[Federal Register Volume 59, Number 217 (Thursday, November 10, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-27897]


[[Page Unknown]]

[Federal Register: November 10, 1994]

BILLING CODE 4310-55-P
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Part VIII





Department of Housing and Urban Development





_______________________________________________________________________



Office of the Assistant Secretary for Public and Indian Housing



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24 CFR Parts 905 and 906




Section 5(h) Homeownership Program for Public and Indian Housing; Final 
Rule
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Public and Indian Housing

24 CFR Parts 905 and 906

[Docket No. R-94-1529; FR-2810-F-03]
RIN 2577-AA90

 
Section 5(h) Homeownership Program for Public and Indian Housing

AGENCY: Office of the Assistant Secretary for Public and Indian 
Housing, HUD.

ACTION: Final rule.

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SUMMARY: This final rule makes several changes in the interim rule for 
the Section 5(h) Homeownership Program for Public and Indian Housing. 
It responds to the public comments received on the interim rule that 
was published September 20, 1991, incorporating a few substantive 
modifications, as well as some clarifications and editorial revisions.
    This rule provides separate regulatory codifications of the Section 
5(h) Homeownership Program for public housing and for Indian housing, 
as appropriate for each. For Indian Housing Authorities (IHAs), the 
rule consists of subpart P of the Consolidated Program Regulations for 
Indian Housing (24 CFR Part 905); for Public Housing Agencies (PHAs), 
24 CFR Part 906. The language of these two versions is identical, 
excepting only appropriate distinctions in terminology and phrasing, 
and in references to applicable Federal statutes and regulations on 
nondiscrimination and civil rights. In general, the Section 5(h) 
Homeownership Program works the same way for both PHAs and IHAs.

EFFECTIVE DATE: December 12, 1994.

FOR FURTHER INFORMATION CONTACT:

    With regard to the PHA version of the rule: C. Wayne Hunter, Senior 
Homeownership Programs Advisor, Office of Resident Initiatives, Public 
and Indian Housing, Department of Housing and Urban Development, 451 
Seventh Street, S.W., Room 4112, Washington, DC 20410. Telephone 
number, voice (202) 708-4233, TDD (202) 708-0850. (These are not toll-
free numbers.)
    With regard to the IHA version of the rule: Dominic Nessi, 
Director, Office of Native American Programs, Public and Indian 
Housing, Department of Housing and Urban Development, 451 Seventh 
Street, S.W., Room B-133, Washington, D.C. 20410. Telephone number, 
voice, (202) 755-0032, TDD (202) 708-0850. (These are not toll-free 
numbers.)

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act Statement

    The information collection requirements contained in this rule were 
submitted to the Office of Management and Budget (OMB) for review under 
the Paperwork Reduction Act of 1980 (44 U.S.C. 3501-3520) and have been 
approved under control number 2577-0201.

Public Comments

    The interim rule for the Section 5(h) Homeownership Program for 
Public and Indian Housing was published September 20, 1991 (56 FR 
47852), with an effective date of October 21, 1991.
    Comments were received from 10 commenters, including six Public 
Housing Agencies (PHAs), one national association of PHAs, two legal 
services organizations, and one private consultant. All comments have 
been considered, as indicated by the discussion below.
    Because the texts of the IHA rule (Part 905, subpart P) and the PHA 
rule (Part 906) follow a parallel format, with provisions that are 
substantially the same, the following discussion applies to both, 
except where noted. In most instances, dual section references are 
cited, with the section of the IHA regulation followed by the 
corresponding section of the PHA regulation, e.g., Secs. 905.1001/906.1 
through 905.1021/906.21. Except where differences in the IHA and PHA 
versions are indicated, the term ``Housing Authority (HA)'' is used in 
the following discussion as a common term of reference to both PHAs and 
IHAs.

In General: The Flexibility Issue

    The extent to which the regulation should allow flexibility for 
Housing Authorities (HAs) and residents in the design of their local 
homeownership plans was the subject of greatest concern to the 
commenters. While a number of comments addressed this issue in the 
context of specific provisions of the regulation, as discussed below, 
some urged that the regulation as a whole afford the maximum 
flexibility permitted by the statute, pointing out that the statutory 
authorities for this program--Sections 5(h) and 6(c)(4)(D) of the 
United States Housing Act of 1937 (Act)--are clearly intended to 
authorize a high degree of local discretion. Some other commenters, 
however, argued for a more restrictive approach, suggesting that local 
discretion be curtailed and regulatory requirements be more rigidly 
detailed.
    The changes that are incorporated in the final rule move in the 
direction of more local flexibility, as explained in the section-by-
section analysis below. The overall approach is deliberately brief and 
simple, limited to a basic regulatory framework of essential standards 
and procedures. No attempt is made to specify the details of everything 
that might possibly be required or permitted in all the variety of 
local situations. Anything not specifically prohibited is permissible, 
if consistent with the three fundamental criteria stated in 
Secs. 905.1004/906.4.
    The Department intends to develop additional handbook materials to 
provide appropriate guidance and administrative instructions for HAs, 
residents, and HUD Field Offices concerning the development, processing 
and implementation of Section 5(h) homeownership plans.

Comments on Specific Sections

Sections 905.1002/906.2  (Applicability)

    In paragraph (a) of Secs. 905.1002/906.2 (Applicability), the final 
rule adds clarifying language to explain that, except where otherwise 
indicated by the context, the term ``resident'' includes Turnkey III 
homebuyers (and, in the IHA version, Mutual Help homebuyers as well), 
along with rental tenants of public or Indian housing and Section 8 
residents. As suggested by one commenter, language has been added to 
make it clear that, unless otherwise indicated, references to sale, 
purchase, conveyance and ownership include the types of transactions 
and interests that are incident to cooperative ownership, such as 
cooperative shares, membership, and occupancy agreements.
    As another point of clarification, paragraph (b) of this section 
adds an express declaration of nonretroactivity. This responds to one 
commenter's question about whether a Section 5(h) homeownership plan 
approved under the statutory authority, prior to publication of the 
interim rule, would have to be modified to conform to the requirements 
of the interim rule. Neither the interim nor final rule imposes any 
additional requirements for homeownership plans approved before the 
respective effective dates of each rule.

Sections 905.1003/906.3  (General Authority for Sale)

    With regard to Secs. 905.1003/906.3 (General authority for sale), 
one commenter observed that HUD Field Offices need instructions on how 
to release the declaration of trust upon sale of housing units under a 
HUD-approved Section 5(h) homeownership plan. The Department agrees 
that such instructions are needed, and intends to provide them in the 
forthcoming processing handbook. In the IHA version of this section, 
the language of the interim rule concerning housing developments that 
are subject to project debt under the ACC has been deleted, because, as 
a result of loan forgiveness legislation, there are now no Indian 
housing developments which are subject to such indebtedness.

Sections 905.1004/906.4  (Fundamental Criteria for HUD Approval)

    One commenter urged that resident consultation be added to 
Secs. 905.1004/906.4 (Fundamental criteria for HUD approval) as a 
fourth criterion. The final rule does not adopt this recommendation. 
The three fundamental criteria that are established by this section 
merit special emphasis at the outset, because they go to the plan as a 
whole, serving as touchstones for weighing and linking the discrete 
requirements of all subsequent sections, including the specific 
requirements for resident consultation under Secs. 905.1005/906.5.

Sections 905.1005/906.5  (Resident Consultation and Involvement)

    Sections 905.1005/906.5 (Resident consultation and involvement) 
have been revised to clarify the requirements for resident input at the 
initial planning stage, in connection with the HA's development of its 
proposed homeownership plan for submission to HUD. This language 
responds to the observations of several commenters who aptly pointed 
out that the interim rule failed to indicate who must be consulted when 
the development is vacant. The final rule addresses this question by 
specifying that, where the plan involves an entirely vacant 
development, the HA must consult with the HA-wide resident 
organization, if any.
    One commenter argued that no resident consultation at all should be 
required for newly-developed vacant units, but the Department sees no 
justification for exempting such units from the requirement that 
pertains to vacant units in general.
    As a further provision in the direction of more local flexibility, 
the final rule deletes the interim rule's requirement for a public 
hearing, leaving it to the HA and the residents to work out methods of 
consultation that they find most appropriate and productive. While a 
public hearing may be advisable for larger undertakings, relatively 
informal consultation may be more appropriate in other situations.
    One commenter mistakenly asserted that ``there is no mention of 
resident involvement prior to implementation''. On the contrary, the 
interim rule strongly emphasized the requirement for resident input 
during the planning stage, and that requirement remains unchanged in 
the final rule.

Sections 905.1006/906.6  (Property That May Be Sold)

    In paragraph (a) of Secs. 905.1006/906.6 (Property that may be 
sold), the final rule corrects the interim rule's unintended indication 
that only conventional rental units would be eligible for sale under 
the Section 5(h) Program. The final rule notes that a homeownership 
plan may provide for converting Turnkey III homes (and, in the case of 
an IHA, Mutual Help homes as well) to Section 5(h) homeownership, 
subject to the contractual rights of existing Turnkey III or Mutual 
Help homebuyers, and an appropriate ACC amendment. An HA might thus 
afford existing Turnkey III or Mutual Help homebuyers the option to 
terminate their Turnkey III or Mutual Help homebuyer agreements in 
favor of Section 5(h) purchase of their present homes, or might make 
vacant Turnkey III or Mutual Help units available for purchase under 
the terms of a Section 5(h) plan.
    One of the public comments asked whether the regulation applies to 
newly-constructed housing. The answer is yes, as expressly stated in 
the interim rule and restated in the final rule at paragraph (a) of 
Secs. 905.1006/906.6. As a clarification, however, the final rule adds 
a cautionary note regarding a question that may arise in rare 
situations where the HA wants to consider Section 5(h) sale of units 
developed as replacement housing for public or Indian housing 
demolished or disposed of under the regulations implementing section 18 
of the Act (for IHAs, subpart M of 24 CFR part 905; for PHAs, 24 CFR 
part 970). This calls attention to the fact that the demolition-
disposition regulations require selection of the initial occupants of 
such replacement units solely on the basis of the requirements 
governing rental occupancy (or, in the case of replacement of Indian 
housing with new Mutual Help units, the homebuyer occupancy 
requirements of the Mutual Help Program).
    Paragraph (b) of these sections amplifies the provisions concerning 
the physical condition of the property, adding the Section 8 housing 
quality standards as an alternative measure for cases where no local 
code exists, along with a cross-reference to the regulatory 
requirements for accessibility by purchasers with disabilities. One 
commenter objected to the option for post-conveyance repair. The 
Department believes that this option should be retained, subject to the 
kind of protections for the homebuyer that are stipulated, including 
the final rule's addition of a maximum period of two years for 
completion of the work needed to satisfy the regulatory standard. As a 
further clarification, the option for a sound sweat equity arrangement 
has been added as another example of permissible means for making post-
sale improvements.

Sections 905.1007/906.7  (Methods of Sale and Ownership)

    In Secs. 905.1007/906.7 (Methods of sale and ownership), language 
has been inserted in subparagraph (b)(2)(ii) to make it clear that, in 
the context of sale of a multifamily building or a group of single-
family dwellings via a resident-controlled entity, the prohibition 
against encumbrances applies only to encumbrances by the resident 
entity, prior to conveyance of individual units to residents. Thus, it 
would not be necessary to obtain additional HA consent for mortgages or 
other encumbrances that are incident to the purchase and financing of 
individual units, pursuant to the provisions of the homeownership plan 
and the agreement between the HA and the resident-controlled entity.

