in any United States district court having 
venue thereof for such relief as may be appropriate, including an action 
to recover the amount of the assistance furnished under this part which 
was not expended in accordance with this part or for mandatory or 
injunctive relief.

                          PART 1004 [RESERVED]



PART 1005_LOAN GUARANTEES FOR INDIAN HOUSING--Table of Contents




Sec.
1005.101 What is the applicability and scope of these regulations?
1005.103 What definitions are applicable to this program?
1005.104 What lenders are eligible for participation?
1005.105 What are eligible loans?
1005.106 What is the Direct Guarantee procedure?
1005.107 What is eligible collateral?
1005.109 What is a guarantee fee?
1005.111 What safety and quality standards apply?
1005.112 How do eligible lenders and eligible borrowers demonstrate 
          compliance with applicable tribal laws?
1005.113 How does HUD enforce lender compliance with applicable tribal 
          laws?

    Authority: 12 U.S.C. 1715z-13a; 42 U.S.C. 3535(d).

    Source: 61 FR 9054, Mar. 6, 1996, unless otherwise noted. 
Redesignated at 63 FR 12349, Mar. 12, 1998.



Sec. 1005.101  What is the applicability and scope of these regulations?

    Under the provisions of section 184 of the Housing and Community 
Development Act of 1992, as amended by the Native American Housing 
Assistance and Self-Determination Act of 1996 (12 U.S.C. 1715z-13a), the 
Department of Housing and Urban Development (the Department or HUD) has 
the authority to guarantee loans for the construction, acquisition, or 
rehabilitation of 1- to 4-family homes that are standard housing located 
on trust or restricted land or land located in an Indian or Alaska 
Native area. This part provides requirements that are in addition to 
those in section 184.

[67 FR 19493, Apr. 19, 2002]



Sec. 1005.103  What definitions are applicable to this program?

    In addition to the definitions that appear in Section 184 of the 
Housing and Community Development Act of 1992, the following definitions 
are applicable to loan guarantees under Section 184--

[[Page 806]]

    Default means the failure by a borrower to make any payment or to 
perform any other obligation under the terms of a loan, and such failure 
continues for a period of more than 30 days.
    Holder means the holder of the guarantee certificate and in this 
program is variously referred to as the lender holder, the holder of the 
certificate, the holder of the guarantee, and the mortgagee.
    Indian means any person recognized as being Indian or Alaska Native 
by an Indian tribe, the Federal Government, or any State, and includes 
the term ``Native American''.
    Mortgage means:
    (1)(i) A first lien as is commonly given to secure advances on, or 
the unpaid purchase price of, real estate under the laws of the 
jurisdiction where the property is located and may refer to a security 
instrument creating a lien, whether called a mortgage, deed of trust, 
security deed, or another term used in a particular jurisdiction; or
    (ii) A loan secured by collateral as required by 24 CFR 1005.107; 
and
    (2) The credit instrument, or note, secured thereby.
    Mortgagee means the same as ``Holder.''
    Principal residence means the dwelling where the mortgagor maintains 
(or will maintain) his or her permanent place of abode, and typically 
spends (or will spend) the majority of the calendar year. A person may 
have only one principal residence at any one time.
    Property means the property constructed, acquired, or rehabilitated 
with the guaranteed loan, except when the context indicates that the 
term means other collateral for the loan.
    Section 184 means section 184 (entitled, ``Loan Guarantees for 
Indian Housing'') of the Housing and Community Development Act of 1992 
(12 U.S.C. 1515z-13a).
    Trust or restricted land has the meaning given to ``trust land'' in 
section 184(k)(9) of the Housing and Community Development Act of 1992.

[61 FR 9054, Mar. 6, 1996. Redesignated and amended at 63 FR 12349, 
12372, Mar. 12, 1998; 63 FR 48990, Sept. 11, 1998]



Sec. 1005.104  What lenders are eligible for participation?

    Eligible lenders are those approved under and meeting the 
qualifications established in this subpart, except that loans otherwise 
insured or guaranteed by an agency of the United States, or made by an 
organization of Indians from amounts borrowed from the United States, 
shall not be eligible for guarantee under this part. The following 
lenders are deemed to be eligible under this part:
    (a) Any mortgagee approved by HUD for participation in the single 
family mortgage insurance program under title II of the National Housing 
Act;
    (b) Any lender whose housing loans under chapter 37 of title 38, 
United States Code are automatically guaranteed pursuant to section 
1802(d) of such title;
    (c) Any lender approved by the Department of Agriculture to make 
guaranteed loans for single family housing under the Housing Act of 
1949;
    (d) Any other lender that is supervised, approved, regulated, or 
insured by any other agency of the United States; or
    (e) Any other lender approved by the Secretary under this part.

[63 FR 12372, Mar. 12, 1998, as amended at 63 FR 48990, Sept. 11, 1998]



Sec. 1005.105  What are eligible loans?

    (a) In general. Only fixed rate, fixed term loans with even monthly 
payments are eligible under the Section 184 program.
    (b) Eligible borrowers. A loan guarantee under section 184 may be 
made to:
    (1) An Indian family who will occupy the home as a principal 
residence and who is otherwise qualified under section 184;
    (2) An Indian Housing Authority or Tribally Designated Housing 
Entity; or
    (3) An Indian tribe.
    (c) Appraisal of labor value. The value of any improvements to the 
property made through the skilled or unskilled labor of the borrower, 
which may be used to make a payment on account of the balance of the 
purchase price, must be appraised in accordance with generally 
acceptable practices and procedures.

[[Page 807]]

    (d) Construction advances. The Department may guarantee loans from 
which advances will be made during construction. The Department will 
provide guarantees for advances made by the mortgagee during 
construction if all of the following conditions are satisfied:
    (1) The mortgagor and the mortgagee execute a building loan 
agreement, approved by HUD, setting forth the terms and conditions under 
which advances will be made;
    (2) The advances may be made only as provided in the building loan 
agreement;
    (3) The principal amount of the mortgage is held by the mortgagee in 
an interest bearing account, trust, or escrow for the benefit of the 
mortgagor, pending advancement to the mortgagor or the mortgagor's 
creditors as provided in the loan agreement; and
    (4) The mortgage shall bear interest on the amount advanced to the 
mortgagor or the mortgagor's creditors and on the amount held in an 
account or trust for the benefit of the mortgagor.
    (e) Environmental compliance. (1) Section 1000.20 of this chapter 
applies to an environmental review in connection with a loan guarantee 
under this part. That section permits an Indian tribe to choose to 
assume environmental review responsibility.
    (2) Before HUD issues a commitment to guarantee any loan, or before 
HUD guarantees a loan if there is no commitment, HUD must:
    (i) Comply with environmental review procedures to the extent 
applicable under part 50 of this title, in accordance with Sec. 
1000.20(a) and (c); or
    (ii) Approve a Request for Release of Funds and certification from 
an Indian tribe, in accordance with part 58 of this title, if the Indian 
tribe has assumed environmental review responsibility.
    (3) If the loan involves proposed or new construction, HUD will 
require compliance with procedures comparable to those required by Sec. 
203.12(b)(2) of this title for FHA mortgage insurance.
    (f) Lack of access to private financial markets. In order to be 
eligible for a loan guarantee if the property is not on trust or 
restricted land, the borrower must certify that the borrower lacks 
access to private financial markets. Borrower certification is the only 
certification required by HUD.

[61 FR 9054, Mar. 6, 1996. Redesignated and amended at 63 FR 12349, 
12372, Mar. 12, 1998; 63 FR 48990, Sept. 11, 1998; 67 FR 19493, Apr. 19, 
2002]



Sec. 1005.106  What is the Direct Guarantee procedure?

    (a) General. A loan may be processed under a Direct Guarantee 
procedure approved by the Department, under which the Department does 
not issue commitments to guarantee or review applications for loan 
guarantees before mortgages are executed by lenders approved for Direct 
Guarantee processing. The Department will approve a loan before the loan 
is guaranteed.
    (b) Mortgagee sanctions. Depending on the nature and extent of the 
noncompliance with the requirements applicable to the Direct Guarantee 
procedure, as determined by the Department, the Department may take such 
actions as are deemed appropriate and in accordance with published 
guidelines.

[63 FR 48990, Sept. 11, 1998]



Sec. 1005.107  What is eligible collateral?

    (a) In general. A loan guaranteed under section 184 may be secured 
by any collateral authorized under and not prohibited by Federal, state, 
or tribal law and determined by the lender and approved by the 
Department to be sufficient to cover the amount of the loan, and may 
include, but is not limited to, the following:
    (1) The property and/or improvements to be acquired, constructed, or 
rehabilitated, to the extent that an interest in such property is not 
subject to the restrictions against alienation applicable to trust or 
restricted land;
    (2) A first and/or second mortgage on property other than trust 
land;
    (3) Personal property; or
    (4) Cash, notes, an interest in securities, royalties, annuities, or 
any other property that is transferable and whose present value may be 
determined.
    (b) Leasehold of trust or restricted land as collateral. If a 
leasehold interest in trust or restricted land is used as collateral or 
security for the loan, the following additional provisions apply:

[[Page 808]]

    (1) Approved Lease. Any land lease for a unit financed under Section 
184 must be on a form approved by both HUD and the Bureau of Indian 
Affairs, U.S. Department of Interior.
    (2) Assumption or sale of leasehold. The lease form must contain a 
provision requiring tribal consent before any assumption of an existing 
lease, except where title to the leasehold interest is obtained by the 
Department through foreclosure of the guaranteed mortgage or a deed in 
lieu of foreclosure. A mortgagee other than the Department must obtain 
tribal consent before obtaining title through a foreclosure sale. Tribal 
consent must be obtained on any subsequent transfer from the purchaser, 
including the Department, at foreclosure sale. The lease may not be 
terminated by the lessor without HUD's approval while the mortgage is 
guaranteed or held by the Department.
    (3) The mortgagee or HUD shall only pursue liquidation after 
offering to transfer the account to an eligible tribal member, the 
Indian tribe, or the Indian housing authority servicing the Indian tribe 
or the TDHE servicing the Indian tribe. The mortgagee or HUD shall not 
sell, transfer, or otherwise dispose of or alienate the property except 
to one of these three entities.
    (4) Priority of loan obligation. Any tribal government whose courts 
have jurisdiction to hear foreclosures must enact a law providing for 
the satisfaction of a loan guaranteed or held by the Department before 
other obligations (other than tribal leasehold taxes against the 
property assessed after the property is mortgaged) are satisfied.
    (5) Eviction procedures. Before HUD will guarantee a loan secured by 
trust land, the tribe having jurisdiction over such property must notify 
the Department that it has adopted and will enforce procedures for 
eviction of defaulted mortgagors where the guaranteed loan has been 
foreclosed.
    (i) Enforcement. If the Department determines that the tribe has 
failed to enforce adequately its eviction procedures, HUD will cease 
issuing guarantees for loans for tribal members except pursuant to 
existing commitments. Adequate enforcement is demonstrated where prior 
evictions have been completed within 60 days after the date of the 
notice by HUD that foreclosure was completed.
    (ii) Review. If the Department ceases issuing guarantees in 
accordance with paragraph (b)(5)(i) of this section, HUD will notify the 
tribe of the reasons for such action and that the tribe may, within 30 
days after notification of HUD's action, file a written appeal with the 
Director, Office of Loan Guarantee (OLG), Office of Native American 
Programs (ONAP). Within 30 days after notification of an adverse 
decision by the OLG Director, the tribe may file a written request for 
review with the Deputy Assistant Secretary for ONAP. Upon notification 
of an adverse decision by the Deputy Assistant Secretary, the tribe has 
30 additional days to file an appeal with the Assistant Secretary for 
Public and Indian Housing. The determination of the Assistant Secretary 
shall be final, but the tribe may resubmit the issue to the Assistant 
Secretary for review at any subsequent time if new evidence or changed 
circumstances warrant reconsideration. (Any other administrative actions 
determined to be necessary to debar a tribe from participating in this 
program will be subject to the formal debarment procedures contained in 
24 CFR part 24.)

[61 FR 9054, Mar. 6, 1996. Redesignated and amended, respectively, at 63 
FR 12349, 12373, Mar. 12, 1998; 63 FR 48991, Sept. 11, 1998; 67 19493, 
Apr. 19, 2002]



Sec. 1005.109  What is a guarantee fee?

    The lender shall pay to the Department, at the time of issuance of 
the guarantee, a fee for the guarantee of loans under Section 184, in an 
amount equal to 1 percent of the principal obligation of the loan. This 
amount is payable by the borrower at closing.



Sec. 1005.111  What safety and quality standards apply?

    (a) Loans guaranteed under section 184 must be for dwelling units 
which meet the safety and quality standards set forth in section 184(j).
    (b) The relevant requirements of the Lead-Based Paint Poisoning 
Prevention Act (42 U.S.C. 4821-4846), the Residential Lead-Based Paint 
Hazard Reduction Act of 1992 (42 U.S.C. 4851-4856), and implementing 
regulations at part

[[Page 809]]

35, subparts A, B, H, J, K, M, and R of this title apply to this part.

[63 FR 48991, Sept. 11, 1998, as amended at 64 FR 50230, Sept. 15, 1999]



Sec. 1005.112  How do eligible lenders and eligible borrowers demonstrate 
compliance with applicable tribal laws?

    The lender and the borrower will each certify that they acknowledge 
and agree to comply with all applicable tribal laws. An Indian tribe 
with jurisdiction over the dwelling unit does not have to be notified of 
individual section 184 loans unless required by applicable tribal law.

[63 FR 12373 Mar. 12, 1998, as amended at 63 FR 48991, Sept. 11, 1998]



Sec. 1005.113  How does HUD enforce lender compliance with applicable 
tribal laws?

    Failure of the lender to comply with applicable tribal law is 
considered to be a practice detrimental to the interest of the borrower 
and may be subject to enforcement action(s) under section 184(g) of the 
statute.

[63 FR 12373 Mar. 12, 1998]



PART 1006_NATIVE HAWAIIAN HOUSING BLOCK GRANT PROGRAM--Table of Contents




                            Subpart A_General

Sec.
1006.1 Applicability.
1006.10 Definitions.
1006.20 Grants for affordable housing activities.
1006.30 Waivers.

                         Subpart B_Housing Plan

1006.101 Housing plan requirements.
1006.110 Review of plans.

                      Subpart C_Eligible Activities

1006.201 Eligible affordable housing activities.
1006.205 Development.
1006.210 Housing services.
1006.215 Housing management services.
1006.220 Crime prevention and safety activities.
1006.225 Model activities.
1006.230 Administrative and planning costs.
1006.235 Types of investments.

                     Subpart D_Program Requirements

1006.301 Eligible families.
1006.305 Low-income requirement and income targeting.
1006.310 Rent and lease--purchase limitations.
1006.315 Lease requirements.
1006.320 Tenant or homebuyer selection.
1006.325 Maintenance, management and efficient operation.
1006.330 Insurance coverage.
1006.335 Use of nonprofit organizations and public-private partnerships.
1006.340 Treatment of program income.
1006.345 Labor standards.
1006.350 Environmental review.
1006.355 Nondiscrimination requirements.
1006.360 Conflict of interest.
1006.365 Program administration responsibilities.
1006.370 Federal administrative requirements.
1006.375 Other Federal requirements.

                 Subpart E_Monitoring and Accountability

1006.401 Monitoring of compliance.
1006.410 Performance reports.
1006.420 Review of DHHL's performance.
1006.430 Corrective and remedial action.
1006.440 Remedies for noncompliance.

    Authority: 25 U.S.C. 4221 et seq.; 42 U.S.C. 3535(d).

    Source:  67 FR 40776, June 13, 2002, unless otherwise noted.



                            Subpart A_General



Sec. 1006.1  Applicability.

    The requirements and procedure of this part apply to grants under 
the Native Hawaiian Housing Block Grant (NHHBG) Program, authorized by 
the Hawaiian Homelands Homeownership Act of 2000 (HHH Act), which adds 
Title VIII--Housing Assistance For Native Hawaiians (25 U.S.C. 4221 et 
seq.), to the Native American Housing Assistance and Self-Determination 
Act of 1996 (NAHASDA) (25 U.S.C. 4101 et seq.).



Sec. 1006.10  Definitions.