Sections 905.1008/906.8  (Purchaser Eligibility and Selection)

    Several changes have been made in Secs. 905.1008/906.8 (Purchaser 
eligibility and selection). In response to comments, the final rule 
allows HAs more flexibility concerning how they may wish to formulate 
the particulars of the eligibility and preference provisions of their 
homeownership plans. It also incorporates a number of clarifications 
and editorial revisions, including reordering the paragraphs in a more 
logical sequence.
    In paragraph (b) of these sections, language has been inserted to 
make it clear that Turnkey III homebuyers (and, in the case of IHAs, 
Mutual Help homebuyers as well) are within the overall class of public 
or Indian housing residents who are eligible to purchase under the 
Section 5(h) Homeownership Program, should they elect to terminate 
their existing homebuyer agreements in favor of purchase under a 
Section 5(h) plan. A homeownership plan might thus allow Turnkey III or 
Mutual Help homebuyers the individual option to switch over to Section 
5(h) purchase of their present homes. As another possibility, a plan 
might allow such a homebuyer to vacate the present Turnkey III or 
Mutual Help unit and purchase a vacant unit that is offered for sale 
under the Section 5(h) plan.
    One comment objected to the option to include Section 8 residents. 
The Department believes that the statute was intended to allow that 
option, at HA discretion, subject to the minimum residency requirement 
and the requirements for admission to public or Indian housing.
    One commenter objected to the 30-day minimum residency requirement, 
while another suggested that a minimum one-year period be prescribed. 
Because Section 5(h) of the Act authorizes an HA to sell to ``its 
tenants'', some initial period of public or Indian housing or Section 8 
residency is a statutory precondition for purchaser eligibility, and 
the Department believes that 30 days is the shortest period that 
satisfies the statute. Each HA is, however, free to include in its 
homeownership plan a longer minimum period for such tenure.
    One objection was expressed about the further option (as now 
reflected in paragraph (c) of these sections) for the HA to extend 
eligibility to applicants who are not public or Indian housing or 
Section 8 residents at the time of application, subject to the 
preference for existing public and Indian housing residents and the 
requirement for a minimum period of public or Indian housing residency 
prior to conveyance. The Department believes that the HA should have 
this option to extend eligibility to families on its waiting lists, or 
to other low-income families who may wish to apply, or to both of those 
categories, if the HA considers that they are needed to make up a 
sufficient pool of eligible applicants for purchase of the vacant units 
that will be offered for sale. Such nonresident applicants would also 
be subject to the requirements for admission to public or Indian 
housing, including the income limits and Federal preferences for 
admission, as prescribed by applicable regulations. (Those admission 
requirements do not, however, apply to applicants who are already 
residents of public or Indian housing.)
    The first sentence of Secs. 905.1008(d)/906.8(d) modifies the 
interim rule's provision restricting eligibility to applicants who have 
been current in their lease obligations for a period of at least six 
months. If a family has been in residence for less than six months, the 
homeownership plan may now allow eligibility on the basis of lease 
compliance for that lesser period. The final rule also adds language 
that is appropriate in this context to existing Turnkey III or Mutual 
Help homebuyers who may elect to terminate their present Turnkey III or 
Mutual Help homebuyer agreements in favor of purchase under a Section 
5(h) homeownership plan.
    In response to several comments, the affordability standard of 
Secs. 905.1008(e)/906.8(e) has been modified. In the interim rule, the 
cost-to-income ratio--based on mortgage principal and interest, plus 
insurance and real estate taxes (PITI)--was 30 percent, but a 
percentage figure of 35 percent was allowed with special justification. 
As aptly pointed out by some commenters, the interim rule did not say 
what was required to justify the 35 percent exception ratio or how 
maintenance, utilities and (if applicable) common ownership fees were 
to be taken into account. The final rule's revised formula now states 
that the average monthly estimate for the total amount of all of the 
stated types of homeownership costs--including maintenance and 
utilities and (if applicable) cooperative, condominium or homeownership 
association fees, as well as PITI--may not exceed 35 percent of the 
applicant's adjusted income.
    One commenter urged that separate affordability standards be 
adopted for single-family and multifamily properties, with the latter 
to take into account cooperative or condominium carrying charges, as 
well as debt service payments on individual mortgages or share loans. 
For single-family houses, this commenter recommended that a PITI cost-
to-income ratio of more than 35 percent be authorized, citing the fact 
that, in the general housing market, the current ratio among first-time 
homebuyers tends to be higher. For multifamily properties, a two-part 
affordability standard was recommended: (1) the ability of homebuyers 
to meet their financial obligations on an individual family basis; and 
(2) the ability of the homebuyers involved to meet their financial 
obligations on an aggregated basis.
    Because the prospective purchasers under the Section 5(h) Program 
are low-income families, the Department believes that it would be 
imprudent to allow a cost-income ratio of more than 35 percent for 
either single-family or multifamily housing. The final rule requires 
that, if applicable, cooperative, condominium or other homeownership 
association fees must be taken into account. This is sufficient to 
address the financial viability of multifamily properties on both an 
individual and aggregated basis.
    Paragraph (g) of these sections simplifies the requirements 
concerning preference among the various residency-based categories of 
potentially eligible applicants. This affords each HA broad discretion 
in defining, on the basis of present residency status, which categories 
of residents are eligible to apply under the particular homeownership 
plan, and in establishing preferences among those categories.
    For occupied units, the rule continues to require a preference for 
the existing occupants. If such occupants cannot meet the other 
eligibility requirements, or do not desire to purchase their units, a 
further provision of the rule (Secs. 905.1010/906.10) prohibits their 
involuntary displacement to make the units available for sale to other 
families. Consequently, the question of other residency-based 
eligibility and preference categories is pertinent only if the 
homeownership plan contemplates sale of vacant units, or if an existing 
occupant voluntarily agrees to vacate and relocate, pursuant to 
Secs. 905.1010/906.10.
    For vacant units, the only residency-based preference category that 
is mandated by the final rule consists of residents of the HA's other 
public or Indian housing units. The HA may limit eligibility to 
applicants in that category only, in which case the question of further 
residency-based eligibility or preference categories will not arise.
    Alternatively, subject to the preference for families who are 
already residents of public or Indian housing, the homeownership plan 
may, at the option of an HA, also allow application for purchase of 
vacant units by families in either or both of the other residency-based 
categories permitted under paragraphs (b) and (c) of this section: (1) 
Section 8 residents, and (2) other low-income families who are neither 
public or Indian housing nor Section 8 residents at time of application 
or selection, subject to their completion of the prescribed minimum 
period of public or Indian housing or Section 8 residence prior to 
conveyance. For example, families in the second category--families who 
are not presently public or Indian housing or Section 8 residents--
would have to take occupancy of the Section 5(h) unit under a lease-
purchase agreement, providing for completion of an initial period of 
public or Indian housing tenancy (30 days or more, as prescribed by the 
homeownership plan) prior to conveyance.
    As noted in Secs. 905.1008(h)/906.8(i), the rule does not preclude 
any other types of eligibility and preference factors that the HA may 
wish to establish in its homeownership plan, if consistent with 
statutory and regulatory requirements. For example, in a situation 
where vacant units comprising only a portion of an otherwise occupied 
development are to be offered for sale, the homeownership plan could 
limit eligibility to the other residents of the same development, or 
give them preference over the residents of other HA developments. As 
another example, with reference to families that are not already public 
or Indian housing or Section 8 residents, the HA would have the option 
to restrict eligibility to families who are already on the HA's waiting 
lists for other programs, or to give such waiting list families a 
preference over other nonresident applicants.
    One question was raised about Sec. 906.8(h) of the PHA rule, which 
mandates a preference for residents who have completed self-sufficiency 
and job training programs. (There is no parallel provision in the IHA 
rule). The commenter asked whether a resident who completes such a 
program in one PHA may qualify for the preference under another PHA's 
Section 5(h) homeownership plan. That is a matter for local 
determination. In general, a plan should allow for recognition of sound 
self-sufficiency and job training programs, regardless of where 
completed, but the regulation leaves each HA discretion to define the 
standards for acceptability.

Sections 905.1009/906.9  (Counseling, Training, and Technical 
Assistance)

    One commenter recommended that HUD set minimum standards for 
counseling, in connection with the requirements of Secs. 905.1009/906.9 
(Counseling, training, and technical assistance).
    Detailed regulatory requirements on this subject would be 
inappropriate for the wide variety of local situations that may be 
presented by particular Section 5(h) homeownership plans. While the 
rule establishes basic standards, it is intended to allow due 
flexibility for HAs to design the kinds of counseling, training and 
technical assistance activities that are necessary and appropriate for 
each local situation.

Sections 905.1010/906.10  (Nonpurchasing Residents)

    Two commenters recommended that Secs. 905.1010/906.10 
(Nonpurchasing residents) be changed to delete the prohibition against 
involuntary displacement of nonpurchasing residents. The final rule 
retains that prohibition. Another commenter urged that assistance under 
the Uniform Relocation Assistance and Real Property Acquisition Act of 
1970 (URA) be extended to residents who relocate voluntarily. The final 
rule does not adopt that recommendation. The rule mandates that 
nonpurchasing residents be provided the opportunity to relocate to 
another suitable and affordable unit, with counseling and advisory 
services, along with payment of moving expenses. However, it is noted 
that the rule also provides that a violation of the prohibition against 
involuntary displacement may trigger a requirement that the HA provide 
URA relocation assistance.
    Some changes have nevertheless been made in this section, largely 
editorial revisions to clarify the requirements that were reflected in 
the interim rule. In paragraph (b) of the PHA version only, familial 
status has been added to the list of nondiscrimination factors. (The 
IHA version covers nondiscrimination by cross-reference to 
Sec. 905.115.) In both the IHA and PHA versions, a new paragraph (c) 
has been added to clarify requirements for temporary relocation of 
nonpurchasing residents in connection with repair or rehabilitation.
    This prohibition applies only against displacement for the specific 
purpose of making the unit available for Section 5(h) sale to another 
family. It is not intended to prohibit a permanent move for any other 
reason required or authorized by the existing occupant's lease (or 
homebuyer agreement), consistent with applicable statutes and HUD 
occupancy regulations. For example, where the size of the unit in 
relation to family size results in overhousing or underhousing, a 
family may be required to move to another unit of suitable size, 
pursuant to the HA's assignment policy.

Sections 905.1011/906.11  (Nonroutine Maintenance Reserve)

    In Secs. 905.1011/906.11 (Nonroutine maintenance reserve), the 
interim rule's references to ``maintenance reserve'' have been changed 
to ``nonroutine maintenance''. This clarifying change was prompted by 
the suggestion of one commenter that the term ``capital improvement and 
replacement reserve'' be used. Two other commenters objected to this 
section entirely as an undue restriction on local discretion. The 
Department believes that, considering the flexibility allowed, this 
reserve requirement is justified by the financial viability test that 
is implicit in Section 5(h) of the Act, and expressly stated in Sec. 
6(c)(4)(D) of the Act.

Sections 905.1014/906.14  (Limitation on Resale Profit)

    One commenter pointed out that the last sentence of paragraph (a) 
of Secs. 905.1014/906.14 (Limitation on resale profit) seemed to 
contradict the authorization for limited equity or shared equity 
arrangements. In the final rule, this sentence has been revised to make 
it clear that, under a limited or shared equity arrangement, the resale 
provisions may limit the seller to a portion of the resale profit 
attributable to appreciation in value. Language to similar effect has 
also been inserted in the limited equity option under paragraph (c) of 
this section.
    Another commenter urged that the regulation be modified to require 
or strongly encourage restriction of resale to low-income families 
only. The final rule does not adopt this recommendation. Although the 
regulation allows HA discretion to design limited equity arrangements 
with such resale restrictions, the statute does not authorize the 
Department to mandate that for all cases.

Sections 905.1016/906.16  (Replacement Housing)

    With regard to Secs. 905.1016/906.16 (Replacement housing), one 
commenter objected to the inclusion of replacement options other than 
development of additional public or Indian housing units. As an 
alternative to such a narrow restriction, the commenter suggested that 
the options included in the interim rule be given priority in the order 
listed. Other commenters objected to the options for rehabilitation of 
vacant public or Indian housing units and for use of Section 8 
certificates and vouchers.
    The final rule makes no change in the replacement options stated in 
the interim rule. Those options are statutory, and the Department has 
no authority to change them by regulation.
    Two commenters addressed the question of funding for replacement 
housing. One recommended that such funding be built into the Section 
5(h) Program itself, while another suggested a priority for Major 
Rehabilitation of Obsolete Projects (MROP) funding. The Department has 
not adopted those recommendations. Although special funding priorities 
for replacement housing in connection with Section 5(h) homeownership 
plans may be established in the contexts of the other HUD programs from 
which the funding becomes available, no provision for such funding is 
incorporated in the Section 5(h) Homeownership Program itself.
    One commenter recommended that the regulation set a time limit on 
the actual provision of replacement housing. In recognition of the 
different factual situations that may affect the time required to have 
replacement units ready for occupancy, the Department believes that it 
would be unwise to set a rigid time limitation by regulation. However, 
reasonable time frames for this and all other major steps must be 
established in the timetable to be included in the homeownership plan.
    The same commenter argued against the flexibility afforded by the 
interim rule for the HA to address the community's current priority 
housing needs, urging that the regulation impose a rigid requirement to 
replace with units of the same sizes as those sold, regardless of 
current needs. The Department believes that such rigidity would risk 
absurd results, in those local situations where identical replacement 
would be at odds with intelligent prioritization by the HA of the 
community's current housing needs. One commenter urged that the 
replacement housing requirements be applied retroactively to plans 
approved or pending before publication of the interim rule. That point 
is addressed in paragraph (d) of this section, which, as in the interim 
rule, reflects the legislative mandate in Section 5(h) of the Act that 
the replacement housing provisions shall not apply to ``applications'' 
(proposed homeownership plans) that were submitted to HUD prior to 
October 1, 1990--the effective date of the legislation that added the 
replacement requirement to Section 5(h).

Section 906.17  (Records, Reports and Audits)

    In Sec. 906.17 of the PHA rule only (Records, reports and audits), 
language has been added to specify that, as evidence of compliance with 
fair housing and equal opportunity requirements, the sale and financial 
records maintained in the files of the PHA must contain information on 
the racial and ethnic characteristics of purchasers. (No such 
requirement applies to Indian housing.)

Sections 905.1018/906.18  (Submission and Review of Homeownership Plan)

    In paragraph (b) of Secs. 905.1018/906.18 (Submission and review of 
homeownership plan), the phrase, ``in a format prescribed by HUD,'' has 
been inserted. While allowing for due flexibility, HUD will issue 
administrative instructions and guidelines regarding the format and 
processing of homeownership plans.

Sections 905.1020/906.20  (Content of Homeownership Plan)

    In Secs. 905.1020/906.20 (Content of homeownership plan), the order 
of some items has been changed, for a more logical sequence that places 
administrative items after those that describe the principal provisions 
of the plan. In the PHA rule only, a provision on affirmative marketing 
(applicable only if the plan allows purchase of vacant units by 
families who are not public housing residents or already on the PHA's 
waiting lists for those programs) has been added to paragraph 
Sec. 906.20(c). (There is no affirmative marketing requirement for 
IHAs.)

Sections 905.1021/906.21  (Supporting Documentation)

    In paragraph (a) of Secs. 905.1021/906.21 (Supporting 
documentation), the final rule explains that the purpose of the 
property value estimate is merely to assist HUD in determining whether 
the plan adequately addresses the risks of fraud and abuse and the 
potential for windfall profit. For this item of supporting 
documentation, a rough estimate is sufficient, backed by information to 
support its reasonableness. Submission of a formal appraisal is not 
required at this point, because the Department does not believe that 
such an expense is justified for the purpose of HUD review of the 
proposed homeownership plan. (Note, however, that this is a matter 
involving only the initial process of preparation and review of the 
HA's proposal. It is not intended to contradict the rule's separate 
requirement, in Secs. 905.1014(e)/906.14(e), for the appraisal of 
individual dwelling units at the point of sale, made with the distinct 
purpose of calculating the amount of resale profit that would be 
payable to the PHA by the individual purchaser.)

Section 906.21(f)  (Nondiscrimination Certification)

    In the PHA rule only, language has been inserted in 
Sec. 906.21(f)--the requirement for the PHA's nondiscrimination 
certification--to add citations to Title VI of the Civil Rights Act of 
1964, Executive Order 11063, and implementing regulations. (The 
parallel provision of the IHA rule (Sec. 905.1021(f)) remains 
unchanged, citing the different nondiscrimination requirements that 
apply to Indian housing under Sec. 905.115.)

Comments on Other Issues

    One commenter observed that the interim rule contained no explicit 
mention as to whether the Section 5(h) authority can be used in 
conjunction with other public housing homeownership programs, such as 
HOPE. Such questions will be addressed in the context of the other 
programs involved, on a case-by-case basis.
    It was also observed that the interim rule contained no explicit 
mention of whether Section 5(h) can be used in conjunction with the 
Low-Income Housing Tax Credit (LIHTC). The Department believes that 
this is not an appropriate matter for rulemaking at this time. The 
Department has not received any Section 5(h) proposals involving 
LIHTCs, and no determination has been made as to whether it would be 
possible to design a feasible proposal of that nature. If warranted by 
future experience, the Department will consider this question for 
further rulemaking.
    One commenter recommended that the rule incorporate a specific list 
of all statutes and regulations that must be complied with. A list of 
all of the multitude of Federal statutes and regulations that might 
possibly be applicable to all of the variety of possible features of 
all of the many possible types of homeownership plans would be 
excessively lengthy for inclusion in a regulation. While cross-
references are cited for some especially important Federal 
requirements--notably, as to fair housing and nondiscrimination--the 
possible variations among local homeownership plans make it impossible 
to present a standard matrix of applicable legal requirements. As 
emphasized in the requirement for the HA to include in its supporting 
documentation a legal opinion from its own counsel (Secs. 905.1021(g)/
906.21(g)), it is the responsibility of the HA to ascertain for itself 
just what requirements of Federal, State, Tribal and local law are 
pertinent to the facts of each particular homeownership plan. 
Compliance with State, Tribal and local laws and regulations on real 
estate transactions is one of the critical points that must be 
carefully reviewed by the HA's counsel.

Other Matters

Environmental Review

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

Regulatory Planning and Review

    This rule has been reviewed by the Office of Management and Budget 
(OMB) under Executive Order 12866, Regulatory Planning and Review. Any 
changes to the rule resulting from this review are available for public 
inspection between 7:30 a.m. and 5:30 p.m. weekdays in the Office of 
the Rules Docket Clerk, room 10276, 451 Seventh Street, S.W., 
Washington, DC.

Impact on Small Entities

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed this rule before publication and by 
approving it certifies that this rule does not have a significant 
economic impact on a substantial number of small entities. The rule 
creates homeownership opportunities for low-income residents of public 
and Indian housing with, at most, an incidental effect on small 
businesses.

Executive Order 12606, the Family

    The General Counsel, as the Designated Official under Executive 
Order 12606, the Family, has determined that this rule would not have 
potential significant impact on family formation, maintenance, and 
general well-being and therefore is not subject to review under the 
order. The rule would have an indirect, though positive, impact on 
families to the extent that it would provide opportunities for families 
residing in public and Indian housing to own their own homes.

Executive Order 12612, Federalism

    The General Counsel, as the Designated Official under Section 6(a) 
of Executive Order 12612, Federalism, has determined that this rule 
would not have substantial, direct effects on States, on their 
political subdivisions, or on their relationship with the Federal 
government, or on the distribution of power and responsibilities 
between them and other levels of government. The rule's major effects 
would be on individuals; any involvement of States or their political 
subdivisions is limited to their cooperative efforts in promoting 
homeownership among public and Indian housing residents.
    This rule was listed as Item No. 1695 in the Department's 
Semiannual Agenda of Regulations published on April 25, 1994, (59 FR 
20424, 20472) pursuant to Executive Order 12866 and the Regulatory 
Flexibility Act.
    The Catalog of Federal Domestic Assistance program numbers are 
14.146 and 14.147.

List of Subjects

24 CFR Part 905

    Aged, Energy conservation, Grant programs--housing and community 
development, Grant programs--Indians, Indians, Individuals with 
disabilities, Lead poisoning, Loan programs--housing and community 
development, Loan programs--Indians, Low and moderate income housing, 
Public housing, Reporting and recordkeeping requirements.

24 CFR Part 906

    Grant programs--housing and community development, Low and moderate 
income housing, Public housing, Reporting and recordkeeping 
requirements.

    For the reasons set out in the preamble, parts 905 and 906 of title 
24 of the Code of Federal Regulations are amended as set forth below.

PART 905--INDIAN HOUSING PROGRAMS

    1. The authority citation for 24 CFR part 905 continues to read as 
follows:

    Authority: 25 U.S.C. 450e(b); 42 U.S.C. 1437a, 1437aa, 1437bb, 
1437cc, 1437ee, and 3535(d).

    2. Subpart P of part 905 is revised to read as follows:

Subpart P--Section 5(h) Homeownership Program

Sec.
905.1001  Purpose.
905.1002  Applicability.
905.1003  General authority for sale.
905.1004  Fundamental criteria for HUD approval.
905.1005  Resident consultation and involvement.
905.1006  Property that may be sold.
905.1007  Methods of sale and ownership.
905.1008  Purchaser eligibility and selection.
905.1009  Counseling, training, and technical assistance.
905.1010  Nonpurchasing residents.
905.1011  Nonroutine maintenance reserve.
905.1012  Purchase prices and financing.
905.1013  Protection against fraud and abuse.
905.1014  Limitation on resale profit.
905.1015  Use of sale proceeds.
905.1016  Replacement housing.
905.1017  Records, reports, and audits.
905.1018  Submission and review of homeownership plan.
905.1019  HUD approval and IHA-HUD implementing agreement.
905.1020  Content of homeownership plan.
905.1021  Supporting documentation.

Subpart P--Section 5(h) Homeownership Program


Sec. 905.1001  Purpose.

    This part codifies the provisions of the Section 5(h) Homeownership 
Program for Indian housing, as authorized by sections 5(h) and 
6(c)(4)(D) of the United States Housing Act of 1937 (Act) and 
administered by the Department of Housing and Urban Development (HUD).


Sec. 905.1002  Applicability.

    (a) General applicability. This subpart applies to low-income 
housing owned by Indian Housing Authorities (IHAs), subject to Annual 
Contributions Contracts (ACCs) under the Act. The terms ``housing'' or 
``low-income housing'', as used in this subpart, refer to the types of 
properties described in the preceding sentence, except as indicated by 
the particular context. In reference to housing properties, 
``development'' means the same as ``project'' (as defined in the Act). 
Except where otherwise indicated by the context, ``resident'' means the 
same as ``tenant'', as the latter term is used in the Act, including 
Mutual Help and Turnkey III homebuyers, as well as rental tenants of 
low-income housing and Section 8 residents, and references to sale, 
purchase, conveyance and ownership include the types of interests and 
transactions that are incident to cooperative ownership.
    (b) Nonretroactivity. In the case of a Section 5(h) homeownership 
plan that was approved by HUD before the effective date of the interim 
rule under this subpart (October 21, 1991) no modifications or 
additional requirements will be imposed under the provisions of the 
interim or final rule, except for reasonable administrative procedures 
prescribed by HUD. Similarly, in the case of a plan that was approved 
under the interim rule, but before the effective date of the final rule 
(December 12, 1994), no modifications or additional requirements will 
be imposed under the provisions of the final rule, except for such 
reasonable administrative procedures.


Sec. 905.1003  General authority for sale.

    An IHA may sell all or a portion of a development to eligible 
residents, as defined under Sec. 905.1008, for purposes of 
homeownership, according to a homeownership plan approved by HUD under 
this subpart. Upon sale in accordance with the HUD-approved 
homeownership plan, 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 
further HUD funding for operating subsidies or modernization under the 
Act upon conveyance of title by the IHA. (That does not preclude any 
other types of post-sale subsidies that may be available, under other 
Federal, Tribal, State, or local programs, such as the possibility of 
available assistance under Section 8 of the Act, in connection with a 
plan for cooperative homeownership, if authorized by the Section 8 
regulations.)