    The following definitions apply in this part:
    Act means title VIII of NAHASDA, as amended.
    Adjusted income means the annual income that remains after excluding 
the following amounts:
    (1) Youths, students, and persons with disabilities. $480 for each 
member of the

[[Page 810]]

family residing in the household (other than the head of the household 
or the spouse of the head of the household):
    (i) Who is under 18 years of age; or
    (ii) Who is:
    (A) 18 years of age or older; and
    (B) A person with disabilities or a full-time student.
    (2) Elderly and disabled families. $400 for an elderly or disabled 
family.
    (3) Medical and attendant expenses. The amount by which 3 percent of 
the annual income of the family is exceeded by the aggregate of:
    (i) Medical expenses, in the case of an elderly or disabled family; 
and
    (ii) Reasonable attendant care and auxiliary apparatus expenses for 
each family member who is a person with disabilities, to the extent 
necessary to enable any member of the family (including a member who is 
a person with disabilities) to be employed.
    (4) Child care expenses. Child care expenses, to the extent 
necessary to enable another member of the family to be employed or to 
further his or her education.
    (5) Earned income of minors. The amount of any earned income of any 
member of the family who is less than 18 years of age.
    (6) Travel expenses. Excessive travel expenses, not to exceed $25 
per family per week, for employment--or education-related travel.
    (7) Other amounts. Such other amounts as may be provided in the 
housing plan for Native Hawaiians.
    Affordable Housing means housing that complies with the requirements 
of the Act and this part. The term includes permanent housing for 
homeless persons who are persons with disabilities, transitional 
housing, and single room occupancy housing.
    Assistant Secretary means HUD's Assistant Secretary for Public and 
Indian Housing.
    Department of Hawaiian Home Lands (DHHL) means the agency or 
department of the government of the State of Hawaii that is responsible 
for the administration of the Hawaiian Homes Commission Act, 1920 (HHCA 
1920) (42 Stat. 108 et seq.).
    Director means the Director of the Department of Hawaiian Home 
Lands.
    Drug-Related Criminal Activity means the illegal manufacture, sale, 
distribution, use, or possession with intent to manufacture, sell, 
distribute, or use a controlled substance (as such term is defined in 
section 102 of the Controlled Substances Act).
    Elderly families; near-elderly families means:
    (1) In general. The term ``elderly family'' or ``near-elderly 
family'' means a family whose head (or his or her spouse), or whose sole 
member, is:
    (i) For an elderly family, an elderly person; or
    (ii) For a near-elderly family, a near-elderly person.
    (2) Certain families included. The term ``elderly family'' or 
``near-elderly family'' includes:
    (i) Two or more elderly persons or near-elderly persons, as the case 
may be, living together; and
    (ii) One or more persons described in paragraph (2)(i) of this 
definition living with one or more persons determined under the housing 
plan to be essential to their care or well-being.
    Elderly person means an individual who is at least 62 years of age.
    Family includes, but is not limited to, a family with or without 
children, an elderly family, a near-elderly family, a disabled family, a 
single person, as determined by the DHHL.
    Hawaiian Home Lands means lands that:
    (1) Have the status as Hawaiian home lands under section 204 of the 
HHCA 1920 (42 Stat. 110); or
    (2) Are acquired pursuant to the HHCA 1920.
    Homebuyer payment means the payment of a family purchasing a home 
pursuant to a long-term lease purchase agreement.
    Housing area means an area of Hawaiian Home Lands with respect to 
which the DHHL is authorized to provide assistance for affordable 
housing under the Act and this part.
    Housing plan means a plan developed by the DHHL pursuant to the Act 
and this part, particularly Sec. 1006.101.
    HUD means the Department of Housing and Urban Development.
    Low-income family means a family whose income does not exceed 80 
percent of the median income for the area,

[[Page 811]]

as determined by HUD with adjustments for smaller and larger families, 
except that HUD may, for purposes of this paragraph, establish income 
ceilings higher or lower than 80 percent of the median for the area on 
the basis of the findings of HUD or the agency that such variations are 
necessary because of prevailing levels of construction costs or 
unusually high or low family incomes.
    Median income means, with respect to an area that is a housing area, 
the greater of:
    (1) The median income for the housing area, which shall be 
determined by HUD; or
    (2) The median income for the State of Hawaii.
    Native Hawaiian means any individual who is:
    (1) A citizen of the United States; and
    (2) A descendant of the aboriginal people, who, prior to 1778, 
occupied and exercised sovereignty in the area that currently 
constitutes the State of Hawaii, as evidenced by:
    (i) Genealogical records;
    (ii) Verification by kupuna (elders) or kama'aina (long-term 
community residents); or
    (iii) Birth records of the State of Hawaii.
    Native Hawaiian Housing Block Grant (NHHBG) Funds means funds made 
available under the Act, plus program income.
    Near-elderly person means an individual who is at least 55 years of 
age and less than 62 years of age.
    Nonprofit means, with respect to an organization, association, 
corporation, or other entity, that no part of the net earnings of the 
entity inures to the benefit of any member, founder, contributor, or 
individual.
    Secretary means the Secretary of Housing and Urban Development.
    Tenant-based rental assistance means a form of rental assistance in 
which the assisted tenant may move from a dwelling unit with a right to 
continued assistance. Tenant-based rental assistance under this part 
also includes security deposits for rental of dwelling units.
    Transitional housing means housing that:
    (1) Is designed to provide housing and appropriate supportive 
services to persons, including (but not limited to) deinstitutionalized 
individuals with disabilities, homeless individuals with disabilities, 
and homeless families with children; and
    (2) Has as its purpose facilitating the movement of individuals and 
families to independent living within a time period that is set by the 
DHHL or project owner before occupancy.



Sec. 1006.20  Grants for affordable housing activities.

    (a) Annual grant. Each fiscal year, HUD will make a grant (to the 
extent that amounts are made available) under the Act to the DHHL to 
carry out affordable housing activities for Native Hawaiian families who 
are eligible to reside on the Hawaiian Home Lands, if:
    (1) The Director has submitted to HUD a housing plan for that fiscal 
year; and
    (2) HUD has determined that the housing plan complies with the 
requirements of Sec. 1006.101.
    (b) Waiver. HUD may waive housing plan requirements if HUD finds 
that the DHHL has not complied or cannot comply with those requirements 
due to circumstances beyond the control of the DHHL.



Sec. 1006.30  Waivers.

    Upon determination of good cause, the Secretary may, subject to 
statutory limitations, waive any provision of this part and delegate 
this authority in accordance with section 106 of the Department of 
Housing and Urban Development Reform Act of 1989 (42 U.S.C. 3535(q)).



                         Subpart B_Housing Plan



Sec. 1006.101  Housing plan requirements.

    The DHHL must submit a housing plan for each Federal Fiscal Year 
grant. The housing plan has two components, a five-year plan and a one-
year plan, as follows:
    (a) Five-year plan. Each housing plan must contain, for the 5-year 
period beginning with the fiscal year for which the plan is first 
submitted, the following information:

[[Page 812]]

    (1) Mission statement. A general statement of the mission of the 
DHHL to serve the needs of the low-income Native Hawaiian families 
eligible to live on the Hawaiian Home Lands to be served by the DHHL;
    (2) Goals and objectives. A statement of the goals and objectives of 
the DHHL to enable the DHHL to serve the needs identified in paragraph 
(a)(1), of this section during the 5-year period; and
    (3) Activities plans. An overview of the activities planned during 
the 5-year period including an analysis of the manner in which the 
activities will enable the DHHL to meet its mission, goals, and 
objectives.
    (b) One-year plan. The housing plan must contain the following 
information for the fiscal year for which the assistance under the Act 
is to be made available:
    (1) Goals and objectives. A statement of the goals and objectives to 
be accomplished by the DHHL with its annual grant allocation that are 
measurable in a quantitative way.
    (2) Statement of needs. A statement of the housing needs of the low-
income families served by the DHHL and the means by which those needs 
will be addressed during the period covered by the plan, including:
    (i) A description of the estimated housing needs and the need for 
assistance for the low-income families to be served by the DHHL, 
including a description of the manner in which the geographical 
distribution of assistance is consistent with:
    (A) The geographical needs of those families; and
    (B) Needs for various categories of housing assistance; and
    (ii) A description of the estimated housing needs for all families 
to be served by the DHHL.
    (3) Financial resources. An operating budget for the DHHL that 
includes an identification and a description of:
    (i) The NHHBG funds and other financial resources reasonably 
available to the DHHL to carry out eligible activities, including an 
explanation of the manner in which NHHBG funds will be used to leverage 
additional resources; and
    (ii) Eligible activities to be undertaken and their projected cost, 
including administrative expenses.
    (4) Affordable housing resources. A statement of the affordable 
housing resources currently available at the time of the submittal of 
the plan and to be made available during the period covered by the plan, 
including:
    (i) A description of the significant characteristics of the housing 
market in the State of Hawaii, including the availability of housing 
from other public sources and private market housing;
    (ii) The effect of the characteristics identified under paragraph 
(b)(4)(i) of this section, on the DHHL's decision to use the NHHBG for:
    (A) Rental assistance;
    (B) The production of new units;
    (C) The acquisition of existing units; or
    (D) The rehabilitation of units;
    (iii) A description of the structure, coordination, and means of 
cooperation between the DHHL and any other governmental entities in the 
development, submission, or implementation of the housing plan, 
including a description of:
    (A) The involvement of private, public, and nonprofit organizations 
and institutions;
    (B) The use of loan guarantees under section 184A of the Housing and 
Community Development Act of 1992; and
    (C) Other housing assistance provided by the United States, 
including loans, grants, and mortgage insurance;
    (iv) A description of the manner in which the plan will address the 
needs identified pursuant to paragraph (b)(2) of this section;
    (v) A description of:
    (A) Any existing or anticipated homeownership programs and rental 
programs to be carried out during the period covered by the plan; and
    (B) The requirements and assistance available under the programs 
referred to in paragraph (b)(4)(v)(A) of this section;
    (vi) A description of:
    (A) Any existing or anticipated housing rehabilitation programs 
necessary to ensure the long-term viability of housing to be carried out 
during the period covered by the plan; and

[[Page 813]]

    (B) The requirements and assistance available under the programs 
referred to in paragraph (b)(4)(vi)(A) of this section;
    (vii) A description of:
    (A) All other existing or anticipated housing assistance provided by 
the DHHL during the period covered by the plan, including transitional 
housing; homeless housing; college housing; and supportive services 
housing; and
    (B) The requirements and assistance available under such programs; 
(viii) A description of:
    (A) Any housing to be demolished or disposed of;
    (B) A timetable for that demolition or disposition;
    (C) A financial analysis of the proposed demolition/disposition; and
    (D) Any additional information HUD may request with respect to that 
demolition or disposition.
    (ix) A description of the manner in which the DHHL will coordinate 
with welfare agencies in the State of Hawaii to ensure that residents of 
the affordable housing will be provided with access to resources to 
assist in obtaining employment and achieving self-sufficiency;
    (x) A description of the requirements established by the DHHL to:
    (A) Promote the safety of residents of the affordable housing;
    (B) Facilitate the undertaking of crime prevention measures;
    (C) Allow resident input and involvement, including the 
establishment of resident organizations; and
    (D) Allow for the coordination of crime prevention activities 
between the DHHL and local law enforcement officials; and
    (xi) A description of the entities that will carry out the 
activities under the plan, including the organizational capacity and key 
personnel of the entities.
    (5) Certifications of compliance. The DHHL must certify that it:
    (i) Will comply with:
    (A) Title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d et 
seq.) and with the Fair Housing Act (42 U.S.C. 3601 et seq.), to the 
extent applicable as described in Sec. 1006.355, in carrying out the 
Native Hawaiian Housing Block Grant Program; and
    (B) Other applicable Federal statutes;
    (ii) Will require adequate insurance coverage for housing units that 
are owned and operated or assisted with NHHBG funds, in compliance with 
the requirements of Sec. 1006.330;
    (iii) Has policies in effect and available for review by HUD and the 
public governing the eligibility, admission, and occupancy of families 
for housing assisted with NHHBG funds and governing the selection of 
families receiving other assistance under the Act and this part;
    (iv) Has policies in effect and available for review by HUD and the 
public governing rents charged, including the methods by which such 
rents or homebuyer payments are determined, for housing assisted with 
NHHBG funds; and
    (v) Has policies in effect and available for review by HUD and the 
public governing the management and maintenance of rental and lease-
purchase housing assisted with NHHBG funds.
    (c) Updates to plan. (1) In general. Subject to paragraph (c)(2) of 
this section, after the housing plan has been submitted for a fiscal 
year, the DHHL may comply with the provisions of this section for any 
succeeding fiscal year with respect to information included for the 5-
year period under paragraph (a) of this section by submitting only such 
information regarding such changes as may be necessary to update the 
plan previously submitted and by submitting information for the 1-year 
period under paragraph (b) of this section.
    (2) Complete plans. The DHHL shall submit a complete plan under this 
section not later than 4 years after submitting an initial plan, and not 
less frequently than every 4 years thereafter.
    (d) Amendments to plan. The DHHL must submit any amendment to the 
one-year housing plan for HUD review before undertaking any new 
activities that are not addressed in the current plan. The amendment 
must include a description of the new activity and a revised budget 
reflecting the changes. HUD will review the revised plan and will notify 
DHHL within 30 days whether the amendment complies with applicable 
requirements.

[[Page 814]]



Sec. 1006.110  Review of plans.

    (a) Review. (1) In general. Within 60 days of receipt of the housing 
plan, HUD will conduct a limited review to ensure that the contents of 
the plan comply with the requirements of Sec. 1006.101, are consistent 
with information and data available to HUD, and are not prohibited by or 
inconsistent with any provision of the Act and this part or any other 
applicable law.
    (2) Limitation. HUD will review the housing plan only to the extent 
that HUD considers that the review is necessary.
    (3) Incomplete plans. If HUD determines that any of the required 
certifications are not included in the housing plan, the plan shall be 
considered to be incomplete. HUD may also consider a housing plan to be 
incomplete if it does not address all of the requirements of Sec. 
1006.101, and the DHHL has not requested a waiver of the missing 
requirement.
    (b) Notice. (1) In general. Not later than 60 days after receiving 
the housing plan, HUD will notify the DHHL whether or not the plan 
complies with applicable requirements.
    (2) Notice of reasons for determination of noncompliance. If HUD 
determines that the contents of the housing plan do not comply with the 
requirements of Sec. 1006.101, or are not consistent with information 
and data available to HUD, or are prohibited by or inconsistent with any 
provision of the Act and this part or any other applicable law, HUD will 
specify in the notice under paragraph (b)(1) of this section:
    (i) The reasons for noncompliance; and
    (ii) Any modifications necessary for the plan to be in compliance.
    (3) Effect of HUD's failure to take action. If HUD does not notify 
the DHHL, upon the expiration of the 60-day period described in 
paragraph (a)(1) of this section, the plan shall be considered to have 
been determined to comply with the requirements under Sec. 1006.101 and 
the DHHL shall be considered to have been notified of compliance.



                      Subpart C_Eligible Activities



Sec. 1006.201  Eligible affordable housing activities.

    Eligible affordable housing activities are development, housing 
services, housing management services, crime prevention and safety 
activities and model activities. NHHBG funds may only be used for 
eligible activities that are consistent with the DHHL's housing plan.



Sec. 1006.205  Development.

    (a) NHHBG funds may be used for the acquisition, new construction, 
reconstruction, or moderate or substantial rehabilitation of affordable 
housing for homeownership or rental, which may include:
    (1) Real property acquisition;
    (2) Acquisition of affordable housing;
    (3) Financing acquisition of affordable housing by homebuyers 
through:
    (i) Down payment assistance;
    (ii) Closing costs assistance;
    (iii) Direct lending; and
    (iv) Interest subsidies or other financial assistance
    (4) New construction of affordable housing;
    (5) Reconstruction of affordable housing;
    (6) Moderate rehabilitation of affordable housing, including but not 
limited to:
    (i) Lead-based paint hazards elimination or reduction;
    (ii) Improvements to provide physical accessibility for disabled 
persons; and
    (iii) Energy-related improvements;
    (7) Substantial rehabilitation of affordable housing, including but 
not limited to:
    (i) Lead-based paint hazards elimination or reduction;
    (ii) Improvements to provide physical accessibility for disabled 
persons; and
    (iii) Energy-related improvements;
    (8) Site improvement, including recreational areas and playgrounds 
for use by residents of affordable housing and on-site streets and 
sidewalks;
    (9) The development of utilities and utility services;
    (10) Conversion;
    (11) Demolition;
    (12) Administration and planning; and

[[Page 815]]

    (13) Other related activities, such as environmental review and 
architectural and engineering plans for the affordable housing project.
    (b) Multi-unit projects. NHHBG funds may be used to assist one or 
more housing units in a multi-unit project. Only the actual NHHBG 
eligible development costs of the assisted units may be charged to the 
NHHBG Program. If the assisted and unassisted units are not comparable, 
the actual costs may be determined based upon a method of cost 
allocation. If the assisted and unassisted units are comparable in terms 
of size, features, and number of bedrooms, the actual cost of the NHHBG-
assisted units can be determined by pro-rating the total NHHBG eligible 
development costs of the project so that the proportion of the total 
development costs charged to the NHHBG Program does not exceed the 
proportion of the NHHBG-assisted units in the project.



Sec. 1006.210  Housing services.

    NHHBG funds may be used for the provision of housing-related 
services for affordable housing, including:
    (a) Housing counseling in connection with rental or homeownership 
assistance;
    (b) The establishment and support of resident organizations and 
resident management corporations;
    (c) Energy auditing;
    (d) Activities related to the provisions of self-sufficiency and 
other services;
    (e) Homelessness prevention activities, which may include short term 
subsidies to defray rent and utility bills of an eligible family;
    (f) Payments to prevent foreclosure on a home;
    (g) Tenant-based rental assistance, which may include security 
deposits and/or first month's rent; and
    (h) Other services related to assisting owners, tenants, 
contractors, and other entities participating or seeking to participate 
in other housing activities assisted pursuant to the Act and this part.



Sec. 1006.215  Housing management services.

    NHHBG funds may be used for the provision of management services for 
affordable housing, including:
    (a) The preparation of work specifications;
    (b) Loan processing;
    (c) Inspections;
    (d) Tenant selection;
    (e) Management of tenant-based rental assistance; and
    (f) Management of affordable housing projects.



Sec. 1006.220  Crime prevention and safety activities.

    NHHBG funds may be used for the provision of safety, security, and 
law enforcement measures and activities appropriate to protect residents 
of affordable housing from crime, including the costs of:
    (a) Physical improvements for affordable housing to enhance 
security, such as, fences, monitors, locks, and additional lighting;
    (b) Security personnel for affordable housing; and
    (c) Equipment for patrols.



Sec. 1006.225  Model activities.

    NHHBG funds may be used for housing activities under model programs 
that are:
    (a) Designed to carry out the purposes of the Act and this part; and
    (b) Specifically approved by HUD as appropriate for those purposes.



Sec. 1006.230  Administrative and planning costs.

    Up to such amount as HUD may authorize, or such other limit as may 
be specified by statute, of each grant received under the Act may be 
used for any reasonable administrative and planning expenses of the DHHL 
relating to carrying out the Act and this part and activities assisted 
with NHHBG funds, including:
    (a) General management, oversight and coordination. Reasonable costs 
of overall program management, coordination, monitoring, and evaluation. 
Such costs include, but are not limited to, necessary expenditures for 
the following:

[[Page 816]]

    (1) Salaries, wages, and related costs of the DHHL's staff. In 
charging costs to this category the DHHL may either include the entire 
salary, wages, and related costs allocable to the NHHBG Program of each 
person whose primary responsibilities with regard to the program 
involves program administration assignments, or the prorated share of 
the salary, wages, and related costs of each person whose job includes 
any program administration assignments. The DHHL may use only one of 
these methods. Program administration includes the following types of 
assignments:
    (i) Developing systems and schedules for ensuring compliance with 
program requirements;
    (ii) Developing interagency agreements and agreements with entities 
receiving NHHBG funds;
    (iii) Monitoring NHHBG-assisted housing for progress and compliance 
with program requirements;
    (iv) Preparing reports and other documents related to the program 
for submission to HUD;
    (v) Coordinating the resolution of audit and monitoring findings;
    (vi) Evaluating program results against stated objectives; and
    (vii) Managing or supervising persons whose primary responsibilities 
with regard to the program include such assignments as those described 
in paragraphs (a)(1)(i) through (vi) of this section;
    (2) Travel costs incurred for official business in carrying out the 
program;
    (3) Administrative services performed under third party contracts or 
agreements, including such services as general legal services, 
accounting services, and audit services; and
    (4) Other costs for goods and services required for administration 
of the program, including such goods and services as rental or purchase 
of equipment, insurance, utilities, office supplies, and rental and 
maintenance (but not purchase) of office space.
    (b) Staff and overhead. Staff and overhead costs directly related to 
carrying out a project or service, such as work specifications 
preparation, loan processing, inspections, and other services related to 
assisting potential owners, tenants, and homebuyers (e.g., housing 
counseling); and staff and overhead costs directly related to providing 
advisory and other relocation services to persons displaced by the a 
project, including timely written notices to occupants, referrals to 
comparable and suitable replacement property, property inspections, 
counseling, and other assistance necessary to minimize hardship. These 
costs may be charged as administrative costs or as project costs under 
Sec. 1006.205 or service costs under Sec. Sec. 1006.210 or 1006.215, 
at the discretion of the DHHL.
    (c) Public information. The provision of information and other 
resources to residents and citizen organizations participating in the 
planning, implementation, or assessment of projects being assisted with 
NHHBG funds.
    (d) Indirect costs. Indirect costs may be charged to the NHHBG 
Program under a cost allocation plan prepared in accordance with OMB 
Circulars A-87 or A-122 as applicable.
    (e) Preparation of the housing plan and reports. Preparation of the 
housing plan under Sec. 1006.101 and performance reports under Sec. 
1006.410. Preparation includes the costs of public hearings, 
consultations, and publication.
    (f) Other Federal requirements. Costs of complying with the Federal 
requirements in Sec. Sec. 1006.370 and 1006.375 of this part. Project-
specific environmental review costs may be charged as administrative 
costs or as project costs, at the discretion of the DHHL.