Sec. 905.1004  Fundamental criteria for HUD approval.

    HUD will approve an IHA's homeownership plan if it meets all three 
of the following criteria:
    (a) Workability. The plan must be practically workable, 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. The plan must be consistent with law, including the 
requirements of this part and any other applicable Federal, Tribal, 
State, and local statutes and regulations, and existing contracts. 
Subject to the other two criteria stated in this section, any provision 
that is not contrary to those legal requirements may be included in the 
plan, at the discretion of the IHA, whether or not expressly authorized 
in this subpart.
    (c) Documentation. The plan must be clear and complete enough to 
serve as a working document for implementation, as well as a basis for 
HUD review.


Sec. 905.1005  Resident consultation and involvement.

    (a) Resident input. In developing a proposed homeownership plan, 
and in carrying out the plan after HUD approval, the IHA shall consult 
with residents of the development involved, and with any resident 
organization that represents them, as necessary and appropriate to 
provide them with information and a reasonable opportunity to make 
their views and recommendations known to the IHA. If the plan 
contemplates sale of units in an entirely vacant development, the IHA 
shall consult with the IHA-wide resident organization, if any. While 
the Act gives the IHA sole legal authority for final decisions, as to 
whether or not to submit a proposed homeownership plan and the content 
of such a proposal, the IHA shall give residents and their resident 
organizations full opportunity for input in the homeownership planning 
process, and full consideration of their concerns and opinions.
    (b) Resident initiatives. Where individual residents, a Resident 
Management Corporation (RMC), or another form of resident organization 
may wish to initiate discussion of a possible homeownership plan, the 
IHA shall negotiate with them in good faith. Joint development and 
submission of the plan by the IHA and RMC, or other resident 
organization, is encouraged. In addition, participation of an RMC or 
other resident organization in the implementation of the plan is 
encouraged. (Approved by the Office of Management and Budget under 
control number 2577-0201).


Sec. 905.1006  Property that may be sold.

    (a) Types of property. Subject to the workability criterion of 
Sec. 905.1004(a) (including, for example, consideration of common 
elements and other characteristics of the property), a homeownership 
plan may provide for sale of one or more dwellings, along with 
interests in any common elements, comprising all or a portion of one or 
more housing developments. A plan may provide for conversion of 
existing housing to homeownership or for homeownership sale of newly-
developed housing. (However, for low-income housing units developed as 
replacement housing for units demolished or disposed of pursuant to 
subpart M of this part, that subpart requires that the initial 
occupants be selected solely on the basis of the requirements governing 
rental occupancy (or Mutual Help occupancy, if applicable), without 
reference to any additional homeownership eligibility or selection 
requirements under this subpart.) Mutual Help or Turnkey III 
homeownership units may be converted to Section 5(h) homeownership, 
upon voluntary termination by any existing Mutual Help or Turnkey III 
homebuyers of their contractual rights and amendment of the ACC, in a 
form prescribed by HUD.
    (b) Physical condition of property. The property must meet local 
code requirements (or, if no local code exists, the housing quality 
standards established by HUD for the Section 8 Housing Assistance 
Payments Program for Existing Housing, under 24 CFR part 882) and the 
requirements for elimination of lead-based paint hazards in HUD-
associated housing, under subpart C of 24 CFR part 35. When a 
prospective purchaser with disabilities requests accessible features, 
the features must be added in accordance with 24 CFR parts 8 and 9. 
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. This standard must be met as a condition for conveyance of 
a dwelling to an individual purchaser, unless the terms of sale include 
measures to assure that the work will be completed within a reasonable 
time after conveyance, not to exceed two years (e.g., as a part of a 
mortgage financing package that provides the purchaser with a home 
improvement loan or pursuant to a sound sweat equity arrangement).


Sec. 905.1007  Methods of sale and ownership.

    (a) Permissible methods. Any appropriate method of sale and 
ownership may be used, such as fee-simple conveyance of single-family 
dwellings or conversion of multifamily buildings to resident-owned 
cooperatives or condominiums.
    (b) Direct or indirect sale. An IHA may sell dwellings to residents 
directly or (with respect to multifamily buildings or a group of 
single-family dwellings) through another entity established and 
governed by, and solely composed of, residents of the IHA's low-income 
housing, provided that:
    (1) The other entity has the necessary legal capacity and practical 
capability to carry out its responsibilities under the plan.
    (2) The respective rights and obligations of the IHA and the other 
entity will be specified by a written agreement that includes:
    (i) Assurances that the other entity will comply with all 
provisions of the HUD-approved homeownership plan;
    (ii) Assurances that the IHA's conveyance of the property to the 
other entity will be subject to a title restriction providing that the 
property may be resold or otherwise transferred only by conveyance of 
individual dwellings to eligible residents, in accordance with the HUD-
approved homeownership plan, or by reconveyance to the IHA, and that 
the property will not be encumbered by the other entity without the 
written consent of the IHA;
    (iii) Protection against fraud or misuse of funds or other property 
on the part of the other entity, its employees and agents;
    (iv) Assurances that the resale proceeds will be used only for the 
purposes specified by the HUD-approved homeownership plan;
    (v) Limitation of the other entity's administrative and overhead 
costs, and of any compensation or profit that may be realized by the 
entity, to amounts that are reasonable in relation to its 
responsibilities and risks;
    (vi) Accountability to the IHA and residents for the recordkeeping, 
reporting and audit requirements of Sec. 905.1017;
    (vii) Assurances that the other entity will administer its 
responsibilities under the plan in accordance with applicable civil 
rights statutes and implementing regulations, as described in 
Sec. 905.115; and
    (viii) Adequate legal remedies for the IHA and residents, in the 
event of the other entity's failure to perform in accordance with the 
agreement.


Sec. 905.1008  Purchaser eligibility and selection.

    Standards and procedures for eligibility and selection of the 
initial purchasers of individual dwellings shall be consistent with the 
following provisions:
    (a) Applications. Persons who are interested in purchase must 
submit applications for that specific purpose, and those applications 
shall be handled separately from applications for other IHA programs. 
For vacant units, applications shall be dated as received by the IHA 
and, subject to eligibility and preference factors, selection shall be 
made in the order of receipt. Application for homeownership shall not 
affect an applicant's place on any other IHA waiting list.
    (b) Eligibility threshold. Subject to any additional eligibility 
and preference standards that are required or permitted under this 
section, a homeownership plan may provide for the eligibility of 
residents of low-income housing owned or leased by the seller IHA 
(including Mutual Help and Turnkey III homebuyers, who may elect to 
terminate their existing homebuyer agreements in favor of purchase 
under the Section 5(h) homeownership plan) and residents of other 
housing who are receiving housing assistance under Section 8 of the 
Act, under an ACC administered by the seller IHA; provided that the 
resident has been in lawful occupancy for a minimum period specified in 
the plan (not less than 30 days prior to conveyance of title to the 
dwelling to be purchased). For residents of other housing who are 
receiving housing assistance under Section 8, the minimum occupancy 
requirement may be satisfied in the unit for which the family is 
receiving Section 8 assistance or the Indian housing unit. If the 
family is to meet part or all of the minimum occupancy requirement in 
the Indian housing unit, the Section 8 assistance must be terminated 
before the family moves into the Indian housing unit. Indian housing 
units are ineligible for Section 8 certificate and voucher assistance 
as long as they remain under the ACC as Indian housing.
    (c) Applicants who do not meet minimum residency requirement for 
eligibility. (1) A homeownership plan, at IHA discretion, may also 
permit eligibility for applicants who do not meet the minimum residency 
requirement of paragraph (b) of this section (30 days or more, as 
prescribed by the homeownership plan) at the time of application, 
provided that their selection is conditioned upon completion of the 
minimum residency requirement prior to conveyance of title. A plan may 
thus allow satisfaction of the threshold requirements for eligibility 
by:
    (i) Existing low-income housing or Section 8 residents with less 
than the minimum period of residency;
    (ii) Families who are already on the IHA's waiting lists; and
    (iii) Other low-income families who are neither low-income housing 
nor Section 8 residents at the time of application or selection.
    (2) Applicants who are not already low-income housing residents, 
however, must also satisfy the requirements for admission to such 
housing.
    (d) Compliance with lease obligations. Eligibility shall be 
limited, however, to residents who have been current in all of their 
lease obligations (in the case of Mutual Help or Turnkey III 
homebuyers, obligations under their homebuyer agreements) over a period 
of not less than six months prior to conveyance of title (or, if so 
provided by the homeownership plan, such lesser period as has elapsed 
since the beginning of low-income housing or Section 8 tenure), 
including, but not limited to, payment of rents (or homebuyer's monthly 
payments) and other charges and reporting of all income that is 
pertinent to determination of rents (or homebuyer's monthly payments). 
At the IHA's discretion, the homeownership plan may allow a resident to 
remedy under-reporting of income, provided that proper reporting of 
income would not have resulted in ineligibility for admission to low-
income housing or for Section 8 assistance, by payment of the resulting 
underpayment for rent (or homebuyer's monthly payments) prior to 
conveyance of title to the homeownership dwelling, either in a lump sum 
or in installments over a reasonable period. Alternatively, the plan 
may permit payment within a reasonable period after conveyance of 
title, under an agreement secured by a mortgage on the property.
    (e) Affordability standard. Eligibility shall be further limited to 
residents who are capable of assuming the financial obligations of 
homeownership, under minimum income standards for affordability, taking 
into account the unavailability of operating subsidies and 
modernization funds after conveyance of the property by the IHA. A 
homeownership plan may, however, take account of any available subsidy 
from other sources (e.g., in connection with a plan for cooperative 
ownership, assistance under Section 8 of the Act, if available and 
authorized by the Section 8 regulations). Under this affordability 
standard, an applicant must meet the following requirements:
    (1) 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 35 percent 
of the applicant's adjusted income, as defined in this part.
    (2) The applicant can pay any amounts required for closing, such as 
a downpayment (if any) and closing costs chargeable to the purchaser, 
in accordance with the homeownership plan.
    (f) Option to restrict eligibility. A homeownership plan may, at 
the IHA's discretion, restrict eligibility to one or more residency-
based categories (e.g., for occupied units, eligibility may be 
restricted to the existing residents of the units to be sold; for 
vacant units, eligibility may be restricted to low-income housing 
residents only, or to low-income housing residents plus any one or more 
of the other residency-based categories that may be established under 
paragraphs (b) and (c) of this section), as may be reasonable in view 
of the number of units to be offered for sale and the estimated number 
of eligible applicants in various categories provided that the 
residency-based preferences mandated by paragraph (g) of this section 
are observed.
    (g) Residency-based preferences. For occupied units, a preference 
shall be given to the existing residents of each of the dwellings to be 
sold. For vacant units (including units which are voluntarily vacated), 
a preference shall be given to residents of other low-income housing 
units owned or leased by the seller IHA (over any other residency-based 
categories that may be established by a homeownership plan for Section 
8 residents or for nonresident applicants).
    (h) Other eligibility or preference standards. If consistent with 
the other provisions of this section, a homeownership plan may include 
any other standards for eligibility or preference, or both, at the 
discretion of the IHA, that are not contrary to law.

(Approved by the Office of Management and Budget under control 
number 2577-0201).


Sec. 905.1009  Counseling, training, and technical assistance

    Appropriate counseling shall be provided to prospective and actual 
purchasers, as necessary for each stage of implementation of the 
homeownership plan. Particular attention must be given to the terms of 
purchase and financing, along with the other financial and maintenance 
responsibilities of homeownership. In addition, where applicable, 
appropriate training and technical assistance shall be provided to any 
entity (such as an RMC, other resident organization, or a cooperative 
or condominium entity) that has responsibilities for carrying out the 
plan.


Sec. 905.1010  Nonpurchasing residents

    (a) Nonpurchasing resident's options. If an existing resident of a 
dwelling authorized for sale under a homeownership plan is ineligible 
for purchase, or declines to purchase, the resident shall be given the 
choice of either relocation to other suitable and affordable housing or 
continued occupancy of the present dwelling on a rental basis, at a 
rent no higher than that permitted by the Act. Displacement (permanent, 
involuntary move), in order to make a dwelling available for sale, is 
prohibited. In addition to applicable program sanctions, a violation of 
the displacement prohibition may trigger a requirement to provide 
relocation assistance in accordance with the Uniform Relocation and 
Real Property Acquisition Act of 1970 and implementing regulations at 
49 CFR part 24. Where continued rental occupancy by a nonpurchasing 
resident is contemplated after conveyance of the property, the 
homeownership plan must include provision for any rental subsidy 
required (e.g., Section 8 assistance, if available and authorized by 
the Section 8 regulations). As soon as feasible after they can be 
identified, all nonpurchasing residents shall be given written notice 
of their options under this section.
    (b) Relocation assistance. A nonpurchasing resident who chooses to 
relocate pursuant to this section shall be offered the following 
relocation assistance:
    (1) Advisory services to assure full choices and real opportunities 
to obtain relocation within a full range of neighborhoods where 
suitable housing may be found, including timely information, 
counseling, and explanation of the resident's rights under applicable 
civil rights statutes and implementing regulations, as specified in 
Sec. 905.115, and referrals to suitable, safe, sanitary and affordable 
housing (at a rent no higher than permitted by the Act), which is of 
the resident's choice, on a nondiscriminatory basis, in accordance with 
applicable civil rights statutes and implementing regulations, as 
specified in Sec. 905.115. This requirement will be met if the 
applicant is offered the opportunity to relocate to another suitable 
unit in other low-income housing, under any of the housing assistance 
programs under Section 8 of the Act, or any other Federal, Tribal, 
State or local program that is comparable, as to standards of housing 
quality, admission and rent, to the programs under the Act, and 
provides a term of assistance of at least five years; and
    (2) Payment for actual, reasonable moving and related expenses.
    (c) Temporary relocation. A nonpurchasing resident who must 
relocate temporarily to permit work to be carried out shall be provided 
suitable, decent, safe and sanitary housing for the temporary period 
and reimbursed 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 and utility costs.


Sec. 905.1011  Nonroutine maintenance reserve.

    (a) When reserve is required. A nonroutine maintenance reserve 
shall be established for all multifamily properties sold under a 
homeownership plan. For single-family dwellings, such a reserve shall 
not be required if the availability of the funds needed for nonroutine 
maintenance is adequately addressed under the affordability standard 
prescribed by the plan.
    (b) Purpose of reserve. The purpose of this reserve shall be to 
provide a source of reserve funds for nonroutine maintenance (including 
replacement), as necessary to ensure the long-term success of the plan, 
including protection of the interests of the homeowners and the IHA. 
The amounts to be set aside, and other terms of this reserve, shall be 
as necessary and appropriate for the particular homeownership plan, 
taking into account such factors as prospective needs for nonroutine 
maintenance, the homeowners' financial resources, and any special 
factors that may aggravate or mitigate the need for such a reserve.


Sec. 905.1012  Purchase prices and financing.

    (a) Below-market terms. To ensure affordability by eligible 
purchasers, by the standard adopted under Sec. 906.8(e) of this 
chapter, a homeownership plan may provide for below-market purchase 
prices or below-market financing, 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 a group of potential purchasers).
    (b) Types of financing. Any type of private or public financing may 
be used (e.g., conventional, Federal Housing Administration (FHA), 
Department of Veterans Affairs (VA), Farmers' Home Administration 
(FmHA), or a Tribal, State or local program). An IHA may finance or 
assist in financing purchase by any methods it may choose, such as 
purchase-money mortgages, guarantees of mortgage loans from other 
lenders, shared equity, or lease-purchase arrangements.


Sec. 905.1013  Protection against fraud and abuse.

    A homeownership plan shall include appropriate protections against 
any risks of fraud or abuse that are presented by the particular plan, 
such as collusive purchase for the benefit of nonresidents, extended 
use of the dwelling by the purchaser as rental property, collusive sale 
that would circumvent the resale profit limitation of Sec. 905.1014.


Sec. 905.1014  Limitation on resale profit.

    (a) General. If a dwelling is sold to the initial purchaser for 
less than fair market value, the homeownership plan shall provide for 
appropriate measures to preclude realization by the initial purchaser 
of windfall profit on resale. ``Windfall profit'' means all or a 
portion of the resale proceeds attributable to the purchase price 
discount (the fair market value at date of purchase from the IHA less 
the below-market purchase price), as determined by one of the methods 
described in paragraphs (b) through (d) of this section. Subject to 
that requirement, however, purchasers should be permitted to retain any 
resale profit attributable to appreciation in value after purchase (or 
a portion of such profit under a limited or shared equity arrangement), 
along with any portion of the resale profit that is fairly attributable 
to improvements made by them after purchase.
    (b) Promissory note method. Where there is potential for a windfall 
profit because the dwelling unit is sold to the initial purchaser for 
less than fair market value, without a commensurate limited or shared 
equity restriction, the initial purchaser shall execute a promissory 
note, payable to the IHA, along with a mortgage securing the obligation 
of the note, on the following terms and conditions:
    (1) The principal amount of indebtedness shall be the lesser of:
    (i) The purchase price discount, as determined by the definition in 
paragraph (a) of this section and stated in the note as a dollar 
amount; or
    (ii) The net resale profit, in an amount to be determined upon 
resale by a formula stated in the note. That formula shall define net 
resale profit as the amount by which the gross resale price exceeds the 
sum of:
    (A) The discounted purchase price;
    (B) Reasonable sale costs charged to the initial purchaser upon 
resale; and
    (C) Any increase in the value of the property that is attributable 
to improvements paid for or performed by the initial purchaser during 
tenure as a homeowner.
    (2) At the option of the IHA, the note may provide for automatic 
reduction of the principal amount over a specified period of ownership 
while the property is used as the purchaser's family residence, 
resulting in total forgiveness of the indebtedness over a period of not 
less than five years from the date of conveyance, in annual increments 
of not more than 20 percent. This does not require an IHA's plan to 
provide for any such reduction at all, or preclude it from specifying 
terms that are less generous to the purchaser than those stated in the 
foregoing sentence.
    (3) To preclude collusive resale that would circumvent the intent 
of this section, the IHA shall (by an appropriate form of title 
restriction) condition the initial purchaser's right to resell upon 
approval by the IHA, to be based solely on the IHA's determination that 
the resale price represents fair market value or a lesser amount that 
will result in payment to the IHA, under the note, of the full amount 
of the purchase price discount (subject to any accrued reduction, if 
provided for by the homeownership plan pursuant to paragraph (b)(2) of 
this section). If so determined, the IHA shall be obligated to approve 
the resale.
    (4) The IHA may, in its sole discretion, agree to subordination of 
the mortgage that secures the promissory note, in favor of an 
additional lien granted by the purchaser as security for a loan for 
home improvements or other purposes approved by the IHA.
    (c) Limited equity method. As a second option, the requirement of 
this section may be satisfied by an appropriate form of limited equity 
arrangement, restricting the amount of net resale profit that may be 
realized by the seller (the initial purchaser and successive purchasers 
over a period prescribed by the homeownership plan) to the sum of:
    (1) The seller's paid-in equity;
    (2) The portion of the resale proceeds attributable to any 
improvements paid for or performed by the seller during homeownership 
tenure; and
    (3) An allowance for a portion of the property's appreciation in 
value during homeownership tenure, calculated by a fair and reasonable 
method specified in the homeownership plan (e.g., according to a price 
index factor or other measure).
    (d) Third option. The requirements of this section may be satisfied 
by any other fair and reasonable arrangement that will accomplish the 
essential purposes stated in paragraph (a) of this section.
    (e) Appraisal. Determinations of fair market value under this 
section shall be made on the basis of appraisal within a reasonable 
time prior to sale, by an independent appraiser to be selected by the 
IHA.


Sec. 905.1015  Use of sale proceeds.

    (a) General authority for use. Sale proceeds may, after provision 
for sale and administrative costs that are necessary and reasonable for 
carrying out the homeownership plan, be retained by the IHA and used 
for housing assistance to low-income families (as such families are 
defined under the Act). The term ``sale proceeds'' includes all 
payments made by purchasers for credit to the purchase price (e.g., 
earnest money, downpayments, payments out of the proceeds of mortgage 
loans, and principal and interest payments under purchase-money 
mortgages), along with any amounts payable upon resale under 
Sec. 905.1014, and interest earned on all such receipts. (Residual 
receipts, as defined in the ACC, shall not be treated as sale 
proceeds.)
    (b) Permissible uses. Sale proceeds may be used for any one or more 
of the following forms of housing assistance for low-income families, 
at the discretion of the IHA and as stated in the HUD-approved 
homeownership plan:
    (1) In connection with the homeownership plan from which the funds 
are derived, for purposes that are justified to ensure the success of 
the plan and to protect the interests of the homeowners, the IHA and 
any other entity with responsibility for carrying out the plan. 
Nonexclusive examples include nonroutine maintenance reserves under 
Sec. 905.1011, a reserve for loans to homeowners to prevent or cure 
default or for other emergency housing needs; a reserve for any 
contingent liabilities of the IHA under the homeownership plan (such as 
IHA guaranty of mortgage loans); and a reserve for IHA repurchase, 
repair and resale of homes in the event of defaults.
    (2) In connection with another HUD-approved homeownership plan 
under this part, for assistance to purchasers and for reasonable 
planning and implementation costs.
    (3) In connection with a Tribal, State or local homeownership 
program for low-income families, as described in the homeownership 
plan, for assistance to purchasers and for reasonable planning and 
implementation costs. Under such programs, sales proceeds may be used 
to construct or acquire additional dwellings for sale to low-income 
families, or to assist such families in purchasing other dwellings from 
public or private owners.
    (4) In connection with the IHA's other low-income housing that 
remains under ACC, for any purposes authorized for the use of operating 
funds under the ACC and applicable provisions of the Act and Federal 
regulations, as included in the HUD-approved operating budgets. 
Examples include maintenance and modernization, augmentation of 
operating reserves, protective services, and resident services. Such 
use shall not result in the reduction of the operating subsidy 
otherwise payable to the IHA for its other low-income housing.
    (5) In connection with any other type of Federal, Tribal, State, or 
local housing program for low-income families, as described in the 
homeownership plan.


Sec. 905.1016  Replacement housing.

    (a) Replacement requirement. As a condition for transfer of 
ownership under a HUD-approved homeownership plan, the IHA must obtain 
a funding commitment, from HUD or another source, for the replacement 
of each of the dwellings to be sold under the plan. Replacement housing 
may be provided by one or any combination of the following methods:
    (1) Development by the IHA of additional low-income housing under 
this part (by new construction or acquisition).
    (2) Rehabilitation of vacant low-income housing owned by the IHA.
    (3) Use of five-year, tenant-based certificate or voucher 
assistance under Section 8 of the Act.
    (4) If the homeownership plan is submitted by the IHA for sale to 
residents through an RMC, resident organization or cooperative 
association which is otherwise eligible to participate under this 
subpart, acquisition of nonpublicly-owned housing units, which the RMC, 
resident organization or cooperative association will operate as rental 
housing, comparable to IHA-owned low-income housing as to term of 
assistance, housing standards, eligibility, and contribution to rent.
    (5) Any other Federal, Tribal, State, or local housing program that 
is comparable, as to housing standards, eligibility and contribution to 
rent, to the programs referred to in paragraphs (a)(1) through (a)(3) 
of this section, and provides a term of assistance of not less than 
five years.
    (b) Funding commitments. Although a HUD funding commitment is 
required if the replacement housing requirement is to be satisfied 
through any of the HUD programs listed in paragraph (a) of this 
section, HUD's approval of a Section 5(h) homeownership plan on the 
expectation that such a funding commitment will be forthcoming shall 
not constitute a binding obligation to make such a commitment. Where 
the requirement is to be satisfied under a Tribal, State or local 
program, or a Federal program not administered by HUD, a funding 
commitment shall be required from the proper authority.
    (c) Use of sale proceeds to fund replacement housing. Sale proceeds 
that are generated under the homeownership plan may be used under some 
of the replacement housing options under paragraph (a) of this section 
(e.g., rehabilitation of vacant public housing units, or an eligible 
local program). Where a homeownership plan provides for sale proceeds 
to be used for replacement housing, HUD approval of the plan and 
execution of the IHA-HUD implementing agreement shall satisfy the 
funding commitment requirement of paragraph (a) of this section, with 
regard to the amount of replacement housing to be funded out of sale 
proceeds.
    (d) Consistency with current housing needs. Replacement housing may 
differ from the dwellings sold under the homeownership plan, as to unit 
sizes or family or elderly occupancy, if the IHA determines that such 
change is consistent with current local housing needs for low-income 
families.
    (e) Inapplicability to prior plans. This section shall not apply to 
homeownership plans that were submitted to HUD under the Section 5(h) 
Homeownership Program prior to October 1, 1990.