Sec. 1006.235  Types of investments.

    Subject to the requirements of this part and to the DHHL's housing 
plan, the DHHL has the discretion to use NHHBG funds for affordable 
housing activities in the form of equity investments, interest-bearing 
loans or advances, noninterest-bearing loans or advances, interest 
subsidies, the leveraging of private investments, and other forms of 
assistance that HUD determines to be consistent with the purposes of the 
Act. The DHHL has the right to establish the terms of assistance 
provided with NHHBG funds.

[[Page 817]]



                     Subpart D_Program Requirements



Sec. 1006.301  Eligible families.

    (a) Assistance for eligible housing activities under the Act and 
this part is limited to low-income Native Hawaiian families who are 
eligible to reside on the Hawaiian Home Lands, except as provided under 
paragraphs (b) and (c), of this section.
    (b) Exception to low-income requirement. (1) Other Native Hawaiian 
families. The DHHL may provide assistance for homeownership activities 
and through loan guarantee activities to Native Hawaiian families who 
are not low-income families, as approved by HUD, to address a need for 
housing for those families that cannot be reasonably met without that 
assistance.
    (2) Limitations. HUD approval is required if the DHHL plans to use 
its annual grant amount for assistance in accordance with paragraph 
(b)(1), of this section.
    (c) Other families. The DHHL may provide housing or NHHBG assistance 
to a family that is not low-income and is not composed of Native 
Hawaiians if the DHHL documents that:
    (1) The presence of the family in the housing involved is essential 
to the well-being of Native Hawaiian families; and
    (2) The need for housing for the family cannot be reasonably met 
without the assistance.
    (d) Written policies. The DHHL must develop, follow, and have 
available for review by HUD written policies governing the eligibility, 
admission, and occupancy of families for housing assisted with NHHBG 
funds and governing the selection of families receiving other assistance 
under the Act and this part.



Sec. 1006.305  Low-income requirement and income targeting.

    (a) In general. Housing qualifies as affordable housing for purposes 
of the Act and this part only if each dwelling unit in the housing:
    (1) In the case of rental housing, is made available for occupancy 
only by a family that is a low-income family at the time of the initial 
occupancy of that family of that unit; and
    (2) In the case of housing for homeownership, is made available for 
purchase only by a family that is a low-income family at the time of 
purchase, or is an owner-occupied unit in which the family is low-income 
at the time it receives NHHBG assistance.
    (b) NHHBG-assisted rental units must meet the affordability 
requirements for the remaining useful life of the property, as 
determined by HUD, or such other period as HUD determines in accordance 
with section 813(a)(2)(B) of the Act.
    (c) Enforceable agreements. (1) The DHHL, through binding 
contractual agreements with owners or other authorized entities, shall 
ensure long-term compliance with the provisions of this part.
    (2) The agreements referred to in paragraph (c)(1) of this section 
shall provide for:
    (i) To the extent allowable by Federal and State law, the 
enforcement of the provisions of the Act and this part by the DHHL and 
HUD; and
    (ii) Remedies for breach of the provisions of the Act and this part.
    (d) Exception. Notwithstanding the requirements of this section, 
housing assisted with NHHBG funds pursuant to Sec. 1006.301(b) shall be 
considered affordable housing for purposes of the Act and this part.



Sec. 1006.310  Rent and lease-purchase limitations.

    (a) Rents. The DHHL must develop and follow written policies 
governing rents for rental housing units assisted with NHHBG funds, 
including methods by which rents are determined. The maximum monthly 
rent for a low-income family may not exceed 30 percent of the family's 
monthly adjusted income.
    (b) Lease-purchase. If DHHL assists low-income families to become 
homeowners of rental housing through a long-term lease (i.e. 10 or more 
years) with an option to purchase the housing, DHHL must develop and 
follow written policies governing lease-purchase payments for rental 
housing units assisted with NHHBG funds, including methods by which 
payments are determined. The maximum monthly payment for a low-income 
family

[[Page 818]]

may not exceed 30 percent of the family's monthly adjusted income.
    (c) Exception for certain homeownership payments. Homeownership 
payments for families who are not low-income, as permitted under Sec. 
1006.301(b), are not subject to the requirement that homebuyer payments 
may not exceed 30 percent of the monthly adjusted income of that family.
    (d) Low-income families who receive homeownership assistance other 
than lease-purchase assistance are not subject to the limitations in 
paragraphs (a) and (b) of this section.



Sec. 1006.315  Lease requirements.

    Except to the extent otherwise provided by or inconsistent with the 
laws of the State of Hawaii, in renting dwelling units in affordable 
housing assisted with NHHBG funds, the DHHL, owner, or manager must use 
leases that:
    (a) Do not contain unreasonable terms and conditions;
    (b) Require the DHHL, owner, or manager to maintain the housing in 
compliance with applicable local housing codes and quality standards;
    (c) Require the DHHL, owner, or manager to give adequate written 
notice of termination of the lease, which shall be the period of time 
required under applicable State or local law;
    (d) Specify that, with respect to any notice of eviction or 
termination, notwithstanding any State or local law, a resident shall be 
informed of the opportunity, before any hearing or trial, to examine any 
relevant documents, record, or regulations directly related to the 
eviction or termination;
    (e) Require that the DHHL, owner, or manager may not terminate the 
tenancy, during the term of the lease, except for serious or repeated 
violation of the terms and conditions of the lease, violation of 
applicable Federal, State, or local law, or for other good cause; and
    (f) Provide that the DHHL, owner, or manager may terminate the 
tenancy of a resident for any activity, engaged in by the resident, any 
member of the household of the resident, or any guest or other person 
under the control of the resident, that:
    (1) Threatens the health or safety of, or right to peaceful 
enjoyment of the premises by, other residents or employees of the DHHL, 
owner, or manager;
    (2) Threatens the health or safety of, or right to peaceful 
enjoyment of their premises by, persons residing in the immediate 
vicinity of the premises; or
    (3) Involves criminal activity (including drug-related criminal 
activity) on or off the premises.



Sec. 1006.320  Tenant or homebuyer selection.

    As a condition to receiving grant amounts under the Act, the DHHL 
must adopt and use written tenant and homebuyer selection policies and 
criteria that:
    (a) Are consistent with the purpose of providing housing for low-
income families;
    (b) Are reasonably related to program eligibility and the ability of 
the tenant or homebuyer assistance applicant to perform the obligations 
of the lease; and
    (c) Provide for:
    (1) The selection of tenants and homebuyers from a written waiting 
list in accordance with the policies and goals set forth in the housing 
plan; and
    (2) The prompt notification in writing of any rejected applicant of 
the grounds for that rejection.



Sec. 1006.325  Maintenance, management and efficient operation.

    (a) Written policies. The DHHL must develop and enforce policies 
governing the management and maintenance of rental housing assisted with 
NHHBG funds.
    (b) Disposal of housing. This section may not be construed to 
prevent the DHHL, or any entity funded by the DHHL, from demolishing or 
disposing of housing, pursuant to regulations established by HUD.



Sec. 1006.330  Insurance coverage.

    (a) In general. As a condition to receiving NHHBG funds, the DHHL 
must require adequate insurance coverage for housing units that are 
owned or operated or assisted with more than $5,000 of NHHBG funds, 
including a loan of more than $5,000 that includes payback provisions.

[[Page 819]]

    (b) Adequate insurance. Insurance is adequate if it is a purchased 
insurance policy from an insurance provider or a plan of self-insurance 
in an amount to cover replacement cost.
    (c) Loss covered. The DHHL must provide for or require insurance in 
adequate amounts to indemnify against loss from fire, weather, and 
liability claims for all housing units owned, operated or assisted by 
the DHHL. NHHBG funds may only be used to purchase insurance for low-
income homeowners and only in amounts sufficient to protect against the 
loss of the NHHBG funds at risk in the property. The cost of such 
insurance may not include coverage for a resident's personal property.
    (d) Exception. The DHHL shall not require insurance if the 
assistance is in an amount less than $5000.
    (e) Contractor's coverage. The DHHL shall require contractors and 
subcontractors to either provide insurance covering their activities or 
negotiate adequate indemnification coverage to be provided by the DHHL 
in the contract.



Sec. 1006.335  Use of nonprofit organizations and public-private 
partnerships.

    (a) Nonprofit organizations. The DHHL must, to the extent 
practicable, provide for private nonprofit organizations experienced in 
the planning and development of affordable housing for Native Hawaiians 
to carry out affordable housing activities with NHHBG funds.
    (b) Public-private partnerships. The DHHL must make all reasonable 
efforts to maximize participation by the private sector, including 
nonprofit organizations and for-profit entities, in implementing its 
housing plan.



Sec. 1006.340  Treatment of program income.

    (a) Defined. Program income is income realized from the use of NHHBG 
funds. If gross income is used to pay costs incurred that are essential 
or incidental to generating the income, these costs may be deducted from 
gross income to determine program income. Program income includes income 
from fees for services performed; from the use or rental of real or 
personal property acquired or assisted with NHHBG funds; from the sale 
of property acquired or assisted with NHHBG funds; from payments of 
principal and interest on loans made with NHHBG funds; and from payments 
of interest earned on investment of NHHBG funds pursuant to Sec. 
1006.235.
    (b) Authority to retain. The DHHL may retain any program income that 
is realized from any NHHBG funds if:
    (1) That income was realized after the initial disbursement of the 
NHHBG funds received by the DHHL; and
    (2) The DHHL agrees to use the program income for affordable housing 
activities in accordance with the provisions of the Act and this part; 
and
    (3) The DHHL disburses program income before disbursing additional 
NHHBG funds in accordance with 24 CFR part 85.
    (c) Exclusion of amounts. If the amount of income received in a 
single fiscal year by the DHHL, which would otherwise be considered 
program income, does not exceed $25,000, such funds may be retained but 
will not be considered program income.



Sec. 1006.345  Labor standards.

    (a) Davis-Bacon wage rates. (1) As described in section 805(b) of 
the Act, contracts and agreements for assistance, sale or lease under 
this part must require prevailing wage rates determined by the Secretary 
of Labor under the Davis-Bacon Act (40 U.S.C. 276a-276a-5) to be paid to 
laborers and mechanics employed in the development of affordable 
housing.
    (2) When NHHBG assistance is only used to assist homebuyers to 
acquire single family housing, the Davis-Bacon wage rates apply to the 
construction of the housing if there is a written agreement with the 
owner or developer of the housing that NHHBG assistance will be used to 
assist homebuyers to buy the housing.
    (3) Prime contracts not in excess of $2000 are exempt from Davis-
Bacon wage rates.
    (b) HUD-determined wage rates. Section 805(b) of the Act also 
mandates that contracts and agreements for assistance, sale or lease 
under the Act require that prevailing wages determined

[[Page 820]]

or adopted (subsequent to a determination under applicable State or 
local law) by HUD shall be paid to maintenance laborers and mechanics 
employed in the operation, and to architects, technical engineers, 
draftsmen and technicians employed in the development, of affordable 
housing.
    (c) Contract Work Hours and Safety Standards Act. Contracts in 
excess of $100,000 to which Davis-Bacon or HUD-determined wage rates 
apply are subject by law to the overtime provisions of the Contract Work 
Hours and Safety Standards Act (40 U.S.C. 327).
    (d) Volunteers. The requirements in 24 CFR part 70 concerning 
exemptions for the use of volunteers on projects subject to Davis-Bacon 
and HUD-determined wage rates are applicable.
    (e) Other laws and issuances. The DHHL, contractors, subcontractors, 
and other participants must comply with regulations issued under the 
labor standards provisions cited in this section, and other applicable 
Federal laws and regulations pertaining to labor standards.



Sec. 1006.350  Environmental review.

    (a) In order to ensure that the policies of the National 
Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.) (NEPA) and 
other provisions of Federal law which further the purposes of that act 
(as specified in 24 CFR 58.5) are most effectively implemented in 
connection with the expenditure of NHHBG funds, HUD will provide for the 
release of funds for specific projects to the DHHL if the Director of 
the DHHL assumes all of the responsibilities for environmental review, 
decisionmaking, and action under NEPA and other provisions of Federal 
law which further the purposes of that act (as specified in 24 CFR 58.5) 
that would apply to HUD were HUD to undertake those projects as Federal 
projects.
    (b) An environmental review does not have to be completed before a 
HUD finding of compliance for the housing plan or amendments to the 
housing plan submitted by the DHHL.
    (c) No funds may be committed to a grant activity or project before 
the completion of the environmental review and approval of the request 
for release of funds and related certification required by sections 
806(b) and 806(c) of the Act, except as authorized by 24 CFR part 58.
    (d) As set forth in section 806(a)(2)(B) of the Act and 24 CFR 
58.77, HUD will:
    (1) Provide for the monitoring of environmental reviews performed by 
the DHHL under this section;
    (2) At its discretion, facilitate training for the performance of 
such reviews by the DHHL; and,
    (3) At its discretion, provide for the suspension or termination of 
the assumption of responsibilities under this section based upon a 
finding of substantial failure of the DHHL to execute responsibilities 
under this section.



Sec. 1006.355  Nondiscrimination requirements.

    Program eligibility under the Act and this part may be restricted to 
Native Hawaiians. Subject to the preceding sentence, no person may be 
discriminated against on the basis of race, color, national origin, 
religion, sex, familial status, or disability. The following 
nondiscrimination requirements are applicable to the use of NHHBG funds:
    (a) The requirements of the Age Discrimination Act of 1975 (42 
U.S.C. 6101-6107) and HUD's implementing regulations in 24 CFR part 146;
    (b) Section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 794) 
and HUD's regulations at 24 CFR part 8; and
    (c) Title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d et 
seq.) and the Fair Housing Act (42 U.S.C. 3601 et seq.), to the extent 
that nothing in their requirements concerning discrimination on the 
basis of race shall be construed to prevent the provision of NHHBG 
assistance:
    (1) To the DHHL on the basis that the DHHL served Native Hawaiians; 
or
    (2) To an eligible family on the basis that the family is a Native 
Hawaiian family.



Sec. 1006.360  Conflict of interest.

    In the procurement of property and services by the DHHL and 
contractors, the conflict of interest provisions in 24 CFR 85.36 or 24 
CFR 84.42 apply.

[[Page 821]]



Sec. 1006.365  Program administration responsibilities.

    (a) Responsibilities. The DHHL is responsible for managing the day-
to-day operations of the NHHBG Program, ensuring that NHHBG funds are 
used in accordance with all program requirements and written agreements, 
and taking appropriate action when performance problems arise. The use 
of contractors does not relieve the DHHL of this responsibility.
    (b) Agreements with contractors. The DHHL may enter into agreements 
with private contractors selected under the provisions of 24 CFR 85.36 
for purposes of administering all or part of the NHHBG program for the 
DHHL.



Sec. 1006.370  Federal administrative requirements.

    (a) Governmental entities. The DHHL and any governmental contractor 
receiving NHHBG funds shall comply with the requirements and standards 
of OMB Circular No. A-87, ``Cost Principles for State, Local and Indian 
Tribal Governments,'' and with 24 CFR part 85 ``Uniform Administrative 
Requirements for Grants and Cooperative Agreements to State, Local and 
Federally Recognized Indian Tribal Governments.''
    (b) Non-profit organizations. The requirements of OMB Circular No. 
A-122, ``Cost Principles for Non-profit Organizations,'' and the 
requirements of 24 CFR part 84, ``Uniform Administrative Requirements 
for Grants and Agreements with Institutions of Higher Education, 
Hospitals, and Other Non-profit Organizations,'' apply to contractors 
receiving NHHBG funds that are non-profit organizations that are not 
governmental contractors.
    (c)(1) With respect to the applicability of cost principles, all 
items of cost listed in Attachment B of OMB Circular A-87 which require 
prior Federal agency approval are allowable without the prior approval 
of HUD to the extent that they comply with the general policies and 
principles stated in Attachment A of this circular and are otherwise 
eligible under this part, except for the following:
    (i) Depreciation methods for fixed assets shall not be changed 
without specific approval of HUD or, if charged through a cost 
allocation plan, the Federal cognizant agency.
    (ii) Fines and penalties are unallowable costs to the NHHBG program.
    (2) In addition, no person providing consultant services in an 
employer-employee type of relationship shall receive more than a 
reasonable rate of compensation for personal services paid with NHHBG 
funds. In no event, however, shall such compensation exceed the 
equivalent of the daily rate paid for Level IV of the Executive 
Schedule.
    (d) OMB Circulars referenced in this part may be obtained from 
www.whitehouse.gov/omb/circulars/index.html; telephone; (202) 395-3080.



Sec. 1006.375  Other Federal requirements.