Sec. 905.1017  Records, reports, and audits.

    The IHA shall be responsible for the maintenance of records 
(including sale and financial records) for all activities incident to 
implementation of the homeownership plan. Until all planned sales of 
individual dwellings have been completed, the IHA shall submit to HUD 
annual sales reports, in a form prescribed by HUD. The receipt, 
retention, and expenditure of the sale proceeds shall be covered in the 
regular independent audits of the IHA's housing operations, and any 
supplementary audits that HUD may find necessary for monitoring. Where 
another entity is responsible for sale of individual units, pursuant to 
Sec. 905.1007(b), the IHA must ensure that the entity's 
responsibilities include proper recordkeeping and accountability to the 
IHA, sufficient to enable the IHA to monitor compliance with the 
approved homeownership plan, to prepare its reports to HUD, and to meet 
its audit responsibilities. All books and records shall be subject to 
inspection and audit by HUD and the General Accounting Office (GAO).

(Approved by the Office of Management and Budget under control 
number 2577-0201)


Sec. 905.1018  Submission and review of homeownership plan.

    Whether to develop and submit a proposed homeownership plan is a 
matter within the discretion of each IHA. An IHA may initiate a 
proposal at any time, according to the following procedures:
    (a) Preliminary consultation with HUD staff. Before submission of a 
proposed plan, the IHA shall consult informally with the appropriate 
HUD Field Office to assess feasibility and the particulars to be 
addressed by the plan.
    (b) Submission to HUD. The IHA shall submit the proposed plan, 
together with supporting documentation, in a format prescribed by HUD, 
to the appropriate HUD Field Office.
    (c) Conditional approval. Conditional approval may be given, at HUD 
discretion, where HUD determines that to be justified. For example, 
conditional HUD approval might be a necessary precondition for the IHA 
to obtain the funding commitments required to satisfy the requirements 
for final HUD approval of a complete homeownership plan. Where 
conditional approval is granted, HUD will specify the conditions in 
writing.

(Approved by the Office of Management and Budget under control 
number 2577-0201)


Sec. 905.1019  HUD approval and IHA-HUD implementing agreement.

    Upon HUD notification to the IHA that the homeownership plan is 
approvable (in final form that satisfies all applicable requirements of 
this part), the IHA and HUD will execute a written implementing 
agreement, in a form prescribed by HUD, to evidence HUD approval and 
authorization for implementation. The plan itself, as approved by HUD, 
shall be incorporated in the implementing agreement. Any of the items 
of supporting documentation may also be incorporated, if agreeable to 
the IHA and HUD. The IHA shall be obligated to carry out the approved 
homeownership plan and other provisions of the implementing agreement 
without modification, except with written approval by HUD.

(Approved by the Office of Management and Budget under control 
number 2577-0201)


Sec. 905.1020  Content of homeownership plan.

    The homeownership plan must address the following matters, as 
applicable to the particular factual situation:
    (a) Property description. A description of the property, including 
identification of the development and the specific dwellings to be 
sold.
    (b) Repair or rehabilitation. If applicable, a plan for any repair 
or rehabilitation required under Sec. 905.1006, based on the assessment 
of the physical condition of the property that is included in the 
supporting documentation.
    (c) 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. 905.1008.
    (d) Sale and financing. Terms and conditions of sale and financing 
(see, particularly, Secs. 905.1011 through 905.1014).
    (e) Future consultation with residents. A plan for consultation 
with residents during the implementation stage (See Sec. 905.1005). If 
appropriate, this may be combined with the plan for counseling.
    (f) Counseling. Counseling, training, and technical assistance to 
be provided in accordance with Sec. 905.1009.
    (g) Sale via other entity. If the plan contemplates sale to 
residents via an entity other than the IHA, a description of that 
entity's responsibilities and information demonstrating that the 
requirements of Sec. 905.1007 have been met or will be met in a timely 
fashion.
    (h) Nonpurchasing residents. If applicable, a plan for 
nonpurchasing residents, in accordance with Sec. 905.1010.
    (i) Sale proceeds. An estimate of the sale proceeds and an 
explanation of how they will be used, in accordance with Sec. 905.1015.
    (j) Replacement housing. A replacement housing plan, in accordance 
with Sec. 905.1016.
    (k) Administration. An administrative plan, including estimated 
staffing requirements.
    (l) Recordkeeping, accounting and reporting. A description of the 
recordkeeping, accounting and reporting procedures to be used, 
including those required by Sec. 905.1017.
    (m) Budget. A budget estimate, showing the costs of implementing 
the plan, and the sources of the funds that will be used.
    (n) Timetable. An estimated timetable for the major steps required 
to carry out the plan.

(Approved by the Office of Management and Budget under control 
number 2577-0201)


Sec. 905.1021  Supporting documentation.

    The following supporting documentation shall be submitted to HUD 
with the proposed homeownership plan, as appropriate for the particular 
plan:
    (a) Estimate of value. An estimate of the fair market value of the 
property, including the range of fair market values of individual 
dwellings, with information to support the reasonableness of the 
estimate. (The purpose of this information is merely to assist HUD in 
determining whether, taking into consideration the estimated fair 
market value of the property, the plan adequately addresses any risks 
of fraud and abuse, pursuant to Sec. 905.1013, and windfall profit on 
resale, pursuant to Sec. 905.1014. A formal appraisal need not be 
submitted with the proposed homeownership plan.)
    (b) Physical assessment. An assessment of the physical condition of 
the property, based on the standards specified in Sec. 905.1006.
    (c) Workability. A statement demonstrating the practical 
workability of the plan, based on analysis of data on such elements as 
purchase prices, costs of repair or rehabilitation, 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. 905.1004(a).)
    (d) IHA commitment and capability. Information to substantiate the 
commitment and capability of the IHA and any other entity with 
substantial responsibilities for implementing the plan.
    (e) Resident planning input. A description of resident consultation 
activities carried out pursuant to Sec. 905.1005 before submission of 
the plan, with a summary of the views and recommendations of residents 
and copies of any written comments that may have been submitted to the 
IHA by individual residents and resident organizations, and any other 
individuals and organizations.
    (f) Nondiscrimination certification. The IHA's certification that 
it will administer the plan on a nondiscriminatory basis, in accordance 
with applicable civil rights laws and implementing regulations, as 
described in Sec. 905.115 of this part, and will assure compliance with 
those requirements by any other entity that may assume substantial 
responsibilities for implementing the plan.
    (g) Legal opinion. An opinion by legal counsel to the IHA, stating 
that counsel has reviewed the plan and finds it consistent with all 
applicable requirements of Federal, Tribal, State, and local law, 
including regulations as well as statutes. In addition, counsel must 
identify the major legal requirements that remain to be met in 
implementing the plan, if approved by HUD as submitted, indicating an 
opinion about whether those requirements can be met without special 
problems that may disrupt the timetable or other features contained in 
the plan.
    (h) Board resolution. A resolution by the IHA's Board of 
Commissioners, evidencing its approval of the plan.
    (i) Other information. Any other information that may reasonably be 
required for HUD review of the plan. Except for the IHA-HUD 
implementing agreement under Sec. 905.1019, HUD approval is not 
required for documents to be prepared and used by the IHA in 
implementing the plan (such as contracts, applications, deeds, 
mortgages, promissory notes, and cooperative or condominium documents), 
if their essential terms and conditions are described in the plan. 
Consequently, those documents need not be submitted as part of the plan 
or the supporting documentation.

(Approved by the Office of Management and Budget under control 
number 2577-0201)

    3. Part 906, consisting of Secs. 906.1 through 906.21, is revised 
to read as follows:

PART 906--SECTION 5(h) HOMEOWNERSHIP PROGRAM

Sec.
906.1  Purpose.
906.2  Applicability.
906.3  General authority for sale.
906.4  Fundamental criteria for HUD approval.
906.5  Resident consultation and involvement.
906.6  Property that may be sold.
906.7  Methods of sale and ownership.
906.8  Purchaser eligibility and selection.
906.9  Counseling, training, and technical assistance.
906.10  Nonpurchasing residents.
906.11  Nonroutine maintenance reserve.
906.12  Purchase prices and financing.
906.13  Protection against fraud and abuse.
906.14  Limitation on resale profit.
906.15  Use of sale proceeds.
906.16  Replacement housing.
906.17  Records, reports, and audits.
906.18  Submission and review of homeownership plan.
906.19  HUD approval and PHA-HUD implementing agreement.
906.20  Content of homeownership plan.
906.21  Supporting documentation.

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


Sec. 906.1  Purpose.

    This part codifies the provisions of the Section 5(h) Homeownership 
Program for public housing, as authorized by sections 5(h) and 
6(c)(4)(D) of the United States Housing Act of 1937 (Act) and 
administered by the Department of Housing and Urban Development (HUD).


Sec. 906.2  Applicability.

    (a) General applicability. This part applies to public housing 
owned by public housing agencies (PHAs) (excluding Indian Housing 
Authorities (IHAs)) subject to Annual Contributions Contracts (ACCs) 
under the Act. In reference to housing properties, ``development'' 
means the same as ``project'' (as defined in the Act). Except where 
otherwise indicated by the context, ``resident'' means the same as 
``tenant'', as the latter term is used in the Act, including Turnkey 
III homebuyers, if applicable, as well as rental tenants of public 
housing and Section 8 residents, and references to sale, purchase, 
conveyance and ownership include the types of interests and 
transactions that are incident to cooperative ownership.
    (b) Nonretroactivity. In the case of a Section 5(h) homeownership 
plan that was approved by HUD prior to the effective date of the 
interim rule under this part (October 21, 1991), no modifications or 
additional requirements will be imposed under the provisions of the 
interim or final rule, except for reasonable administrative procedures 
prescribed by HUD. Similarly, in the case of a plan that was approved 
under the interim rule, before the effective date of the final rule 
(December 12, 1994), no modifications or additional requirements will 
be imposed under the provisions of the final rule, except for such 
reasonable administrative procedures.


Sec. 906.3  General authority for sale.

    A PHA may sell all or a portion of a public housing development to 
eligible residents, as defined under Sec. 906.8, for purposes of 
homeownership, according to a homeownership plan approved by HUD under 
this part. If the development is subject to indebtedness under the 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. (In the case of a development 
with financing restrictions (such as a bond-financed development), 
however, sale is subject to the terms and conditions of the applicable 
restrictions.) Upon sale in accordance with the HUD-approved 
homeownership plan, 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 
further HUD funding for public housing operating subsidies or 
modernization under the Act upon conveyance of title by the PHA. (That 
does not preclude any other types of post-sale subsidies that may be 
available, under other Federal, State, or local programs, such as the 
possibility of available assistance under Section 8 of the Act, in 
connection with a plan for cooperative homeownership, if authorized by 
the Section 8 regulations.)