    (a) Lead-based paint. The following subparts of HUD's lead-based 
paint regulations at part 35, which implement the Lead-Based Paint 
Poisoning Prevention Act (42 U.S.C. 4822-4846) and the Residential Lead-
Based Paint Hazard Reduction Act of 1992 (42 U.S.C. 4851-4856), apply to 
the use of assistance under this part:
    (1) Subpart A, ``Disclosure of Known Lead-Based Paint Hazards Upon 
Sale or Lease of Residential Property'';
    (2) Subpart B, ``General Lead-Based Paint Requirements and 
Definitions for All Programs'';
    (3) Subpart H, ``Project-Based Rental Assistance'';
    (4) Subpart J, ``Rehabilitation'';
    (5) Subpart K, ``Acquisition, Leasing, Support Services, or 
Operation'';
    (6) Subpart M, ``Tenant-Based Rental Assistance''; and
    (7) Subpart R, ``Methods and Standards for Lead-Based Paint Hazard 
Evaluation and Hazard Reduction Activities''.
    (b) Drug-free workplace. The Drug-Free Workplace Act of 1988 (41 
U.S.C. 701 et seq.) and HUD's implementing regulations in 24 CFR part 24 
apply to the use of assistance under this part.
    (c) Displacement and relocation. The following relocation and real 
property acquisition policies are applicable to programs developed or 
operated under the Act and this part:
    (1) Real property acquisition requirements. The acquisition of real 
property

[[Page 822]]

for an assisted activity is subject to 49 CFR part 24, subpart B.
    (2) Minimize displacement. Consistent with the other goals and 
objectives of the Act and this part, the DHHL shall assure that it has 
taken all reasonable steps to minimize the displacement of persons 
(households, businesses, nonprofit organizations, and farms) as a result 
of a project assisted under the Act and this part.
    (3) Relocation assistance for displaced persons. A displaced person 
(defined in paragraph (d)(7) of this section) must be provided 
relocation assistance at the levels described in, and in accordance with 
the requirements of, the Uniform Relocation Assistance and Real Property 
Acquisition Policies Act of 1970, as amended (URA) (42 U.S.C. 4601-4655) 
and implementing regulations at 49 CFR part 24.
    (4) Appeals to the DHHL. A person who disagrees with the DHHL's 
determination concerning whether the person qualifies as a ``displaced 
person,'' or the amount of relocation assistance for which the person is 
eligible, may file a written appeal of that determination with the DHHL.
    (5) Responsibility of DHHL. (i) The DHHL shall certify that it will 
comply with the URA, the regulations at 49 CFR part 24, and the 
requirements of this section. The DHHL shall ensure such compliance 
notwithstanding any third party's contractual obligation to the DHHL to 
comply with the provisions in this section.
    (ii) The cost of required relocation assistance is an eligible 
project cost in the same manner and to the same extent as other project 
costs. However, such assistance may also be paid for with funds 
available to the DHHL from any other source.
    (iii) The DHHL shall maintain records in sufficient detail to 
demonstrate compliance with this section.
    (6) Definition of displaced person. (i) For purposes of this 
section, the term ``displaced person'' means any person (household, 
business, nonprofit organization, or farm) that moves from real 
property, or moves his or her personal property from real property, 
permanently, as a direct result of rehabilitation, demolition, or 
acquisition for a project assisted under the Act. The term ``displaced 
person'' includes, but is not limited to:
    (A) A tenant-occupant of a dwelling unit who moves from the 
building/complex permanently after the submission to HUD of a housing 
plan that is later approved;
    (B) Any person, including a person who moves before the date 
described in paragraph (d)(7)(i)(A) of this section, that the DHHL 
determines was displaced as a direct result of acquisition, 
rehabilitation, or demolition for the assisted project;
    (C) A tenant-occupant of a dwelling unit who moves from the 
building/complex permanently after execution of the agreement between 
the DHHL and HUD, if the move occurs before the tenant is provided 
written notice offering him or her the opportunity to lease and occupy a 
suitable, decent, safe and sanitary dwelling in the same building/
complex, under reasonable terms and conditions, upon completion of the 
project. Such reasonable terms and conditions include a monthly rent and 
estimated average monthly utility costs that do not exceed the greater 
of:
    (1) The tenant-occupant's monthly rent and estimated average monthly 
utility costs before the agreement; or
    (2) 30 percent of gross household income.
    (D) A tenant-occupant of a dwelling who is required to relocate 
temporarily, but does not return to the building/complex, if either:
    (1) The tenant-occupant is not offered payment for all reasonable 
out-of-pocket expenses incurred in connection with the temporary 
relocation, including the cost of moving to and from the temporarily 
occupied unit, any increased housing costs and incidental expenses; or
    (2) Other conditions of the temporary relocation are not reasonable.
    (E) A tenant-occupant of a dwelling who moves from the building/
complex after he or she has been required to move to another dwelling 
unit in the same building/complex in order to carry out the project, if 
either:
    (1) The tenant-occupant is not offered reimbursement for all 
reasonable out-of-pocket expenses incurred in connection with the move; 
or

[[Page 823]]

    (2) Other conditions of the move are not reasonable.
    (ii) Notwithstanding the provisions of paragraph (c)(6)(i) of this 
section, a person does not qualify as a ``displaced person'' (and is not 
eligible for relocation assistance under the URA or this section), if:
    (A) The person moved into the property after the submission of the 
housing plan to HUD, but before signing a lease or commencing occupancy, 
was provided written notice of the project, its possible impact on the 
person (e.g., the person may be displaced, temporarily relocated or 
suffer a rent increase) and the fact that the person would not qualify 
as a ``displaced person'' or for any assistance provided under this 
section as a result of the project;
    (B) The person is ineligible under 49 CFR 24.2(g)(2); or
    (C) The DHHL determines the person is not displaced as a direct 
result of acquisition, rehabilitation, or demolition for an assisted 
project. To exclude a person on this basis, HUD must concur in that 
determination.
    (iii) The DHHL may at any time ask HUD to determine whether a 
specific displacement is or would be covered under this section.
    (7) Definition of initiation of negotiations. For purposes of 
determining the formula for computing the replacement housing assistance 
to be provided to a person displaced as a direct result of 
rehabilitation or demolition of the real property, the term ``initiation 
of negotiations'' means the execution of the agreement covering the 
rehabilitation or demolition (See 49 CFR part 24).
    (d) Audits. The DHHL must comply with the requirements of the Single 
Audit Act and OMB Circular A-133, with the audit report providing a 
schedule of expenditures for each grant. A copy of each audit must be 
submitted to HUD concurrent with submittal to the Audit Clearinghouse.



                 Subpart E_Monitoring and Accountability



Sec. 1006.401  Monitoring of compliance.

    (a) Periodic reviews and monitoring. At least annually, the DHHL 
must review the activities conducted and housing assisted with NHHBG 
funds to assess compliance with the requirements of the Act and this 
part. This review must encompass and incorporate the results of the 
monitoring by the DHHL of all contractors involved in the administration 
of NHHBG activities.
    (b) Review. Each review under paragraph (a) of this section must 
include on-site inspection of housing to determine compliance with 
applicable requirements.
    (c) Results. The results of each review under paragraph (a) of this 
section must be:
    (1) Included in a performance report of the DHHL submitted to HUD 
under Sec. 1006.410; and
    (2) Made available to the public.



Sec. 1006.410  Performance reports.

    (a) Requirement. For each fiscal year, the DHHL must:
    (1) Review the progress the DHHL has made during that fiscal year in 
achieving goals stated in its housing plan; and
    (2) Submit a report in a form acceptable to HUD, within 60 days of 
the end of the DHHL's fiscal year, to HUD describing the conclusions of 
the review.
    (b) Content. Each report submitted under this section for a fiscal 
year shall:
    (1) Describe the use of grant amounts provided to the DHHL for that 
fiscal year;
    (2) Assess the relationship of the use referred to in paragraph 
(b)(1), of this section, to the goals identified in its housing plan;
    (3) Indicate the programmatic accomplishments of the DHHL; and
    (4) Describe the manner in which the DHHL would change its housing 
plan as a result of its experiences administering the grant under the 
Act.
    (c) Public availability. (1) Comments by Native Hawaiians. In 
preparing a report under this section, the DHHL shall make the report 
publicly available to Native Hawaiians who are eligible to reside on the 
Hawaiian Home Lands and give a sufficient amount of time to permit them 
to comment on that report, in such manner and at such time as the DHHL 
may determine, before it is submitted to HUD .

[[Page 824]]

    (2) Summary of comments. The report under this section must include 
a summary of any comments received by the DHHL from beneficiaries under 
paragraph (c)(1) of this section, regarding the program to carry out the 
housing plan.
    (d) HUD review. HUD will:
    (1) Review each report submitted under the Act and this part; and
    (2) With respect to each such report, make recommendations as HUD 
considers appropriate to carry out the purposes of the Act.



Sec. 1006.420  Review of DHHL's performance.

    (a) Objective. HUD will, at least annually, review DHHL's 
performance to determine whether the DHHL has:
    (1) Carried out eligible activities in a timely manner;
    (2) Carried out and made certifications in accordance with the 
requirements and the primary objectives of the Act and this part and 
with other applicable laws;
    (3) A continuing capacity to carry out the eligible activities in a 
timely manner;
    (4) Complied with its housing plan; and
    (5) Submitted accurate performance reports.
    (b) Basis for review. In reviewing DHHL's performance, HUD will 
consider all available evidence, which may include, but not be limited 
to, the following:
    (1) The DHHL's housing plan and any amendments thereto;
    (2) Reports prepared by the DHHL;
    (3) Records maintained by the DHHL;
    (4) Results of HUD's monitoring of the DHHL's performance, including 
field evaluation of the quality of the work performed;
    (5) Audit reports;
    (6) Records of drawdowns on the line of credit;
    (7) Records of comments and complaints by citizens and 
organizations; and
    (8) Litigation.
    (c) The DHHL's failure to maintain records may result in a finding 
that the DHHL failed to meet the applicable requirement to which the 
record pertains.



Sec. 1006.430  Corrective and remedial action.

    (a) General. One or more corrective or remedial actions will be 
taken by HUD when, on the basis of a performance review, HUD determines 
that the DHHL has not:
    (1) Complied with the requirements of the Act and this part and 
other applicable laws and regulations, including the environmental 
responsibilities assumed under Sec. 1006.350;
    (2) Carried out its activities substantially as described in its 
housing plan;
    (3) Made substantial progress in carrying out its program and 
achieving its quantifiable goals as described in its housing plan; or
    (4) Shown the continuing capacity to carry out its approved 
activities in a timely manner.
    (b) Action. The action taken by HUD will be designed, first, to 
prevent the continuance of the deficiency; second, to mitigate any 
adverse effects or consequences of the deficiency; and third, to prevent 
a recurrence of the same or similar deficiencies. The following actions 
may be taken singly or in combination, as appropriate for the 
circumstances:
    (1) Issue a letter of warning advising the DHHL of the performance 
problem(s), describing the corrective actions that HUD believes should 
be taken, establishing a completion date for corrective actions, and 
notifying the DHHL that more serious actions may be taken if the 
performance problem(s) is not corrected or is repeated;
    (2) Request the DHHL to submit progress schedules for completing 
activities or complying with the requirements of the Act and this part;
    (3) Recommend that the DHHL suspend, discontinue, or not incur costs 
for the affected activity;
    (4) Recommend that the DHHL redirect funds from affected activities 
to other eligible activities;
    (5) Recommend that the DHHL reimburse its program account or line of 
credit under the Act in the amount improperly expended and reprogram the 
use of the funds; and
    (6) Recommend that the DHHL obtain appropriate technical assistance 
using existing grant funds or other

[[Page 825]]

available resources to overcome the performance problem(s).



Sec. 1006.440  Remedies for noncompliance.

    (a) Remedies. If HUD finds that the DHHL has failed to comply 
substantially with any provision of the Act or this part, the following 
actions may be taken by HUD:
    (1) Terminate payments to the DHHL;
    (2) Reduce payments to the DHHL by an amount equal to the amount not 
expended in accordance with the Act or this part;
    (3) Limit the availability of payments to programs, projects, or 
activities not affected by such failure to comply; or
    (4) Adjust, reduce or withdraw grant amounts or take other action as 
appropriate in accordance with reviews and audits.
    (b) Exception. Grant amounts already expended on affordable housing 
activities may not be recaptured or deducted from future assistance 
provided to the DHHL.
    (c) HUD may, upon due notice, suspend payments at any time after the 
issuance of the opportunity for hearing pending such hearing and final 
decision, to the extent HUD determines such action necessary to preclude 
the further expenditure of funds for activities affected by such failure 
to comply.
    (d) Hearing requirement. Before imposing remedies under this 
section, HUD will:
    (1) Take at least one of the corrective or remedial actions 
specified under Sec. 1006.430 and permit the DHHL to make an 
appropriate and timely response;
    (2) Provide the DHHL with the opportunity for an informal 
consultation with HUD regarding the proposed action; and
    (3) Provide DHHL with reasonable notice and opportunity for a 
hearing.
    (e) Continuance of actions. If HUD takes an action under paragraph 
(a) of this section, the action will continue until HUD determines that 
the failure of the DHHL to comply with the provision has been remedied 
and the DHHL is in compliance with the provision.
    (f) Referral to the Attorney General. In lieu of, or in addition to, 
any action HUD may take under paragraph (a) of this section, if HUD has 
reason to believe that the DHHL has failed to comply substantially with 
any provision of the Act or this part, HUD may refer the matter to the 
Attorney General of the United States with a recommendation that an 
appropriate civil action be instituted. Upon receiving a referral, the 
Attorney General may bring a civil action in any United States district 
court of appropriate jurisdiction for such relief as may be appropriate, 
including an action to recover the amount of the assistance furnished 
under the Act that was not expended in accordance with the Act or this 
part or for mandatory or injunctive relief.



PART 1007_SECTION 184A LOAN GUARANTEES FOR NATIVE HAWAIIAN HOUSING--Table of Contents




Sec.
1007.1 Purpose.
1007.5 Definitions.
1007.10 Eligible Borrowers.
1007.15 Eligible uses.
1007.20 Eligible housing.
1007.25 Eligible lenders.
1007.30 Security for loan.
1007.35 Loan terms.
1007.40 Environmental requirements.
1007.45 Applicability of civil rights statutes.
1007.50 Certificate of guarantee.
1007.55 Guarantee fee.
1007.60 Liability under guarantee.
1007.65 Transfer and assumption.
1007.70 Disqualification of lenders and civil money penalties.
1007.75 Payment under guarantee.

    Authority: 12 U.S.C. 1715z-13b; 42 U.S.C. 3535(d).

    Source:  67 FR 40776, June 13, 2002, unless otherwise noted.



Sec. 1007.1  Purpose.

    This part provides the requirements and procedures that apply to 
loan guarantees for Native Hawaiian Housing under section 184A of the 
Housing and Community Development Act of 1992. Section 184A permits HUD 
to guarantee an amount not to exceed 100 percent of the unpaid principal 
and interest that is due on an eligible loan. The purpose of section 
184A and this part is to provide access to sources of private financing 
to Native Hawaiian families

[[Page 826]]

who otherwise could not acquire housing financing because of the unique 
legal status of the Hawaiian Home Lands or as a result of a lack of 
access to private financial markets.



Sec. 1007.5  Definitions.

    The following definitions apply in this part:
    Department of Hawaiian Home Lands (DHHL) means the agency or 
department of the government of the State of Hawaii that is responsible 
for the administration of the Hawaiian Homes Commission Act, 1920 (42 
Stat. 108 et seq.).
    Eligible entity means a Native Hawaiian family, the Department of 
Hawaiian Home Lands, the Office of Hawaiian Affairs, and private 
nonprofit or private for-profit organizations experienced in the 
planning and development of affordable housing for Native Hawaiians.
    Family means one or more persons maintaining a household, and 
includes, but is not limited to, a family with or without children, an 
elderly family, a near-elderly family, a disabled family, or a single 
person.
    Guarantee Fund means the Native Hawaiian Housing Loan Guarantee Fund 
under this part.
    Hawaiian Home Lands means lands that:
    (1) Have the status of Hawaiian Home Lands under section 204 of the 
Hawaiian Homes Commission Act (42 Stat. 110); or
    (2) Are acquired pursuant to that Act.
    HUD means the Department of Housing and Urban Development.
    Native Hawaiian means any individual who is:
    (1) A citizen of the United States; and
    (2) A descendant of the aboriginal people, who, prior to 1778, 
occupied and exercised sovereignty in the area that currently 
constitutes the State of Hawaii, as evidenced by:
    (i) Genealogical records;
    (ii) Verification by kupuna (elders) or kama'aina (long-term 
community residents); or
    (iii) Birth records of the State of Hawaii.
    Native Hawaiian family means a family with at least one member who 
is a Native Hawaiian.
    Office of Hawaiian Affairs means the entity of that name established 
under the constitution of the State of Hawaii.



Sec. 1007.10  Eligible borrowers.

    A loan guaranteed under this part may only be made to the following 
borrowers:
    (a) A Native Hawaiian family;
    (b) The Department of Hawaiian Home Lands;
    (c) The Office of Hawaiian Affairs; or
    (d) A private, nonprofit organization experienced in the planning 
and development of affordable housing for Native Hawaiians.



Sec. 1007.15  Eligible uses.

    (a) In general. A loan guaranteed under this part may only be used 
to construct, acquire, or rehabilitate eligible housing.
    (b) Construction advances. Advances made by the lender during 
construction are eligible if:
    (1) The mortgagor and the mortgagee execute a building loan 
agreement, approved by HUD, setting forth the terms and conditions under 
which advances will be made;
    (2) The advances are made only as provided in the building loan 
agreement;
    (3) The principal amount of the mortgage is held by the mortgagee in 
an interest bearing account, trust, or escrow for the benefit of the 
mortgagor, pending advancement to the mortgagor or to his or her 
creditors as provided in the loan agreement; and
    (4) The mortgage bears interest on the amount advanced to the 
mortgagor or to his or her creditors and on the amount held in an 
account or trust for the benefit of the mortgagor.



Sec. 1007.20  Eligible housing.

    (a) A loan guaranteed under this part may only be made for one to 
four-family dwellings that are standard housing, in accordance with 
paragraph (b), of this section. The housing must be located on Hawaiian 
Home Lands for which a housing plan that provides for the use of loan 
guarantees under this

[[Page 827]]

part has been submitted and approved under part 1006 of this chapter.
    (b) Standard housing must meet housing safety and quality standards 
that:
    (1) Provide sufficient flexibility to permit the use of various 
designs and materials; and
    (2) Require each dwelling unit to:
    (i) Be decent, safe, sanitary, and modest in size and design;
    (ii) Conform with applicable general construction standards for the 
region in which the housing is located;
    (iii) Contain a plumbing system that:
    (A) Uses a properly installed system of piping;
    (B) Includes a kitchen sink and a partitional bathroom with 
lavatory, toilet, and bath or shower; and
    (C) Uses water supply, plumbing, and sewage disposal systems that 
conform to any minimum standards established by the applicable county or 
State;
    (iv) Contain an electrical system using wiring and equipment 
properly installed to safely supply electrical energy for adequate 
lighting and for operation of appliances that conforms to any 
appropriate county, State, or national code;
    (v) Be not less than the size provided under the applicable locally 
adopted standards for size of dwelling units, except that HUD, upon 
request of the DHHL may waive the size requirements under this 
paragraph; and
    (vi) Conform with the energy performance requirements for new 
construction established by HUD under section 526(a) of the National 
Housing Act (12 U.S.C.A. 1735f-4), unless HUD determines that the 
requirements are not applicable.
    (c) The relevant requirements of the Lead-Based Paint Poisoning 
Prevention Act (42 U.S.C. 4821-4846), the Residential Lead-Based Paint 
Hazard Reduction Act of 1992 (42 U.S.C. 4851-4856), and implementing 
regulations at part 35, subparts A, B, and R of this title and 
Sec. Sec. 200.805 and 200.810 of this title apply to housing eligible 
for a loan guaranteed under this part.
    (d) Housing that meets the minimum property standards for Section 
247 mortgage insurance (12 U.S.C. 1715z-12) is deemed to meet the 
required housing safety and quality standards.

[67 FR 40776, June 13, 2002, as amended at 68 FR 66985, Nov. 28, 2003]



Sec. 1007.25  Eligible lenders.

    (a) In general. To qualify for a guarantee under this part, a loan 
shall be made only by a lender meeting qualifications established in 
this part and approved by HUD, including any lender described in 
paragraph (b), of this section, except that a loan otherwise insured or 
guaranteed by an agency of the Federal Government or made by the DHHL 
from amounts borrowed from the United States shall not be eligible for a 
guarantee under this part.
    (b) Approval. The following lenders shall be considered to be 
lenders that have been approved by HUD:
    (1) Any mortgagee approved by HUD for participation in the single 
family mortgage insurance program under title II of the National Housing 
Act (12 U.S.C.A. 1707 et seq.);
    (2) Any lender that makes housing loans under chapter 37 of title 
38, United States Code, that are automatically guaranteed under section 
3702(d) of title 38, United States Code;
    (3) Any lender approved by the Secretary of Agriculture to make 
guaranteed loans for single family housing under the Housing Act of 1949 
(42 U.S.C.A. 1441 et seq.);
    (4) Any other lender that is supervised, approved, regulated, or 
insured by any agency of the Federal Government; and
    (5) Any other lender approved by HUD under this part.



Sec. 1007.30  Security for loan.

    (a) In general. A loan guaranteed under section 184A of the Housing 
and Community Development Act of 1992 and this part may be secured by 
any collateral authorized under and not prohibited by Federal or State 
law and determined by the lender and approved by HUD to be sufficient to 
cover the amount of the loan. Eligible collateral may include, but is 
not limited to, the following:
    (1) The property and/or improvements to be acquired, constructed, or 
rehabilitated, to the extent that an interest in such property is not 
subject

[[Page 828]]

to any restrictions against alienation applicable to Hawaiian Home 
Lands;
    (2) A security interest in non-Hawaiian Home Lands property;
    (3) Personal property; or
    (4) Cash, notes, an interest in securities, royalties, annuities, or 
any other property that is transferable and whose present value may be 
determined.
    (b) Hawaiian Home Lands property interest as collateral. If a 
property interest in Hawaiian Home Lands is used as collateral or 
security for the loan, the following additional provisions apply:
    (1) Approved Lease. Any land lease for a unit financed under section 
184A of the Housing and Community Development Act of 1992 must be on a 
form approved by both the DHHL and HUD.
    (2) Assumption or sale of leasehold. The lease form must contain a 
provision requiring the DHHL's consent before any assumption of an 
existing lease, except where title to the leasehold interest is obtained 
by HUD through foreclosure of the guaranteed mortgage or a deed in lieu 
of foreclosure. A mortgagee other than HUD must obtain the DHHL's 
consent before obtaining title through a foreclosure sale. The DHHL's 
consent must be obtained on any subsequent transfer from the purchaser, 
including HUD, at foreclosure sale. The lease may not be terminated by 
the lessor without HUD's approval while the mortgage is guaranteed or 
held by HUD.
    (3) Liquidation. The lender or HUD shall only pursue liquidation 
after offering to transfer the account to another eligible Native 
Hawaiian family or the DHHL. The lender or HUD shall not sell, transfer, 
or otherwise dispose of or alienate the property except to another 
eligible Native Hawaiian family or the DHHL.
    (4) Eviction procedures. Before HUD will guarantee a loan secured by 
a Hawaiian Home Lands property, the DHHL must notify HUD that it has 
adopted and will enforce procedures for eviction of defaulted mortgagors 
where the guaranteed loan has been foreclosed.
    (i) Enforcement. If HUD determines that the DHHL has failed to 
enforce adequately its eviction procedures, HUD will cease issuing 
guarantees for loans under this part except pursuant to existing 
commitments.
    (ii) Review. If HUD ceases issuing guarantees for the DHHL's failure 
to enforce its eviction procedures, HUD shall notify the DHHL of such 
action and that the DHHL may, within 30 days after notification of HUD's 
action, file a written appeal with the Deputy Assistant Secretary, 
Office of Native American Programs (ONAP). Upon notification of an 
adverse decision by the Deputy Assistant Secretary, the DHHL has 30 
additional days to file an appeal with the Assistant Secretary for 
Public and Indian Housing. The determination of the Assistant Secretary 
shall be final, but the DHHL may resubmit the issue to the Assistant 
Secretary for review at any subsequent time if new evidence or changed 
circumstances warrant reconsideration.

[67 FR 40776, June 13, 2002, as amended at 68 FR 66985, Nov. 28, 2003]



Sec. 1007.35  Loan terms.

    To be eligible for guarantee under this part, the loan shall:
    (a) Be made for a term not exceeding 30 years;
    (b) Bear interest (exclusive of the guarantee fee under Sec. 
1007.55 and service charges, if any) at a rate agreed upon by the 
borrower and the lender and determined by HUD to be reasonable, but not 
to exceed the rate generally charged in the area (as determined by HUD) 
for home mortgage loans not guaranteed or insured by any agency or 
instrumentality of the Federal Government;
    (c) Involve a principal obligation not exceeding:
    (1) 97.75 percent of the appraised value of the property as of the 
date the loan is accepted for guarantee (or 98.75 percent if the value 
of the property is $50,000 or less); or
    (2) The amount approved by HUD under this section; and
    (d) Involve a payment on account of the property:
    (1) In cash or its equivalent; or
    (2) Through the value of any improvements, appraised in accordance 
with generally accepted practices and procedures.

[[Page 829]]



Sec. 1007.40  Environmental requirements.

    Before HUD issues a commitment to guarantee any loan or (if no 
commitment is issued) before guarantee of any loan, there must be 
compliance with environmental review procedures to the extent applicable 
under part 50 of this title. If the loan involves proposed or new 
construction, HUD will require compliance with procedures similar to 
those required by Sec. 203.12(b)(2) of this title for FHA mortgage 
insurance.



Sec. 1007.45  Applicability of civil rights statutes.

    To the extent that the requirements of title VI of the Civil Rights 
Act of 1964 (42 U.S.C. 2000d et seq.) or of the Fair Housing Act (42 
U.S.C.A. 3601 et seq.) apply to a guarantee provided under this part, 
nothing in the requirements concerning discrimination on the basis of 
race shall be construed to prevent the provision of the guarantee to an 
eligible entity on the basis that the entity serves Native Hawaiian 
families or is a Native Hawaiian family.



Sec. 1007.50  Certificate of guarantee.

    (a) Approval process. (1) In general. Before HUD approves any loan 
for guarantee under this section, the lender shall submit the 
application for the loan to HUD for examination.
    (2) Approval. If HUD approves the application submitted under 
paragraph (a)(1) of this section, HUD will issue a certificate as 
evidence of the loan guarantee approved.
    (b) Standard for approval. HUD may approve a loan for guarantee 
under this part and issue a certificate under this section only if HUD 
determines that there is a reasonable prospect of repayment of the loan.
    (c) Effect. (1) As evidence. A certificate of guarantee issued under 
this part by HUD shall be conclusive and incontestable evidence in the 
hands of the bearer of the eligibility of the loan for guarantee under 
this part and the amount of that guarantee.
    (2) Full faith and credit. The full faith and credit of the United 
States is pledged to the payment of all amounts agreed to be paid by HUD 
as security for the obligations made by HUD under this section.
    (d) Fraud and misrepresentation. This section may not be construed:
    (1) To preclude HUD from establishing defenses against the original 
lender based on fraud or material misrepresentation; or
    (2) To bar HUD from establishing regulations that are (on the date 
of issuance or disbursement, whichever is earlier) partial defenses to 
the amount payable on the guarantee.



Sec. 1007.55  Guarantee fee.

    The lender shall pay to HUD, at the time of issuance of the 
guarantee, a fee for the guarantee of loans under this part, in an 
amount equal to 1 percent of the principal obligation of the loan. This 
amount is payable by the borrower at closing.



Sec. 1007.60  Liability under guarantee.

    The liability under a guarantee provided under this section shall 
decrease or increase on a pro rata basis according to any decrease or 
increase in the amount of the unpaid obligation under the provisions of 
the loan agreement involved.



Sec. 1007.65  Transfer and assumption.

    Notwithstanding any other provision of law, any loan guaranteed 
under this section, including the security given for the loan, may be 
sold or assigned by the lender to any financial institution subject to 
examination and supervision by an agency of the Federal Government or of 
any State or the District of Columbia.



Sec. 1007.70  Disqualification of lenders and civil money penalties.

    (a) In general. (1) Grounds for action. HUD may take action under 
paragraph (a)(2) of this section if HUD determines that any lender or 
holder of a guarantee certificate:
    (i) Has failed:
    (A) To maintain adequate accounting records;
    (B) To service adequately loans guaranteed under this section; or
    (C) To exercise proper credit or underwriting judgment; or
    (ii) Has engaged in practices otherwise detrimental to the interest 
of a borrower or the United States.

[[Page 830]]

    (2) Actions. Upon a determination by HUD that any of the grounds for 
action in paragraph (a)(1)(i), of this section apply to the holder of a 
guarantee certificate, HUD may:
    (i) Refuse, either temporarily or permanently, to guarantee any 
further loans made by such lender or holder;
    (ii) Bar such lender or holder from acquiring additional loans 
guaranteed under this part; and
    (iii) Require that such lender or holder assume not less than 10 
percent of any loss on further loans made or held by the lender or 
holder that are guaranteed under this part.
    (b) Civil money penalties for intentional violations. (1) In 
general. HUD may impose a civil monetary penalty on a lender or holder 
of a guarantee certificate if HUD determines that the holder or lender 
has intentionally failed:
    (i) To maintain adequate accounting records;
    (ii) To adequately service loans guaranteed under this section; or
    (iii) To exercise proper credit or underwriting judgment.
    (2) Penalties. A civil monetary penalty imposed under this section 
shall be imposed in the manner and be in an amount provided under 
section 536 of the National Housing Act (12 U.S.C.A. 1735f-1) with 
respect to mortgagees and lenders under that Act.
    (c) Payment on loans made in good faith. Notwithstanding paragraphs 
(a) and (b) of this section, if a loan was made in good faith, HUD may 
not refuse to pay a lender or holder of a valid guarantee on that loan, 
without regard to whether the lender or holder is barred under this 
section.



Sec. 1007.75  Payment under guarantee.

    (a) Lender options. (1) Notification. If a borrower on a loan 
guaranteed under this part defaults on the loan, the holder of the 
guarantee certificate shall provide written notice of the default to 
HUD.
    (2) Payment. Upon providing the notice required under paragraph 
(a)(1), of this section, the holder of the guarantee certificate shall 
be entitled to payment under the guarantee (subject to the provisions of 
this section) and may proceed to obtain payment in one of the following 
manners:
    (i) Foreclosure. The holder of the certificate may initiate 
foreclosure proceedings (after providing written notice of that action 
to HUD). Upon a final order by the court authorizing foreclosure and 
submission to HUD of a claim for payment under the guarantee, HUD will 
pay to the holder of the certificate the pro rata portion of the amount 
guaranteed (as determined under Sec. 1007.60) plus reasonable fees and 
expenses as approved by HUD. HUD's rights will be subrogated to the 
rights of the holder of the guarantee, who shall assign the obligation 
and security to HUD.
    (ii) No foreclosure. Without seeking foreclosure (or in any case in 
which a foreclosure proceeding initiated under paragraph (a)(2)(i) of 
this section continues for a period in excess of 1 year), the holder of 
the guarantee may submit to HUD a request to assign the obligation and 
security interest to HUD in return for payment of the claim under the 
guarantee. HUD may accept assignment of the loan if HUD determines that 
the assignment is in the best interest of the United States. Upon 
assignment, HUD will pay to the holder of the guarantee the pro rata 
portion of the amount guaranteed (as determined under Sec. 1007.60). 
HUD's rights will be subrogated to the rights of the holder of the 
guarantee, who shall assign the obligation and security to HUD.
    (b) Requirements. Before any payment under a guarantee is made under 
paragraph (a) of this section, the holder of the guarantee shall exhaust 
all reasonable possibilities of collection. Upon payment, in whole or in 
part, to the holder, the note or judgment evidencing the debt shall be 
assigned to the United States and the holder shall have no further claim 
against the borrower or the United States. HUD will then take such 
action to collect as HUD determines to be appropriate.

                       PARTS 1008	1699 [RESERVED]

[[Page 831]]



                              FINDING AIDS




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

  A list of CFR titles, subtitles, chapters, subchapters and parts and 
an alphabetical list of agencies publishing in the CFR are included in 
the CFR Index and Finding Aids volume to the Code of Federal Regulations 
which is published separately and revised annually.

  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  List of CFR Sections Affected

[[Page 833]]



                    Table of CFR Titles and Chapters




                      (Revised as of April 1, 2004)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
        IV  Miscellaneous Agencies (Parts 400--500)

                          Title 2 [Reserved]

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  General Accounting Office (Parts 1--99)

                   Title 5--Administrative Personnel

         I  Office of Personnel Management (Parts 1--1199)
        II  Merit Systems Protection Board (Parts 1200--1299)
       III  Office of Management and Budget (Parts 1300--1399)
         V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
        VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
      VIII  Office of Special Counsel (Parts 1800--1899)
        IX  Appalachian Regional Commission (Parts 1900--1999)
        XI  Armed Forces Retirement Home (Part 2100)
       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)
        XV  Office of Administration, Executive Office of the 
                President (Parts 2500--2599)
       XVI  Office of Government Ethics (Parts 2600--2699)
       XXI  Department of the Treasury (Parts 3100--3199)
      XXII  Federal Deposit Insurance Corporation (Part 3201)
     XXIII  Department of Energy (Part 3301)
      XXIV  Federal Energy Regulatory Commission (Part 3401)
       XXV  Department of the Interior (Part 3501)
      XXVI  Department of Defense (Part 3601)

[[Page 834]]

    XXVIII  Department of Justice (Part 3801)
      XXIX  Federal Communications Commission (Parts 3900--3999)
       XXX  Farm Credit System Insurance Corporation (Parts 4000--
                4099)
      XXXI  Farm Credit Administration (Parts 4100--4199)
    XXXIII  Overseas Private Investment Corporation (Part 4301)
      XXXV  Office of Personnel Management (Part 4501)
        XL  Interstate Commerce Commission (Part 5001)
       XLI  Commodity Futures Trading Commission (Part 5101)
      XLII  Department of Labor (Part 5201)
     XLIII  National Science Foundation (Part 5301)
       XLV  Department of Health and Human Services (Part 5501)
      XLVI  Postal Rate Commission (Part 5601)
     XLVII  Federal Trade Commission (Part 5701)
    XLVIII  Nuclear Regulatory Commission (Part 5801)
         L  Department of Transportation (Part 6001)
       LII  Export-Import Bank of the United States (Part 6201)
      LIII  Department of Education (Parts 6300--6399)
       LIV  Environmental Protection Agency (Part 6401)
        LV  National Endowment for the Arts (Part 6501)
       LVI  National Endowment for the Humanities (Part 6601)
      LVII  General Services Administration (Part 6701)
     LVIII  Board of Governors of the Federal Reserve System (Part 
                6801)
       LIX  National Aeronautics and Space Administration (Part 
                6901)
        LX  United States Postal Service (Part 7001)
       LXI  National Labor Relations Board (Part 7101)
      LXII  Equal Employment Opportunity Commission (Part 7201)
     LXIII  Inter-American Foundation (Part 7301)
       LXV  Department of Housing and Urban Development (Part 
                7501)
      LXVI  National Archives and Records Administration (Part 
                7601)
     LXVII  Institute of Museum and Library Services (Part 7701)
      LXIX  Tennessee Valley Authority (Part 7901)
      LXXI  Consumer Product Safety Commission (Part 8101)
    LXXIII  Department of Agriculture (Part 8301)
     LXXIV  Federal Mine Safety and Health Review Commission (Part 
                8401)
     LXXVI  Federal Retirement Thrift Investment Board (Part 8601)
    LXXVII  Office of Management and Budget (Part 8701)

                      Title 6--Homeland Security

         I  Department of Homeland Security, Office of the 
                Secretary (Parts 0--99)

[[Page 835]]

                         Title 7--Agriculture

            Subtitle A--Office of the Secretary of Agriculture 
                (Parts 0--26)
            Subtitle B--Regulations of the Department of 
                Agriculture
         I  Agricultural Marketing Service (Standards, 
                Inspections, Marketing Practices), Department of 
                Agriculture (Parts 27--209)
        II  Food and Nutrition Service, Department of Agriculture 
                (Parts 210--299)
       III  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 300--399)
        IV  Federal Crop Insurance Corporation, Department of 
                Agriculture (Parts 400--499)
         V  Agricultural Research Service, Department of 
                Agriculture (Parts 500--599)
        VI  Natural Resources Conservation Service, Department of 
                Agriculture (Parts 600--699)
       VII  Farm Service Agency, Department of Agriculture (Parts 
                700--799)
      VIII  Grain Inspection, Packers and Stockyards 
                Administration (Federal Grain Inspection Service), 
                Department of Agriculture (Parts 800--899)
        IX  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Fruits, Vegetables, Nuts), Department 
                of Agriculture (Parts 900--999)
         X  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Milk), Department of Agriculture 
                (Parts 1000--1199)
        XI  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Miscellaneous Commodities), Department 
                of Agriculture (Parts 1200--1299)
       XIV  Commodity Credit Corporation, Department of 
                Agriculture (Parts 1400--1499)
        XV  Foreign Agricultural Service, Department of 
                Agriculture (Parts 1500--1599)
       XVI  Rural Telephone Bank, Department of Agriculture (Parts 
                1600--1699)
      XVII  Rural Utilities Service, Department of Agriculture 
                (Parts 1700--1799)
     XVIII  Rural Housing Service, Rural Business-Cooperative 
                Service, Rural Utilities Service, and Farm Service 
                Agency, Department of Agriculture (Parts 1800--
                2099)
        XX  Local Television Loan Guarantee Board (Parts 2200--
                2299)
      XXVI  Office of Inspector General, Department of Agriculture 
                (Parts 2600--2699)
     XXVII  Office of Information Resources Management, Department 
                of Agriculture (Parts 2700--2799)
    XXVIII  Office of Operations, Department of Agriculture (Parts 
                2800--2899)
      XXIX  Office of Energy, Department of Agriculture (Parts 
                2900--2999)
       XXX  Office of the Chief Financial Officer, Department of 
                Agriculture (Parts 3000--3099)