Sec. 906.4  Fundamental criteria for HUD approval.

    HUD will approve a PHA's homeownership plan if it meets all three 
of the following criteria:
    (a) Workability. The plan must be practically workable, 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. The plan must be consistent with law, including the 
requirements of this part and any other applicable Federal, State, and 
local statutes and regulations, and existing contracts. Subject to the 
other two criteria stated in this section, any provision that is not 
contrary to those legal requirements may be included in the plan, at 
the discretion of the PHA, whether or not expressly authorized in this 
part.
    (c) Documentation. The plan must be clear and complete enough to 
serve as a working document for implementation, as well as a basis for 
HUD review.


Sec. 906.5  Resident consultation and involvement.

    (a) Resident input. In developing a proposed homeownership plan, 
and in carrying out the plan after HUD approval, the PHA shall consult 
with residents of the development involved, and with any resident 
organization that represents them, as necessary and appropriate to 
provide them with information and a reasonable opportunity to make 
their views and recommendations known to the PHA. If the plan 
contemplates sale of units in an entirely vacant development, the PHA 
shall consult with the PHA-wide resident organization, if any. While 
the Act gives the PHA sole legal authority for final decisions, as to 
whether or not to submit a proposed homeownership plan and the content 
of such a proposal, the PHA shall give residents and their resident 
organizations full opportunity for input in the homeownership planning 
process, and full consideration of their concerns and opinions.
    (b) Resident initiatives. Where individual residents, a Resident 
Management Corporation (RMC), or another form of resident organization 
may wish to initiate discussion of a possible homeownership plan, the 
PHA shall negotiate with them in good faith. Joint development and 
submission of the plan by the PHA and RMC, or other resident 
organization, is encouraged. In addition, participation of an RMC or 
other resident organization in the implementation of the plan is 
encouraged.

(Approved by the Office of Management and Budget under control 
number 2577-0201)


Sec. 906.6  Property that may be sold.

    (a) Types of property. Subject to the workability criterion of 
Sec. 906.4(a) (including, for example, consideration of common elements 
and other characteristics of the property), a homeownership plan may 
provide for sale of one or more dwellings, along with interests in any 
common elements, comprising all or a portion of one or more public 
housing developments. A plan may provide for conversion of existing 
public housing to homeownership or for homeownership sale of newly-
developed public housing. (However, for public housing units developed 
as replacement housing for units demolished or disposed of pursuant to 
24 CFR part 970, that part requires that the initial occupants be 
selected solely on the basis of the requirements governing rental 
occupancy, without reference to any additional homeownership 
eligibility or selection requirements under this part.) Turnkey III 
homeownership units may be converted to Section 5(h) homeownership, 
upon voluntary termination by any existing Turnkey III homebuyers of 
their contractual rights and amendment of the ACC, in a form prescribed 
by HUD.
    (b) Physical condition of property. The property must meet local 
code requirements (or, if no local code exists, the housing quality 
standards established by HUD for the Section 8 Housing Assistance 
Payments Program for Existing Housing, under 24 CFR part 882) and the 
requirements for elimination of lead-based paint hazards in HUD-
associated housing, under subpart C of 24 CFR part 35. When a 
prospective purchaser with disabilities requests accessible features, 
the features must be added in accordance with 24 CFR parts 8 and 9. 
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, unless the terms of sale 
include measures to assure that the work will be completed within a 
reasonable time after conveyance, not to exceed two years (e.g., as a 
part of a mortgage financing package that provides the purchaser with a 
home improvement loan or pursuant to a sound sweat equity arrangement).


Sec. 906.7  Methods of sale and ownership.

    (a) Permissible methods. Any appropriate method of sale and 
ownership may be used, such as fee-simple conveyance of single-family 
dwellings or conversion of multifamily buildings to resident-owned 
cooperatives or condominiums.
    (b) Direct or indirect sale. A PHA may sell dwellings to residents 
directly or (with respect to multifamily buildings or a group of 
single-family dwellings) through another entity established and 
governed by, and solely composed of, residents of the PHA's public 
housing, provided that:
    (1) The other entity has the necessary legal capacity and practical 
capability to carry out its responsibilities under the plan; and
    (2) The respective rights and obligations of the PHA and the other 
entity will be specified by a written agreement that includes:
    (i) Assurances that the other entity will comply with all 
provisions of the HUD-approved homeownership plan;
    (ii) Assurances that the PHA's conveyance of the property to the 
other entity will be subject to a title restriction providing that the 
property may be resold or otherwise transferred only by conveyance of 
individual dwellings to eligible residents, in accordance with the HUD-
approved homeownership plan, or by reconveyance to the PHA, and that 
the property will not be encumbered by the other entity without the 
written consent of the PHA;
    (iii) Protection against fraud or misuse of funds or other property 
on the part of the other entity, its employees, and agents;
    (iv) Assurances that the resale proceeds will be used only for the 
purposes specified by the HUD-approved homeownership plan;
    (v) Limitation of the other entity's administrative and overhead 
costs, and of any compensation or profit that may be realized by the 
entity, to amounts that are reasonable in relation to its 
responsibilities and risks;
    (vi) Accountability to the PHA and residents for the recordkeeping, 
reporting and audit requirements of Sec. 906.17;
    (vii) Assurances that the other entity will administer its 
responsibilities under the plan on a nondiscriminatory basis, in 
accordance with the Fair Housing Act and implementing regulations; and
    (viii) Adequate legal remedies for the PHA and residents, in the 
event of the other entity's failure to perform in accordance with the 
agreement.


Sec. 906.8  Purchaser eligibility and selection.

    Standards and procedures for eligibility and selection of the 
initial purchasers of individual dwellings shall be consistent with the 
following provisions:
    (a) Applications. Persons who are interested in purchase must 
submit applications for that specific purpose, and those applications 
shall be handled separately from applications for other PHA programs. 
For vacant units, applications shall be dated as received by the PHA 
and, subject to eligibility and preference factors, selection shall be 
made in the order of receipt. Application for homeownership shall not 
affect an applicant's place on any other PHA waiting list.
    (b) Eligibility threshold. Subject to any additional eligibility 
and preference standards that are required or permitted under this 
section, a homeownership plan may provide for the eligibility of 
residents of public housing owned or leased by the seller PHA 
(including Turnkey III homebuyers who may elect to terminate their 
existing Turnkey III homebuyer agreements in favor of purchase under 
the Section 5(h) homeownership plan) and residents of other housing who 
are receiving housing assistance under Section 8 of the Act, under an 
ACC administered by the seller PHA, provided that the resident has been 
in lawful occupancy for a minimum period specified in the plan (not 
less than 30 days prior to conveyance of title to the dwelling to be 
purchased). For residents of other housing who are receiving housing 
assistance under Section 8, the minimum occupancy requirement may be 
satisfied in the unit for which the family is receiving Section 8 
assistance or the public housing unit. If the family is to meet part or 
all of the minimum occupancy requirement in the public housing unit, 
the Section 8 assistance must be terminated before the family moves 
into the public housing unit. Public housing units are ineligible for 
Section 8 certificate and voucher assistance as long as they remain 
under ACC as public housing.
    (c) Applicants who do not meet minimum residency requirement for 
eligibility. (1) A homeownership plan, at PHA discretion, may also 
permit eligibility for applicants who do not meet the minimum residency 
requirement of paragraph (b) of this section (30 days or more, as 
prescribed by the homeownership plan) at the time of application, 
provided that their selection is conditioned upon completion of the 
minimum residency requirement prior to conveyance of title. (A plan may 
thus allow satisfaction of the threshold requirements for eligibility 
by:
    (i) Existing public housing or Section 8 residents with less than 
the minimum period of residency;
    (ii) Families who are already on the PHA's waiting lists; and
    (iii) Other low-income families who are neither public housing nor 
Section 8 residents at the time of application or selection.)
    (2) Applicants who are not already public housing residents, 
however, must also satisfy the requirements for admission to such 
housing.
    (d) Compliance with lease obligations. Eligibility shall be limited 
to residents who have been current in all of their lease obligations 
(in the case of Turnkey III homebuyers, obligations under their Turnkey 
III homebuyer agreements) over a period of not less than six months 
prior to conveyance of title (or, if so provided by the homeownership 
plan, such lesser period as has elapsed since the beginning of public 
housing or Section 8 tenure), including, but not limited to, payment of 
rents (or homebuyer's monthly payments) and other charges, and 
reporting of all income that is pertinent to determination of rental 
charges (or homebuyer's monthly payments). At the PHA's discretion, the 
homeownership plan may allow a resident to remedy under-reporting of 
income, provided that proper reporting of income would not have 
resulted in ineligibility for admission to public housing or for 
Section 8 assistance, by payment of the resulting underpayment for rent 
(or homebuyer's monthly payments) prior to conveyance of title to the 
homeownership dwelling, either in a lump-sum or in installments over a 
reasonable period. Alternatively, the plan may permit payment within a 
reasonable period after conveyance of title, under an agreement secured 
by a mortgage on the property.
    (e) Affordability standard. Eligibility shall be limited to 
residents 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 plan may, however, take account of any available subsidy 
from other sources (e.g., in connection with a plan for cooperative 
ownership, assistance under Section 8 of the Act, if available and 
authorized by the Section 8 regulations). Under this affordability 
standard, an applicant must meet the following requirements:
    (1) 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) The applicant can pay any amounts required for closing, such as 
a downpayment (if any) and closing costs chargeable to the purchaser, 
in accordance with the homeownership plan.
    (f) Option to restrict eligibility. A homeownership plan may, at 
the PHA's discretion, restrict eligibility to one or more residency-
based categories (e.g., for occupied units, eligibility may be 
restricted to the existing residents of the units to be sold; for 
vacant units, eligibility may be restricted to public housing residents 
only, or to public housing residents plus any one or more of the other 
residency-based categories that may be established under paragraphs (b) 
and (c) of this section), as may be reasonable in view of the number of 
units to be offered for sale and the estimated number of eligible 
applicants in various categories, provided that the residency-based 
preference requirements mandated by paragraph (g) of this section are 
observed.
    (g) Residency-based preferences. For occupied units, a preference 
shall be given to the existing residents of each of the dwellings to be 
sold. For vacant units (including units which are voluntarily vacated), 
a preference shall be given to residents of other public housing units 
owned or leased by the seller PHA (over any other residency-based 
categories that may be established by the homeownership plan for 
Section 8 residents and any categories of nonresident applicants).
    (h) Self sufficiency preference. For vacant units, a further 
preference shall be given to those applicants who have completed self-
sufficiency and job training programs, as identified in the 
homeownership plan, or who meet equivalent standards of economic self-
sufficiency, such as actual employment experience, as specified in the 
homeownership plan.
    (i) Other eligibility or preference standards. If consistent with 
the other provisions of this section, a homeownership plan may include 
any other standards for eligibility or preference, or both, at the 
discretion of the PHA, that are not contrary to law.

(Approved by the Office of Management and Budget under control 
number 2577-0201)


Sec. 906.9  Counseling, training, and technical assistance.

    Appropriate counseling shall be provided to prospective and actual 
purchasers, as necessary for each stage of implementation of the 
homeownership plan. Particular attention must be given to the terms of 
purchase and financing, along with the other financial and maintenance 
responsibilities of homeownership. In addition, where applicable, 
appropriate training and technical assistance shall be provided to any 
entity (such as an RMC, other resident organization, or a cooperative 
or condominium entity) that has responsibilities for carrying out the 
plan.


Sec. 906.10  Nonpurchasing residents.