[[Page 836]]

      XXXI  Office of Environmental Quality, Department of 
                Agriculture (Parts 3100--3199)
     XXXII  Office of Procurement and Property Management, 
                Department of Agriculture (Parts 3200--3299)
    XXXIII  Office of Transportation, Department of Agriculture 
                (Parts 3300--3399)
     XXXIV  Cooperative State Research, Education, and Extension 
                Service, Department of Agriculture (Parts 3400--
                3499)
      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)
     XXXVI  National Agricultural Statistics Service, Department 
                of Agriculture (Parts 3600--3699)
    XXXVII  Economic Research Service, Department of Agriculture 
                (Parts 3700--3799)
   XXXVIII  World Agricultural Outlook Board, Department of 
                Agriculture (Parts 3800--3899)
       XLI  [Reserved]
      XLII  Rural Business-Cooperative Service and Rural Utilities 
                Service, Department of Agriculture (Parts 4200--
                4299)

                    Title 8--Aliens and Nationality

         I  Department of Homeland Security (Immigration and 
                Naturalization) (Parts 1--499)
         V  Executive Office for Immigration Review, Department of 
                Justice (Parts 1000--1399)

                 Title 9--Animals and Animal Products

         I  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 1--199)
        II  Grain Inspection, Packers and Stockyards 
                Administration (Packers and Stockyards Programs), 
                Department of Agriculture (Parts 200--299)
       III  Food Safety and Inspection Service, Department of 
                Agriculture (Parts 300--599)

                           Title 10--Energy

         I  Nuclear Regulatory Commission (Parts 0--199)
        II  Department of Energy (Parts 200--699)
       III  Department of Energy (Parts 700--999)
         X  Department of Energy (General Provisions) (Parts 
                1000--1099)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)
     XVIII  Northeast Interstate Low-Level Radioactive Waste 
                Commission (Part 1800)

[[Page 837]]

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)

                      Title 12--Banks and Banking

         I  Comptroller of the Currency, Department of the 
                Treasury (Parts 1--199)
        II  Federal Reserve System (Parts 200--299)
       III  Federal Deposit Insurance Corporation (Parts 300--399)
        IV  Export-Import Bank of the United States (Parts 400--
                499)
         V  Office of Thrift Supervision, Department of the 
                Treasury (Parts 500--599)
        VI  Farm Credit Administration (Parts 600--699)
       VII  National Credit Union Administration (Parts 700--799)
      VIII  Federal Financing Bank (Parts 800--899)
        IX  Federal Housing Finance Board (Parts 900--999)
        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
        XV  Department of the Treasury (Parts 1500--1599)
      XVII  Office of Federal Housing Enterprise Oversight, 
                Department of Housing and Urban Development (Parts 
                1700--1799)
     XVIII  Community Development Financial Institutions Fund, 
                Department of the Treasury (Parts 1800--1899)

               Title 13--Business Credit and Assistance

         I  Small Business Administration (Parts 1--199)
       III  Economic Development Administration, Department of 
                Commerce (Parts 300--399)
        IV  Emergency Steel Guarantee Loan Board, Department of 
                Commerce (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board, 
                Department of Commerce (Parts 500--599)

                    Title 14--Aeronautics and Space

         I  Federal Aviation Administration, Department of 
                Transportation (Parts 1--199)
        II  Office of the Secretary, Department of Transportation 
                (Aviation Proceedings) (Parts 200--399)
       III  Commercial Space Transportation, Federal Aviation 
                Administration, Department of Transportation 
                (Parts 400--499)
         V  National Aeronautics and Space Administration (Parts 
                1200--1299)
        VI  Air Transportation System Stabilization (Parts 1300--
                1399)

[[Page 838]]

                 Title 15--Commerce and Foreign Trade

            Subtitle A--Office of the Secretary of Commerce (Parts 
                0--29)
            Subtitle B--Regulations Relating to Commerce and 
                Foreign Trade
         I  Bureau of the Census, Department of Commerce (Parts 
                30--199)
        II  National Institute of Standards and Technology, 
                Department of Commerce (Parts 200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Foreign-Trade Zones Board, Department of Commerce 
                (Parts 400--499)
       VII  Bureau of Industry and Security, Department of 
                Commerce (Parts 700--799)
      VIII  Bureau of Economic Analysis, Department of Commerce 
                (Parts 800--899)
        IX  National Oceanic and Atmospheric Administration, 
                Department of Commerce (Parts 900--999)
        XI  Technology Administration, Department of Commerce 
                (Parts 1100--1199)
      XIII  East-West Foreign Trade Board (Parts 1300--1399)
       XIV  Minority Business Development Agency (Parts 1400--
                1499)
            Subtitle C--Regulations Relating to Foreign Trade 
                Agreements
        XX  Office of the United States Trade Representative 
                (Parts 2000--2099)
            Subtitle D--Regulations Relating to Telecommunications 
                and Information
     XXIII  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                2300--2399)

                    Title 16--Commercial Practices

         I  Federal Trade Commission (Parts 0--999)
        II  Consumer Product Safety Commission (Parts 1000--1799)

             Title 17--Commodity and Securities Exchanges

         I  Commodity Futures Trading Commission (Parts 1--199)
        II  Securities and Exchange Commission (Parts 200--399)
        IV  Department of the Treasury (Parts 400--499)

          Title 18--Conservation of Power and Water Resources

         I  Federal Energy Regulatory Commission, Department of 
                Energy (Parts 1--399)
       III  Delaware River Basin Commission (Parts 400--499)
        VI  Water Resources Council (Parts 700--799)

[[Page 839]]

      VIII  Susquehanna River Basin Commission (Parts 800--899)
      XIII  Tennessee Valley Authority (Parts 1300--1399)

                       Title 19--Customs Duties

         I  Bureau of Customs and Border Protection, Department of 
                Homeland Security; Department of the Treasury 
                (Parts 0--199)
        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Bureau of Immigration and Customs Enforcement, 
                Department of Homeland Security (Parts 400--599)

                     Title 20--Employees' Benefits

         I  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 1--199)
        II  Railroad Retirement Board (Parts 200--399)
       III  Social Security Administration (Parts 400--499)
        IV  Employees Compensation Appeals Board, Department of 
                Labor (Parts 500--599)
         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Employment Standards Administration, Department of 
                Labor (Parts 700--799)
       VII  Benefits Review Board, Department of Labor (Parts 
                800--899)
      VIII  Joint Board for the Enrollment of Actuaries (Parts 
                900--999)
        IX  Office of the Assistant Secretary for Veterans' 
                Employment and Training, Department of Labor 
                (Parts 1000--1099)

                       Title 21--Food and Drugs

         I  Food and Drug Administration, Department of Health and 
                Human Services (Parts 1--1299)
        II  Drug Enforcement Administration, Department of Justice 
                (Parts 1300--1399)
       III  Office of National Drug Control Policy (Parts 1400--
                1499)

                      Title 22--Foreign Relations

         I  Department of State (Parts 1--199)
        II  Agency for International Development (Parts 200--299)
       III  Peace Corps (Parts 300--399)
        IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
         V  Broadcasting Board of Governors (Parts 500--599)
       VII  Overseas Private Investment Corporation (Parts 700--
                799)
        IX  Foreign Service Grievance Board Regulations (Parts 
                900--999)

[[Page 840]]

         X  Inter-American Foundation (Parts 1000--1099)
        XI  International Boundary and Water Commission, United 
                States and Mexico, United States Section (Parts 
                1100--1199)
       XII  United States International Development Cooperation 
                Agency (Parts 1200--1299)
       XIV  Foreign Service Labor Relations Board; Federal Labor 
                Relations Authority; General Counsel of the 
                Federal Labor Relations Authority; and the Foreign 
                Service Impasse Disputes Panel (Parts 1400--1499)
        XV  African Development Foundation (Parts 1500--1599)
       XVI  Japan-United States Friendship Commission (Parts 
                1600--1699)
      XVII  United States Institute of Peace (Parts 1700--1799)

                          Title 23--Highways

         I  Federal Highway Administration, Department of 
                Transportation (Parts 1--999)
        II  National Highway Traffic Safety Administration and 
                Federal Highway Administration, Department of 
                Transportation (Parts 1200--1299)
       III  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 1300--1399)

                Title 24--Housing and Urban Development

            Subtitle A--Office of the Secretary, Department of 
                Housing and Urban Development (Parts 0--99)
            Subtitle B--Regulations Relating to Housing and Urban 
                Development
         I  Office of Assistant Secretary for Equal Opportunity, 
                Department of Housing and Urban Development (Parts 
                100--199)
        II  Office of Assistant Secretary for Housing-Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 200--299)
       III  Government National Mortgage Association, Department 
                of Housing and Urban Development (Parts 300--399)
        IV  Office of Housing and Office of Multifamily Housing 
                Assistance Restructuring, Department of Housing 
                and Urban Development (Parts 400--499)
         V  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 500--599)
        VI  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 600--699) [Reserved]
       VII  Office of the Secretary, Department of Housing and 
                Urban Development (Housing Assistance Programs and 
                Public and Indian Housing Programs) (Parts 700--
                799)

[[Page 841]]

      VIII  Office of the Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Section 8 Housing Assistance 
                Programs, Section 202 Direct Loan Program, Section 
                202 Supportive Housing for the Elderly Program and 
                Section 811 Supportive Housing for Persons With 
                Disabilities Program) (Parts 800--899)
        IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--1699)
         X  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Interstate Land Sales 
                Registration Program) (Parts 1700--1799)
       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

                           Title 25--Indians

         I  Bureau of Indian Affairs, Department of the Interior 
                (Parts 1--299)
        II  Indian Arts and Crafts Board, Department of the 
                Interior (Parts 300--399)
       III  National Indian Gaming Commission, Department of the 
                Interior (Parts 500--599)
        IV  Office of Navajo and Hopi Indian Relocation (Parts 
                700--799)
         V  Bureau of Indian Affairs, Department of the Interior, 
                and Indian Health Service, Department of Health 
                and Human Services (Part 900)
        VI  Office of the Assistant Secretary-Indian Affairs, 
                Department of the Interior (Parts 1000--1199)
       VII  Office of the Special Trustee for American Indians, 
                Department of the Interior (Part 1200)

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--899)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Alcohol and Tobacco Tax and Trade Bureau, Department 
                of the Treasury (Parts 1--399)
        II  Bureau of Alcohol, Tobacco, Firearms, and Explosives, 
                Department of Justice (Parts 400--699)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--299)

[[Page 842]]

       III  Federal Prison Industries, Inc., Department of Justice 
                (Parts 300--399)
         V  Bureau of Prisons, Department of Justice (Parts 500--
                599)
        VI  Offices of Independent Counsel, Department of Justice 
                (Parts 600--699)
       VII  Office of Independent Counsel (Parts 700--799)
      VIII  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 800--899)
        IX  National Crime Prevention and Privacy Compact Council 
                (Parts 900--999)
        XI  Department of Justice and Department of State (Parts 
                1100--1199)

                            Title 29--Labor

            Subtitle A--Office of the Secretary of Labor (Parts 
                0--99)
            Subtitle B--Regulations Relating to Labor
         I  National Labor Relations Board (Parts 100--199)
        II  Office of Labor-Management Standards, Department of 
                Labor (Parts 200--299)
       III  National Railroad Adjustment Board (Parts 300--399)
        IV  Office of Labor-Management Standards, Department of 
                Labor (Parts 400--499)
         V  Wage and Hour Division, Department of Labor (Parts 
                500--899)
        IX  Construction Industry Collective Bargaining Commission 
                (Parts 900--999)
         X  National Mediation Board (Parts 1200--1299)
       XII  Federal Mediation and Conciliation Service (Parts 
                1400--1499)
       XIV  Equal Employment Opportunity Commission (Parts 1600--
                1699)
      XVII  Occupational Safety and Health Administration, 
                Department of Labor (Parts 1900--1999)
        XX  Occupational Safety and Health Review Commission 
                (Parts 2200--2499)
       XXV  Employee Benefits Security Administration, Department 
                of Labor (Parts 2500--2599)
     XXVII  Federal Mine Safety and Health Review Commission 
                (Parts 2700--2799)
        XL  Pension Benefit Guaranty Corporation (Parts 4000--
                4999)

                      Title 30--Mineral Resources

         I  Mine Safety and Health Administration, Department of 
                Labor (Parts 1--199)
        II  Minerals Management Service, Department of the 
                Interior (Parts 200--299)
       III  Board of Surface Mining and Reclamation Appeals, 
                Department of the Interior (Parts 300--399)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)

[[Page 843]]

       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)

                 Title 31--Money and Finance: Treasury

            Subtitle A--Office of the Secretary of the Treasury 
                (Parts 0--50)
            Subtitle B--Regulations Relating to Money and Finance
         I  Monetary Offices, Department of the Treasury (Parts 
                51--199)
        II  Fiscal Service, Department of the Treasury (Parts 
                200--399)
        IV  Secret Service, Department of the Treasury (Parts 
                400--499)
         V  Office of Foreign Assets Control, Department of the 
                Treasury (Parts 500--599)
        VI  Bureau of Engraving and Printing, Department of the 
                Treasury (Parts 600--699)
       VII  Federal Law Enforcement Training Center, Department of 
                the Treasury (Parts 700--799)
      VIII  Office of International Investment, Department of the 
                Treasury (Parts 800--899)
        IX  Federal Claims Collection Standards (Department of the 
                Treasury--Department of Justice) (Parts 900--999)

                      Title 32--National Defense

            Subtitle A--Department of Defense
         I  Office of the Secretary of Defense (Parts 1--399)
         V  Department of the Army (Parts 400--699)
        VI  Department of the Navy (Parts 700--799)
       VII  Department of the Air Force (Parts 800--1099)
            Subtitle B--Other Regulations Relating to National 
                Defense
       XII  Defense Logistics Agency (Parts 1200--1299)
       XVI  Selective Service System (Parts 1600--1699)
     XVIII  National Counterintelligence Center (Parts 1800--1899)
       XIX  Central Intelligence Agency (Parts 1900--1999)
        XX  Information Security Oversight Office, National 
                Archives and Records Administration (Parts 2000--
                2099)
       XXI  National Security Council (Parts 2100--2199)
      XXIV  Office of Science and Technology Policy (Parts 2400--
                2499)
     XXVII  Office for Micronesian Status Negotiations (Parts 
                2700--2799)
    XXVIII  Office of the Vice President of the United States 
                (Parts 2800--2899)

               Title 33--Navigation and Navigable Waters

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Corps of Engineers, Department of the Army (Parts 
                200--399)

[[Page 844]]

        IV  Saint Lawrence Seaway Development Corporation, 
                Department of Transportation (Parts 400--499)

                          Title 34--Education

            Subtitle A--Office of the Secretary, Department of 
                Education (Parts 1--99)
            Subtitle B--Regulations of the Offices of the 
                Department of Education
         I  Office for Civil Rights, Department of Education 
                (Parts 100--199)
        II  Office of Elementary and Secondary Education, 
                Department of Education (Parts 200--299)
       III  Office of Special Education and Rehabilitative 
                Services, Department of Education (Parts 300--399)
        IV  Office of Vocational and Adult Education, Department 
                of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599)
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
        XI  National Institute for Literacy (Parts 1100--1199)
            Subtitle C--Regulations Relating to Education
       XII  National Council on Disability (Parts 1200--1299)

                        Title 35--Panama Canal

         I  Panama Canal Regulations (Parts 1--299)

             Title 36--Parks, Forests, and Public Property

         I  National Park Service, Department of the Interior 
                (Parts 1--199)
        II  Forest Service, Department of Agriculture (Parts 200--
                299)
       III  Corps of Engineers, Department of the Army (Parts 
                300--399)
        IV  American Battle Monuments Commission (Parts 400--499)
         V  Smithsonian Institution (Parts 500--599)
       VII  Library of Congress (Parts 700--799)
      VIII  Advisory Council on Historic Preservation (Parts 800--
                899)
        IX  Pennsylvania Avenue Development Corporation (Parts 
                900--999)
         X  Presidio Trust (Parts 1000--1099)
        XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
       XII  National Archives and Records Administration (Parts 
                1200--1299)
        XV  Oklahoma City National Memorial Trust (Part 1501)
       XVI  Morris K. Udall Scholarship and Excellence in National 
                Environmental Policy Foundation (Parts 1600--1699)

[[Page 845]]

             Title 37--Patents, Trademarks, and Copyrights

         I  United States Patent and Trademark Office, Department 
                of Commerce (Parts 1--199)
        II  Copyright Office, Library of Congress (Parts 200--299)
        IV  Assistant Secretary for Technology Policy, Department 
                of Commerce (Parts 400--499)
         V  Under Secretary for Technology, Department of Commerce 
                (Parts 500--599)

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--99)

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Rate Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

         I  Environmental Protection Agency (Parts 1--1099)
        IV  Environmental Protection Agency and Department of 
                Justice (Parts 1400--1499)
         V  Council on Environmental Quality (Parts 1500--1599)
        VI  Chemical Safety and Hazard Investigation Board (Parts 
                1600--1699)
       VII  Environmental Protection Agency and Department of 
                Defense; Uniform National Discharge Standards for 
                Vessels of the Armed Forces (Parts 1700--1799)

          Title 41--Public Contracts and Property Management

            Subtitle B--Other Provisions Relating to Public 
                Contracts
        50  Public Contracts, Department of Labor (Parts 50-1--50-
                999)
        51  Committee for Purchase From People Who Are Blind or 
                Severely Disabled (Parts 51-1--51-99)
        60  Office of Federal Contract Compliance Programs, Equal 
                Employment Opportunity, Department of Labor (Parts 
                60-1--60-999)
        61  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 61-1--61-999)
            Subtitle C--Federal Property Management Regulations 
                System
       101  Federal Property Management Regulations (Parts 101-1--
                101-99)
       102  Federal Management Regulation (Parts 102-1--102-299)
       105  General Services Administration (Parts 105-1--105-999)
       109  Department of Energy Property Management Regulations 
                (Parts 109-1--109-99)
       114  Department of the Interior (Parts 114-1--114-99)
       115  Environmental Protection Agency (Parts 115-1--115-99)

[[Page 846]]

       128  Department of Justice (Parts 128-1--128-99)
            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]
            Subtitle E--Federal Information Resources Management 
                Regulations System
       201  Federal Information Resources Management Regulation 
                (Parts 201-1--201-99) [Reserved]
            Subtitle F--Federal Travel Regulation System
       300  General (Parts 300-1--300-99)
       301  Temporary Duty (TDY) Travel Allowances (Parts 301-1--
                301-99)
       302  Relocation Allowances (Parts 302-1--302-99)
       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Part 303-70)
       304  Payment of Travel Expenses from a Non-Federal Source 
                (Parts 304-1--304-99)

                        Title 42--Public Health

         I  Public Health Service, Department of Health and Human 
                Services (Parts 1--199)
        IV  Centers for Medicare & Medicaid Services, Department 
                of Health and Human Services (Parts 400--499)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1999)

                   Title 43--Public Lands: Interior

            Subtitle A--Office of the Secretary of the Interior 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Lands
         I  Bureau of Reclamation, Department of the Interior 
                (Parts 200--499)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10010)

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency, Department of 
                Homeland Security (Parts 0--399)
        IV  Department of Commerce and Department of 
                Transportation (Parts 400--499)

                       Title 45--Public Welfare

            Subtitle A--Department of Health and Human Services 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Welfare

[[Page 847]]

        II  Office of Family Assistance (Assistance Programs), 
                Administration for Children and Families, 
                Department of Health and Human Services (Parts 
                200--299)
       III  Office of Child Support Enforcement (Child Support 
                Enforcement Program), Administration for Children 
                and Families, Department of Health and Human 
                Services (Parts 300--399)
        IV  Office of Refugee Resettlement, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 400--499)
         V  Foreign Claims Settlement Commission of the United 
                States, Department of Justice (Parts 500--599)
        VI  National Science Foundation (Parts 600--699)
       VII  Commission on Civil Rights (Parts 700--799)
      VIII  Office of Personnel Management (Parts 800--899)
         X  Office of Community Services, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 1000--1099)
        XI  National Foundation on the Arts and the Humanities 
                (Parts 1100--1199)
       XII  Corporation for National and Community Service (Parts 
                1200--1299)
      XIII  Office of Human Development Services, Department of 
                Health and Human Services (Parts 1300--1399)
       XVI  Legal Services Corporation (Parts 1600--1699)
      XVII  National Commission on Libraries and Information 
                Science (Parts 1700--1799)
     XVIII  Harry S. Truman Scholarship Foundation (Parts 1800--
                1899)
       XXI  Commission on Fine Arts (Parts 2100--2199)
     XXIII  Arctic Research Commission (Part 2301)
      XXIV  James Madison Memorial Fellowship Foundation (Parts 
                2400--2499)
       XXV  Corporation for National and Community Service (Parts 
                2500--2599)

                          Title 46--Shipping

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)
       III  Coast Guard (Great Lakes Pilotage), Department of 
                Homeland Security (Parts 400--499)
        IV  Federal Maritime Commission (Parts 500--599)

                      Title 47--Telecommunication

         I  Federal Communications Commission (Parts 0--199)
        II  Office of Science and Technology Policy and National 
                Security Council (Parts 200--299)

[[Page 848]]

       III  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                300--399)

           Title 48--Federal Acquisition Regulations System

         1  Federal Acquisition Regulation (Parts 1--99)
         2  Department of Defense (Parts 200--299)
         3  Department of Health and Human Services (Parts 300--
                399)
         4  Department of Agriculture (Parts 400--499)
         5  General Services Administration (Parts 500--599)
         6  Department of State (Parts 600--699)
         7  United States Agency for International Development 
                (Parts 700--799)
         8  Department of Veterans Affairs (Parts 800--899)
         9  Department of Energy (Parts 900--999)
        10  Department of the Treasury (Parts 1000--1099)
        12  Department of Transportation (Parts 1200--1299)
        13  Department of Commerce (Parts 1300--1399)
        14  Department of the Interior (Parts 1400--1499)
        15  Environmental Protection Agency (Parts 1500--1599)
        16  Office of Personnel Management, Federal Employees 
                Health Benefits Acquisition Regulation (Parts 
                1600--1699)
        17  Office of Personnel Management (Parts 1700--1799)
        18  National Aeronautics and Space Administration (Parts 
                1800--1899)
        19  Broadcasting Board of Governors (Parts 1900--1999)
        20  Nuclear Regulatory Commission (Parts 2000--2099)
        21  Office of Personnel Management, Federal Employees 
                Group Life Insurance Federal Acquisition 
                Regulation (Parts 2100--2199)
        23  Social Security Administration (Parts 2300--2399)
        24  Department of Housing and Urban Development (Parts 
                2400--2499)
        25  National Science Foundation (Parts 2500--2599)
        28  Department of Justice (Parts 2800--2899)
        29  Department of Labor (Parts 2900--2999)
        30  Department of Homeland Security, Homeland Security 
                Acquisition Regulation (HSAR) (Parts 3000--3099)
        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)
        35  Panama Canal Commission (Parts 3500--3599)
        44  Federal Emergency Management Agency (Parts 4400--4499)
        51  Department of the Army Acquisition Regulations (Parts 
                5100--5199)
        52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)
        53  Department of the Air Force Federal Acquisition 
                Regulation Supplement (Parts 5300--5399)

[[Page 849]]

        54  Defense Logistics Agency, Department of Defense (Parts 
                5400--5499)
        57  African Development Foundation (Parts 5700--5799)
        61  General Services Administration Board of Contract 
                Appeals (Parts 6100--6199)
        63  Department of Transportation Board of Contract Appeals 
                (Parts 6300--6399)
        99  Cost Accounting Standards Board, Office of Federal 
                Procurement Policy, Office of Management and 
                Budget (Parts 9900--9999)

                       Title 49--Transportation

            Subtitle A--Office of the Secretary of Transportation 
                (Parts 1--99)
            Subtitle B--Other Regulations Relating to 
                Transportation
         I  Research and Special Programs Administration, 
                Department of Transportation (Parts 100--199)
        II  Federal Railroad Administration, Department of 
                Transportation (Parts 200--299)
       III  Federal Motor Carrier Safety Administration, 
                Department of Transportation (Parts 300--399)
        IV  Coast Guard, Department of Homeland Security (Parts 
                400--499)
         V  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 500--599)
        VI  Federal Transit Administration, Department of 
                Transportation (Parts 600--699)
       VII  National Railroad Passenger Corporation (AMTRAK) 
                (Parts 700--799)
      VIII  National Transportation Safety Board (Parts 800--999)
         X  Surface Transportation Board, Department of 
                Transportation (Parts 1000--1399)
        XI  Bureau of Transportation Statistics, Department of 
                Transportation (Parts 1400--1499)
       XII  Transportation Security Administration, Department of 
                Homeland Security (Parts 1500--1599)

                   Title 50--Wildlife and Fisheries

         I  United States Fish and Wildlife Service, Department of 
                the Interior (Parts 1--199)
        II  National Marine Fisheries Service, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 200--299)
       III  International Fishing and Related Activities (Parts 
                300--399)
        IV  Joint Regulations (United States Fish and Wildlife 
                Service, Department of the Interior and National 
                Marine Fisheries Service, National Oceanic and 
                Atmospheric Administration, Department of 
                Commerce); Endangered Species Committee 
                Regulations (Parts 400--499)

[[Page 850]]

         V  Marine Mammal Commission (Parts 500--599)
        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

                      CFR Index and Finding Aids

            Subject/Agency Index
            List of Agency Prepared Indexes
            Parallel Tables of Statutory Authorities and Rules
            List of CFR Titles, Chapters, Subchapters, and Parts
            Alphabetical List of Agencies Appearing in the CFR

[[Page 851]]





           Alphabetical List of Agencies Appearing in the CFR




                      (Revised as of April 1, 2004)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Committee of the Federal Register  1, I
Advanced Research Projects Agency                 32, I
Advisory Council on Historic Preservation         36, VIII
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development, United      22, II
     States
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, IX, X, XI
Agricultural Research Service                     7, V
Agriculture Department                            5, LXXIII
  Agricultural Marketing Service                  7, I, IX, X, XI
  Agricultural Research Service                   7, V
  Animal and Plant Health Inspection Service      7, III; 9, I
  Chief Financial Officer, Office of              7, XXX
  Commodity Credit Corporation                    7, XIV
  Cooperative State Research, Education, and      7, XXXIV
       Extension Service
  Economic Research Service                       7, XXXVII
  Energy, Office of                               7, XXIX
  Environmental Quality, Office of                7, XXXI
  Farm Service Agency                             7, VII, XVIII
  Federal Acquisition Regulation                  48, 4
  Federal Crop Insurance Corporation              7, IV
  Food and Nutrition Service                      7, II
  Food Safety and Inspection Service              9, III
  Foreign Agricultural Service                    7, XV
  Forest Service                                  36, II
  Grain Inspection, Packers and Stockyards        7, VIII; 9, II
       Administration
  Information Resources Management, Office of     7, XXVII
  Inspector General, Office of                    7, XXVI
  National Agricultural Library                   7, XLI
  National Agricultural Statistics Service        7, XXXVI
  Natural Resources Conservation Service          7, VI
  Operations, Office of                           7, XXVIII
  Procurement and Property Management, Office of  7, XXXII
  Rural Business-Cooperative Service              7, XVIII, XLII
  Rural Development Administration                7, XLII
  Rural Housing Service                           7, XVIII, XXXV
  Rural Telephone Bank                            7, XVI
  Rural Utilities Service                         7, XVII, XVIII, XLII
  Secretary of Agriculture, Office of             7, Subtitle A
  Transportation, Office of                       7, XXXIII
  World Agricultural Outlook Board                7, XXXVIII
Air Force Department                              32, VII
  Federal Acquisition Regulation Supplement       48, 53
Air Transportation Stabilization Board            14, VI
Alcohol and Tobacco Tax and Trade Bureau          27, I
Alcohol, Tobacco, Firearms, and Explosives,       27, II
     Bureau of
AMTRAK                                            49, VII
American Battle Monuments Commission              36, IV
American Indians, Office of the Special Trustee   25, VII
Animal and Plant Health Inspection Service        7, III; 9, I
Appalachian Regional Commission                   5, IX

[[Page 852]]

Architectural and Transportation Barriers         36, XI
     Compliance Board
Arctic Research Commission                        45, XXIII
Armed Forces Retirement Home                      5, XI
Army Department                                   32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
Benefits Review Board                             20, VII
Bilingual Education and Minority Languages        34, V
     Affairs, Office of
Blind or Severely Disabled, Committee for         41, 51
     Purchase From People Who Are
Broadcasting Board of Governors                   22, V
  Federal Acquisition Regulation                  48, 19
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
Central Intelligence Agency                       32, XIX
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X
Civil Rights, Commission on                       45, VII
Civil Rights, Office for                          34, I
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
Commerce Department                               44, IV
  Census Bureau                                   15, I
  Economic Affairs, Under Secretary               37, V
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 13
  Fishery Conservation and Management             50, VI
  Foreign-Trade Zones Board                       15, IV
  Industry and Security, Bureau of                15, VII
  International Trade Administration              15, III; 19, III
  National Institute of Standards and Technology  15, II
  National Marine Fisheries Service               50, II, IV, VI
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Telecommunications and Information     15, XXIII; 47, III
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office, United States      37, I
  Productivity, Technology and Innovation,        37, IV
       Assistant Secretary for
  Secretary of Commerce, Office of                15, Subtitle A
  Technology, Under Secretary for                 37, V
  Technology Administration                       15, XI
  Technology Policy, Assistant Secretary for      37, IV
Commercial Space Transportation                   14, III
Commodity Credit Corporation                      7, XIV
Commodity Futures Trading Commission              5, XLI; 17, I
Community Planning and Development, Office of     24, V, VI
     Assistant Secretary for
Community Services, Office of                     45, X
Comptroller of the Currency                       12, I
Construction Industry Collective Bargaining       29, IX
     Commission
Consumer Product Safety Commission                5, LXXI; 16, II
Cooperative State Research, Education, and        7, XXXIV
     Extension Service
Copyright Office                                  37, II
Corporation for National and Community Service    45, XII, XXV
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Court Services and Offender Supervision Agency    28, VIII
     for the District of Columbia
Customs and Border Protection Bureau              19, I
Defense Contract Audit Agency                     32, I
Defense Department                                5, XXVI; 32, Subtitle A; 
                                                  40, VII

[[Page 853]]

  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII
  Army Department                                 32, V; 33, II; 36, III, 
                                                  48, 51
  Defense Intelligence Agency                     32, I
  Defense Logistics Agency                        32, I, XII; 48, 54
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 2
  National Imagery and Mapping Agency             32, I
  Navy Department                                 32, VI; 48, 52
  Secretary of Defense, Office of                 32, I
Defense Contract Audit Agency                     32, I
Defense Intelligence Agency                       32, I
Defense Logistics Agency                          32, XII; 48, 54
Defense Nuclear Facilities Safety Board           10, XVII
Delaware River Basin Commission                   18, III
District of Columbia, Court Services and          28, VIII
     Offender Supervision Agency for the
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Affairs, Under Secretary                 37, V
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Civil Rights, Office for                        34, I
  Educational Research and Improvement, Office    34, VII
       of
  Elementary and Secondary Education, Office of   34, II
  Federal Acquisition Regulation                  48, 34
  Postsecondary Education, Office of              34, VI
  Secretary of Education, Office of               34, Subtitle A
  Special Education and Rehabilitative Services,  34, III
       Office of
  Vocational and Adult Education, Office of       34, IV
Educational Research and Improvement, Office of   34, VII
Elementary and Secondary Education, Office of     34, II
Emergency Oil and Gas Guaranteed Loan Board       13, V
Emergency Steel Guarantee Loan Board              13, IV
Employee Benefits Security Administration         29, XXV
Employees' Compensation Appeals Board             20, IV
Employees Loyalty Board                           5, V
Employment and Training Administration            20, V
Employment Standards Administration               20, VI
Endangered Species Committee                      50, IV
Energy, Department of                             5, XXIII; 10, II, III, X
  Federal Acquisition Regulation                  48, 9
  Federal Energy Regulatory Commission            5, XXIV; 18, I
  Property Management Regulations                 41, 109
Energy, Office of                                 7, XXIX
Engineers, Corps of                               33, II; 36, III
Engraving and Printing, Bureau of                 31, VI
Environmental Protection Agency                   5, LIV; 40, I, IV, VII
  Federal Acquisition Regulation                  48, 15
  Property Management Regulations                 41, 115
Environmental Quality, Office of                  7, XXXI
Equal Employment Opportunity Commission           5, LXII; 29, XIV
Equal Opportunity, Office of Assistant Secretary  24, I
     for
Executive Office of the President                 3, I
  Administration, Office of                       5, XV
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                5, III, LXXVII; 14, VI; 
                                                  48, 99
  National Drug Control Policy, Office of         21, III
  National Security Council                       32, XXI; 47, 2
  Presidential Documents                          3
  Science and Technology Policy, Office of        32, XXIV; 47, II

[[Page 854]]

  Trade Representative, Office of the United      15, XX
       States
Export-Import Bank of the United States           5, LII; 12, IV
Family Assistance, Office of                      45, II
Farm Credit Administration                        5, XXXI; 12, VI
Farm Credit System Insurance Corporation          5, XXX; 12, XIV
Farm Service Agency                               7, VII, XVIII
Federal Acquisition Regulation                    48, 1
Federal Aviation Administration                   14, I
  Commercial Space Transportation                 14, III
Federal Claims Collection Standards               31, IX
Federal Communications Commission                 5, XXIX; 47, I
Federal Contract Compliance Programs, Office of   41, 60
Federal Crop Insurance Corporation                7, IV
Federal Deposit Insurance Corporation             5, XXII; 12, III
Federal Election Commission                       11, I
Federal Emergency Management Agency               44, I
  Federal Acquisition Regulation                  48, 44
Federal Employees Group Life Insurance Federal    48, 21
     Acquisition Regulation
Federal Employees Health Benefits Acquisition     48, 16
     Regulation
Federal Energy Regulatory Commission              5, XXIV; 18, I
Federal Financial Institutions Examination        12, XI
     Council
Federal Financing Bank                            12, VIII
Federal Highway Administration                    23, I, II
Federal Home Loan Mortgage Corporation            1, IV
Federal Housing Enterprise Oversight Office       12, XVII
Federal Housing Finance Board                     12, IX
Federal Labor Relations Authority, and General    5, XIV; 22, XIV
     Counsel of the Federal Labor Relations 
     Authority
Federal Law Enforcement Training Center           31, VII
Federal Management Regulation                     41, 102
Federal Maritime Commission                       46, IV
Federal Mediation and Conciliation Service        29, XII
Federal Mine Safety and Health Review Commission  5, LXXIV; 29, XXVII
Federal Motor Carrier Safety Administration       49, III
Federal Prison Industries, Inc.                   28, III
Federal Procurement Policy Office                 48, 99
Federal Property Management Regulations           41, 101
Federal Railroad Administration                   49, II
Federal Register, Administrative Committee of     1, I
Federal Register, Office of                       1, II
Federal Reserve System                            12, II
  Board of Governors                              5, LVIII
Federal Retirement Thrift Investment Board        5, VI, LXXVI
Federal Service Impasses Panel                    5, XIV
Federal Trade Commission                          5, XLVII; 16, I
Federal Transit Administration                    49, VI
Federal Travel Regulation System                  41, Subtitle F
Fine Arts, Commission on                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
Fishery Conservation and Management               50, VI
Food and Drug Administration                      21, I
Food and Nutrition Service                        7, II
Food Safety and Inspection Service                9, III
Foreign Agricultural Service                      7, XV
Foreign Assets Control, Office of                 31, V
Foreign Claims Settlement Commission of the       45, V
     United States
Foreign Service Grievance Board                   22, IX
Foreign Service Impasse Disputes Panel            22, XIV
Foreign Service Labor Relations Board             22, XIV
Foreign-Trade Zones Board                         15, IV
Forest Service                                    36, II
General Accounting Office                         4, I
General Services Administration                   5, LVII; 41, 105
  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5

[[Page 855]]

  Federal Management Regulation                   41, 102
  Federal Property Management Regulations         41, 101
  Federal Travel Regulation System                41, Subtitle F
  General                                         41, 300
  Payment From a Non-Federal Source for Travel    41, 304
       Expenses
  Payment of Expenses Connected With the Death    41, 303
       of Certain Employees
  Relocation Allowances                           41, 302
  Temporary Duty (TDY) Travel Allowances          41, 301
Geological Survey                                 30, IV
Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          5, XLV; 45, Subtitle A
  Centers for Medicare & Medicaid Services        42, IV
  Child Support Enforcement, Office of            45, III
  Children and Families, Administration for       45, II, III, IV, X
  Community Services, Office of                   45, X
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  Human Development Services, Office of           45, XIII
  Indian Health Service                           25, V; 42, I
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Homeland Security, Department of                  6, I
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Customs and Border Protection Bureau            19, I
  Federal Emergency Management Agency             44, I
  Immigration and Customs Enforcement Bureau      19, IV
  Immigration and Naturalization                  8, I
  Transportation Security Administration          49, XII
Housing and Urban Development, Department of      5, LXV; 24, Subtitle B
  Community Planning and Development, Office of   24, V, VI
       Assistant Secretary for
  Equal Opportunity, Office of Assistant          24, I
       Secretary for
  Federal Acquisition Regulation                  48, 24
  Federal Housing Enterprise Oversight, Office    12, XVII
       of
  Government National Mortgage Association        24, III
  Housing--Federal Housing Commissioner, Office   24, II, VIII, X, XX
       of Assistant Secretary for
  Housing, Office of, and Multifamily Housing     24, IV
       Assistance Restructuring, Office of
  Inspector General, Office of                    24, XII
  Public and Indian Housing, Office of Assistant  24, IX
       Secretary for
  Secretary, Office of                            24, Subtitle A, VII
Housing--Federal Housing Commissioner, Office of  24, II, VIII, X, XX
     Assistant Secretary for
Housing, Office of, and Multifamily Housing       24, IV
     Assistance Restructuring, Office of
Human Development Services, Office of             45, XIII
Immigration and Customs Enforcement Bureau        19, IV
Immigration and Naturalization                    8, I
Immigration Review, Executive Office for          8, V
Independent Counsel, Office of                    28, VII
Indian Affairs, Bureau of                         25, I, V
Indian Affairs, Office of the Assistant           25, VI
     Secretary
Indian Arts and Crafts Board                      25, II
Indian Health Service                             25, V; 42, I
Industry and Security, Bureau of                  15, VII
Information Resources Management, Office of       7, XXVII
Information Security Oversight Office, National   32, XX
     Archives and Records Administration
Inspector General

[[Page 856]]

  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Interior Department
  American Indians, Office of the Special         25, VII
       Trustee
  Endangered Species Committee                    50, IV
  Federal Acquisition Regulation                  48, 14
  Federal Property Management Regulations System  41, 114
  Fish and Wildlife Service, United States        50, I, IV
  Geological Survey                               30, IV
  Indian Affairs, Bureau of                       25, I, V
  Indian Affairs, Office of the Assistant         25, VI
       Secretary
  Indian Arts and Crafts Board                    25, II
  Land Management, Bureau of                      43, II
  Minerals Management Service                     30, II
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Reclamation, Bureau of                          43, I
  Secretary of the Interior, Office of            43, Subtitle A
  Surface Mining and Reclamation Appeals, Board   30, III
       of
  Surface Mining Reclamation and Enforcement,     30, VII
       Office of
Internal Revenue Service                          26, I
International Boundary and Water Commission,      22, XI
     United States and Mexico, United States 
     Section
International Development, United States Agency   22, II
     for
  Federal Acquisition Regulation                  48, 7
International Development Cooperation Agency,     22, XII
     United States
International Fishing and Related Activities      50, III
International Investment, Office of               31, VIII
International Joint Commission, United States     22, IV
     and Canada
International Organizations Employees Loyalty     5, V
     Board
International Trade Administration                15, III; 19, III
International Trade Commission, United States     19, II
Interstate Commerce Commission                    5, XL
James Madison Memorial Fellowship Foundation      45, XXIV
Japan-United States Friendship Commission         22, XVI
Joint Board for the Enrollment of Actuaries       20, VIII
Justice Department                                5, XXVIII; 28, I, XI; 40, 
                                                  IV
  Alcohol, Tobacco, Firearms, and Explosives,     27, II
       Bureau of
  Drug Enforcement Administration                 21, II
  Federal Acquisition Regulation                  48, 28
  Federal Claims Collection Standards             31, IX
  Federal Prison Industries, Inc.                 28, III
  Foreign Claims Settlement Commission of the     45, V
       United States
  Immigration Review, Executive Office for        8, V
  Offices of Independent Counsel                  28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor Department                                  5, XLII
  Benefits Review Board                           20, VII
  Employee Benefits Security Administration       29, XXV
  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V
  Employment Standards Administration             20, VI
  Federal Acquisition Regulation                  48, 29
  Federal Contract Compliance Programs, Office    41, 60
       of
  Federal Procurement Regulations System          41, 50
  Labor-Management Standards, Office of           29, II, IV
  Mine Safety and Health Administration           30, I
  Occupational Safety and Health Administration   29, XVII
  Public Contracts                                41, 50
  Secretary of Labor, Office of                   29, Subtitle A

[[Page 857]]

  Veterans' Employment and Training Service,      41, 61; 20, IX
       Office of the Assistant Secretary for
  Wage and Hour Division                          29, V
  Workers' Compensation Programs, Office of       20, I
Labor-Management Standards, Office of             29, II, IV
Land Management, Bureau of                        43, II
Legal Services Corporation                        45, XVI
Library of Congress                               36, VII
  Copyright Office                                37, II
Local Television Loan Guarantee Board             7, XX
Management and Budget, Office of                  5, III, LXXVII; 14, VI; 
                                                  48, 99
Marine Mammal Commission                          50, V
Maritime Administration                           46, II
Merit Systems Protection Board                    5, II
Micronesian Status Negotiations, Office for       32, XXVII
Mine Safety and Health Administration             30, I
Minerals Management Service                       30, II
Minority Business Development Agency              15, XIV
Miscellaneous Agencies                            1, IV
Monetary Offices                                  31, I
Morris K. Udall Scholarship and Excellence in     36, XVI
     National Environmental Policy Foundation
National Aeronautics and Space Administration     5, LIX; 14, V
  Federal Acquisition Regulation                  48, 18
National Agricultural Library                     7, XLI
National Agricultural Statistics Service          7, XXXVI
National and Community Service, Corporation for   45, XII, XXV
National Archives and Records Administration      5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
National Bureau of Standards                      15, II
National Capital Planning Commission              1, IV
National Commission for Employment Policy         1, IV
National Commission on Libraries and Information  45, XVII
     Science
National Council on Disability                    34, XII
National Counterintelligence Center               32, XVIII
National Credit Union Administration              12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
National Drug Control Policy, Office of           21, III
National Foundation on the Arts and the           45, XI
     Humanities
National Highway Traffic Safety Administration    23, II, III; 49, V
National Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute for Literacy                   34, XI
National Institute of Standards and Technology    15, II
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV, VI
National Mediation Board                          29, X
National Oceanic and Atmospheric Administration   15, IX; 50, II, III, IV, 
                                                  VI
National Park Service                             36, I
National Railroad Adjustment Board                29, III
National Railroad Passenger Corporation (AMTRAK)  49, VII
National Science Foundation                       5, XLIII; 45, VI
  Federal Acquisition Regulation                  48, 25
National Security Council                         32, XXI
National Security Council and Office of Science   47, II
     and Technology Policy
National Telecommunications and Information       15, XXIII; 47, III
     Administration
National Transportation Safety Board              49, VIII
National Weather Service                          15, IX
Natural Resources Conservation Service            7, VI
Navajo and Hopi Indian Relocation, Office of      25, IV
Navy Department                                   32, VI
  Federal Acquisition Regulation                  48, 52
Neighborhood Reinvestment Corporation             24, XXV
Northeast Interstate Low-Level Radioactive Waste  10, XVIII
   Commission
[[Page 858]]

Nuclear Regulatory Commission                     5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Offices of Independent Counsel                    28, VI
Oklahoma City National Memorial Trust             36, XV
Operations Office                                 7, XXVIII
Overseas Private Investment Corporation           5, XXXIII; 22, VII
Panama Canal Commission                           48, 35
Panama Canal Regulations                          35, I
Patent and Trademark Office, United States        37, I
Payment From a Non-Federal Source for Travel      41, 304
     Expenses
Payment of Expenses Connected With the Death of   41, 303
     Certain Employees
Peace Corps                                       22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, XXXV; 45, VIII
  Federal Acquisition Regulation                  48, 17
  Federal Employees Group Life Insurance Federal  48, 21
       Acquisition Regulation
  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
Postal Rate Commission                            5, XLVI; 39, III
Postal Service, United States                     5, LX; 39, I
Postsecondary Education, Office of                34, VI
President's Commission on White House             1, IV
     Fellowships
Presidential Documents                            3
Presidio Trust                                    36, X
Prisons, Bureau of                                28, V
Procurement and Property Management, Office of    7, XXXII
Productivity, Technology and Innovation,          37, IV
     Assistant Secretary
Public Contracts, Department of Labor             41, 50
Public and Indian Housing, Office of Assistant    24, IX
     Secretary for
Public Health Service                             42, I
Railroad Retirement Board                         20, II
Reclamation, Bureau of                            43, I
Refugee Resettlement, Office of                   45, IV
Regional Action Planning Commissions              13, V
Relocation Allowances                             41, 302
Research and Special Programs Administration      49, I
Rural Business-Cooperative Service                7, XVIII, XLII
Rural Development Administration                  7, XLII
Rural Housing Service                             7, XVIII, XXXV
Rural Telephone Bank                              7, XVI
Rural Utilities Service                           7, XVII, XVIII, XLII
Saint Lawrence Seaway Development Corporation     33, IV
Science and Technology Policy, Office of          32, XXIV
Science and Technology Policy, Office of, and     47, II
     National Security Council
Secret Service                                    31, IV
Securities and Exchange Commission                17, II
Selective Service System                          32, XVI
Small Business Administration                     13, I
Smithsonian Institution                           36, V
Social Security Administration                    20, III; 48, 23
Soldiers' and Airmen's Home, United States        5, XI
Special Counsel, Office of                        5, VIII
Special Education and Rehabilitative Services,    34, III
     Office of
State Department                                  22, I; 28, XI
  Federal Acquisition Regulation                  48, 6
Surface Mining and Reclamation Appeals, Board of  30, III
Surface Mining Reclamation and Enforcement,       30, VII
     Office of
Surface Transportation Board                      49, X
Susquehanna River Basin Commission                18, VIII
Technology Administration                         15, XI
Technology Policy, Assistant Secretary for        37, IV

[[Page 859]]

Technology, Under Secretary for                   37, V
Tennessee Valley Authority                        5, LXIX; 18, XIII
Thrift Supervision Office, Department of the      12, V
     Treasury
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     5, L
  Commercial Space Transportation                 14, III
  Contract Appeals, Board of                      48, 63
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 12
  Federal Aviation Administration                 14, I
  Federal Highway Administration                  23, I, II
  Federal Motor Carrier Safety Administration     49, III
  Federal Railroad Administration                 49, II
  Federal Transit Administration                  49, VI
  Maritime Administration                         46, II
  National Highway Traffic Safety Administration  23, II, III; 49, V
  Research and Special Programs Administration    49, I
  Saint Lawrence Seaway Development Corporation   33, IV
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Surface Transportation Board                    49, X
  Transportation Statistics Bureau                49, XI
Transportation, Office of                         7, XXXIII
Transportation Security Administration            49, XII
Transportation Statistics Bureau                  49, XI
Travel Allowances, Temporary Duty (TDY)           41, 301
Treasury Department                               5, XXI; 12, XV; 17, IV; 
                                                  31, IX
  Alcohol and Tobacco Tax and Trade Bureau        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs and Border Protection Bureau            19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Law Enforcement Training Center         31, VII
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  International Investment, Office of             31, VIII
  Monetary Offices                                31, I
  Secret Service                                  31, IV
  Secretary of the Treasury, Office of            31, Subtitle A
  Thrift Supervision, Office of                   12, V
Truman, Harry S. Scholarship Foundation           45, XVIII
United States and Canada, International Joint     22, IV
     Commission
United States and Mexico, International Boundary  22, XI
     and Water Commission, United States Section
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs Department                       38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training Service,        41, 61; 20, IX
     Office of the Assistant Secretary for
Vice President of the United States, Office of    32, XXVIII
Vocational and Adult Education, Office of         34, IV
Wage and Hour Division                            29, V
Water Resources Council                           18, VI
Workers' Compensation Programs, Office of         20, I
World Agricultural Outlook Board                  7, XXXVIII

[[Page 861]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations which were 
made by documents published in the Federal Register since January 1, 
2001, are enumerated in the following list. Entries indicate the nature 
of the changes effected. Page numbers refer to Federal Register pages. 
The user should consult the entries for chapters and parts as well as 
sections for revisions.
For the period before January 1, 2001, see the ``List of CFR Sections 
Affected, 1949-1963, 1964-1972, 1973-1985, and 1986-2000,'' published in 
11 separate volumes.

                                  2001

24 CFR
                                                                   66 FR
                                                                    Page
Chapter VIII
880.607 (b)(1)(iii) revised........................................28797
882.102 (a) revised; (b) amended...................................28797
882.511 (a) existing text redesignated as (a)(1); (a)(2) added.....28797
882.514 (a)(2) and (g) removed; (a)(3) redesignated as new (a)(2) 
                                                                   28797
882.518 Added......................................................28797
884.216 (b) revised................................................28798
887 Correctly removed; CFR correction..............................42731
888 Fair market rent schedules..............................50024, 59052
891.430 Revised....................................................28798
891.630 Revised....................................................28798
891.770 Revised....................................................28798
Chapter IX
960.102 (a)(1) revised.............................................28799
960.200--960.208 (Subpart B) Revised...............................28799
966 Heading and authority citation revised.........................28802
966.1 Revised......................................................28802
966.2 Added........................................................28802
966.4 (d)(1), (f)(12), (l)(2), (3)(i) and (5) revised..............28802
    Corrected...............................................32875, 33134
966.51 (a)(2)(i)(A) and (B) revised; (a)(2)(i)(C) added............28804
972 Added..........................................................33618
982.4 (a)(2) revised; (b) amended..................................28804
    (b) amended; interim...........................................33613
982.54 (d)(4)(iii) added...........................................28804
982.310 (c) revised; (h) added.....................................28804
982.503 (b)(2) and (c)(2)(i) amended; (c)(2)(iii) added............30568
982.505 (c)(4) revised.............................................30568
982.551 (m) redesignated as (n); (l) revised; new (m) added........28805
982.552 (b)(1), (c)(1)(iv) and (2) revised; (c)(1)(xi) added.......28805
982.553 Revised....................................................28805
982.632 (a) revised; interim.......................................33613
982.638 (d)(2) revised; interim....................................33613
982.640 (b) revised; interim.......................................33613
982.642 Added; interim.............................................33613
985.3 (n) revised; interim.........................................50005
985.101 (a)(1) revised; interim....................................50006
1000.156 Revised (OMB number pending)
1000.158 Added (OMB number pending)................................49790
1000.160 Added (OMB number pending)................................49790
1000.162 Added (OMB number pending)................................49790

                                  2002

24 CFR
                                                                   67 FR
                                                                    Page
Subtitle A
Chapter IX
903.2 (c)(1)(iii) revised..........................................51033
941.102 (b)(3) revised.............................................76101
941.103 Amended....................................................76101
941.306 Revised....................................................76102
954.4 (i) revised; eff. 4-29-02....................................15112
982.4 (b) amended..................................................64492
982.201 (b)(3) revised..............................................6820

[[Page 862]]

982.503 (b)(2) and (c)(2)(i) introductory text revised; 
        (c)(2)(iii) removed........................................56688
982.505 (c)(4) revised.............................................56689
982.601 (d) revised................................................64493
982.625 (c) and (d) redesignated as (f) and (g); new 
        (c),(d),(e),(h) and (i) added; new (g) introductory text 
        amended....................................................64493
982.627 (c)(1), (2)(iii), (3), (e) amended.........................64493
982.628 (a)(2) and (3) revised; (b) redesignated as (c); new (b) 
        added......................................................64494
    (c) added; interim.............................................65865
    Corrected......................................................67522
982.631 Heading and (a) revised; (b)(4) and (c)(1) amended; (d) 
        added......................................................64494
982.635 (c)(2)(vi), (vii) and (e) amended; (c)(2)(viii) added......64494
982.640 Removed....................................................64494
982.641(b)(4) revised..............................................64494
982.643 Added......................................................64494
1003.608 Revised; eff. 4-29-02.....................................15112
1005.101 Revised...................................................19493
1005.105 (e) revised...............................................19493
1005.107 (b)(5)(ii) amended........................................19493
1006 Added; interim................................................40776
    Technical correction...........................................42185
1007 Added; interim................................................40776
    Technical correction...........................................42185

                                  2003

24 CFR
                                                                   68 FR
                                                                    Page
Chapter VIII
891.105 Amended; interim...........................................67320
891.120 (e) added; interim.........................................67320
891.205 Amended; interim...........................................67321
891.305 Amended; interim...........................................67321
891.405 (d) amended; interim.......................................67321
891.800--891.865 (Subpart F) Added; interim........................67321
Chapter IX
902.9 Added........................................................37671
902.33 (a) introductory text revised...............................37671
902.60 (d) amended.................................................37671
903.5 (a)(3) amended...............................................37671
903.11 (c)(2) revised..............................................37671
903.12 Added.......................................................37671
903.23 (b), (c) and (d) redesignated as (c), (d) and (e); new (b) 
        added......................................................37671
905.120 Added......................................................45731
906 Revised; eff. 4-10-03..........................................11721
970.4 (b) revised; (c) removed.....................................56131
972.100--972.139 (Subpart A) Added.................................54608
972.200--972.239 (Subpart B) Revised...............................54619
982.628 Regulation at 67 FR 65865 confirmed........................54336
    Technical correction...........................................57805
985.105 (a) revised................................................37671
985.107 (a) revised................................................37672
1000.328 Revised; interim..........................................37661
1006 Regulation at 67 FR 40776 confirmed...........................66985
1007 Regulation at 67 FR 40776 confirmed...........................66985
1007.20 (d) added..................................................66985
1007.30 (b)(4)(i) and (ii) revised.................................66985

                                  2004

 (No regulations published from January 1, 2004, through April 1, 2004)


                                  [all]