    (a) Nonpurchasing resident's options. If an existing resident of a 
dwelling authorized for sale under a homeownership plan is ineligible 
for purchase, or declines to purchase, the resident shall be given the 
choice of either relocation to other suitable and affordable housing or 
continued occupancy of the present dwelling on a rental basis, at a 
rent no higher than that permitted by the Act. Displacement (permanent, 
involuntary move) in order to make a dwelling available for sale, is 
prohibited. In addition to applicable program sanctions, a violation of 
the displacement prohibition may trigger a requirement to provide 
relocation assistance in accordance with the Uniform Relocation 
Assistance and Real Property Acquisition Act of 1970 and implementing 
regulations at 49 CFR Part 24. Where continued rental occupancy by a 
nonpurchasing resident is contemplated after conversion of the property 
to cooperative or condominium ownership, the homeownership plan must 
include provision for any rental subsidy required (e.g., Section 8 
assistance, if available and authorized by the Section 8 regulations). 
As soon as feasible after they can be identified, all nonpurchasing 
residents shall be given written notice of their options under this 
section.
    (b) Relocation assistance. A nonpurchasing resident who chooses to 
relocate pursuant to this section shall be offered the following 
relocation assistance:
    (1) Advisory services to assure full choices and real opportunities 
to obtain relocation within a full range of neighborhoods where 
suitable housing may be found, in and outside areas of minority 
concentration, including timely information, counseling, explanation of 
the resident's rights under the Fair Housing Act, and referrals to 
suitable, safe, sanitary and affordable housing (at a rent no higher 
than permitted by the Act), which is of the resident's choice, on a 
nondiscriminatory basis, without regard to race, color, religion 
(creed), national origin, handicap, age, sex, or familial status, in 
compliance with applicable Federal and State law. This requirement will 
be met if the resident is offered the opportunity to relocate to other 
suitable housing under the Public Housing Program, any of the housing 
assistance programs under Section 8 of the Act, or any other Federal, 
State or local program that is comparable, as to standards of housing 
quality, admission and rent, to the programs under the Act, and 
provides a term of assistance of at least five years; and
    (2) Payment for actual, reasonable moving and related expenses.
    (c) Temporary relocation. A nonpurchasing resident who must 
relocate temporarily to permit work to be carried out shall be provided 
suitable, decent, safe and sanitary housing for the temporary period 
and reimbursed 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 and utility costs.


Sec. 906.11  Nonroutine maintenance reserve.

    (a) When reserve is required. A nonroutine maintenance reserve 
shall be established for all multifamily properties sold under a 
homeownership plan. For single-family dwellings, such a reserve shall 
not be required if the availability of the funds needed for nonroutine 
maintenance is adequately addressed under the affordability standard 
prescribed by the plan.
    (b) Purpose of reserve. The purpose of this reserve shall be to 
provide a source of reserve funds for nonroutine maintenance (including 
replacement), as necessary to ensure the long-term success of the plan, 
including protection of the interests of the homeowners and the PHA. 
The amounts to be set aside, and other terms of this reserve, shall be 
as necessary and appropriate for the particular homeownership plan, 
taking into account such factors as prospective needs for nonroutine 
maintenance, the homeowners' financial resources, and any special 
factors that may aggravate or mitigate the need for such a reserve.


Sec. 906.12  Purchase prices and financing.

    (a) Below-market terms. To ensure affordability by eligible 
purchasers, by the standard adopted under Sec. 906.8(e), a 
homeownership plan may provide for below-market purchase prices or 
below-market financing, 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 a group of 
potential purchasers).
    (b) Types of financing. Any type of private or public financing may 
be used (e.g., conventional, Federal Housing Administration (FHA), 
Department of Veterans Affairs (VA), Farmers' Home Administration 
(FmHA), or a State or local program). A PHA may finance or assist in 
financing purchase by any methods it may choose, such as purchase-money 
mortgages, guarantees of mortgage loans from other lenders, shared 
equity, or lease-purchase arrangements.


Sec. 906.13  Protection against fraud and abuse.

    A homeownership plan shall include appropriate protections against 
any risks of fraud or abuse that are presented by the particular plan, 
such as collusive purchase for the benefit of nonresidents, extended 
use of the dwelling by the purchaser as rental property, or collusive 
sale that would circumvent the resale profit limitation of Sec. 906.14.


Sec. 906.14  Limitation on resale profit.

    (a) General. If a dwelling is sold to the initial purchaser for 
less than fair market value, the homeownership plan shall provide for 
appropriate measures to preclude realization by the initial purchaser 
of windfall profit on resale. ``Windfall profit'' means all or a 
portion of the resale proceeds attributable to the purchase price 
discount (the fair market value at date of purchase from the PHA less 
the below-market purchase price), as determined by one of the methods 
described in paragraphs (b) through (d) of this section. Subject to 
that requirement, however, purchasers should be permitted to retain any 
resale profit attributable to appreciation in value after purchase (or 
a portion of such profit under a limited or shared equity arrangement), 
along with any portion of the resale profit that is fairly attributable 
to improvements made by them after purchase.
    (b) Promissory note method. Where there is potential for a windfall 
profit because the dwelling unit is sold to the initial purchaser for 
less than fair market value, without a commensurate limited or shared 
equity restriction, the initial purchaser shall execute a promissory 
note, payable to the PHA, along with a mortgage securing the obligation 
of the note, on the following terms and conditions:
    (1) The principal amount of indebtedness shall be the lesser of:
    (i) The purchase price discount, as determined by the definition in 
paragraph (a) of this section and stated in the note as a dollar 
amount; or
    (ii) The net resale profit, in an amount to be determined upon 
resale by a formula stated in the note. That formula shall define net 
resale profit as the amount by which the gross resale price exceeds the 
sum of:
    (A) The discounted purchase price;
    (B) Reasonable sale costs charged to the initial purchaser upon 
resale; and
    (C) Any increase in the value of the property that is attributable 
to improvements paid for or performed by the initial purchaser during 
tenure as a homeowner.
    (2) At the option of the PHA, the note may provide for automatic 
reduction of the principal amount over a specified period of ownership 
while the property is used as the purchaser's family residence, 
resulting in total forgiveness of the indebtedness over a period of not 
less than five years from the date of conveyance, in annual increments 
of not more than 20 percent. This does not require a PHA's plan to 
provide for any such reduction at all, or preclude it from specifying 
terms that are less generous to the purchaser than those stated in the 
foregoing sentence.
    (3) To preclude collusive resale that would circumvent the intent 
of this section, the PHA shall (by an appropriate form of title 
restriction) condition the initial purchaser's right to resell upon 
approval by the PHA, to be based solely on the PHA's determination that 
the resale price represents fair market value or a lesser amount that 
will result in payment to the PHA, under the note, of the full amount 
of the purchase price discount (subject to any accrued reduction, if 
provided for by the homeownership plan pursuant to paragraph (b)(2) of 
this section). If so determined, the PHA shall be obligated to approve 
the resale.
    (4) The PHA may, in its sole discretion, agree to subordination of 
the mortgage that secures the promissory note, in favor of an 
additional lien granted by the purchaser as security for a loan for 
home improvements or other purposes approved by the PHA.
    (c) Limited equity method. As a second option, the requirement of 
this section may be satisfied by an appropriate form of limited equity 
arrangement, restricting the amount of net resale profit that may be 
realized by the seller (the initial purchaser and successive purchasers 
over a period prescribed by the homeownership plan) to the sum of:
    (1) The seller's paid-in equity;
    (2) The portion of the resale proceeds attributable to any 
improvements paid for or performed by the seller during homeownership 
tenure; and
    (3) An allowance for a portion of the property's appreciation in 
value during homeownership tenure, calculated by a fair and reasonable 
method specified in the homeownership plan (e.g., according to a price 
index factor or other measure).
    (d) Third option. The requirements of this section may be satisfied 
by any other fair and reasonable arrangement that will accomplish the 
essential purposes stated in paragraph (a) of this section.
    (e) Appraisal. Determinations of fair market value under this 
section shall be made on the basis of appraisal within a reasonable 
time prior to sale by an independent appraiser, to be selected by the 
PHA.


Sec. 906.15  Use of sale proceeds.

    (a) General authority for use. Sale proceeds may, after provision 
for sale and administrative costs that are necessary and reasonable for 
carrying out the homeownership plan, be retained by the PHA and used 
for housing assistance to low-income families (as such families are 
defined under the Act). The term ``sale proceeds'' includes all 
payments made by purchasers for credit to the purchase price (e.g., 
earnest money, downpayments, payments out of the proceeds of mortgage 
loans, and principal and interest payments under purchase-money 
mortgages), along with any amounts payable upon resale under 
Sec. 906.14, and interest earned on all such receipts. (Residual 
receipts, as defined in the ACC, shall not be treated as sale 
proceeds.)
    (b) Permissible uses. Sale proceeds may be used for any one or more 
of the following forms of housing assistance for low-income families, 
at the discretion of the PHA and as stated in the HUD-approved 
homeownership plan:
    (1) In connection with the homeownership plan from which the funds 
are derived, for purposes that are justified to ensure the success of 
the plan and to protect the interests of the homeowners, the PHA and 
any other entity with responsibility for carrying out the plan. 
Nonexclusive examples include nonroutine maintenance reserves under 
Sec. 906.11; a reserve for loans to homeowners to prevent or cure 
default or for other emergency housing needs; a reserve for any 
contingent liabilities of the PHA under the homeownership plan (such as 
PHA guaranty of mortgage loans); and a reserve for PHA repurchase, 
repair and resale of homes in the event of defaults.
    (2) In connection with another HUD-approved homeownership plan 
under this part, for assistance to purchasers and for reasonable 
planning and implementation costs.
    (3) In connection with a State or local homeownership program for 
low-income families, as described in the homeownership plan, for 
assistance to purchasers and for reasonable planning and implementation 
costs. Under such programs, sales proceeds may be used to construct or 
acquire additional dwellings for sale to low-income families, or to 
assist such families in purchasing other dwellings from public or 
private owners.
    (4) In connection with the PHA's other public housing that remains 
under ACC, for any purposes authorized for the use of operating funds 
under the ACC and applicable provisions of the Act and Federal 
regulations, as included in the HUD-approved operating budgets. 
Examples include maintenance and modernization, augmentation of 
operating reserves, protective services, and resident services. Such 
use shall not result in the reduction of the operating subsidy 
otherwise payable to the PHA under 24 CFR part 990.
    (5) In connection with any other type of Federal, State, or local 
housing program for low-income families, as described in the 
homeownership plan.


Sec. 906.16  Replacement housing.

    (a) Replacement requirement. As a condition for transfer of 
ownership under a HUD-approved homeownership plan, the PHA must obtain 
a funding commitment, from HUD or another source, for the replacement 
of each of the dwellings to be sold under the plan. Replacement housing 
may be provided by one or any combination of the following methods:
    (1) Development by the PHA of additional public housing under 24 
CFR part 941 (by new construction or acquisition).
    (2) Rehabilitation of vacant public housing owned by the PHA.
    (3) Use of five-year, tenant-based certificate or voucher 
assistance under Section 8 of the Act.
    (4) If the homeownership plan is submitted by the PHA for sale to 
residents through an RMC, resident organization or cooperative 
association which is otherwise eligible to participate under this part, 
acquisition of nonpublicly-owned housing units, which the RMC, resident 
organization or cooperative association will operate as rental housing, 
comparable to public housing as to term of assistance, housing 
standards, eligibility, and contribution to rent.
    (5) Any other Federal, State, or local housing program that is 
comparable, as to housing standards, eligibility and contribution to 
rent, to the programs referred to in paragraphs (a)(1) through (a)(3) 
of this section, and provides a term of assistance of not less than 
five years.
    (b) Funding commitments. Although a HUD funding commitment is 
required if the replacement housing requirement is to be satisfied 
through any of the HUD programs listed in paragraph (a) of this 
section, HUD's approval of a Section 5(h) homeownership plan on the 
expectation that such a funding commitment will be forthcoming shall 
not constitute a binding obligation to make such a commitment. Where 
the requirement is to be satisfied under a State or local program, or a 
Federal program not administered by HUD, a funding commitment shall be 
required from the proper authority.
    (c) Use of sale proceeds to fund replacement housing. Sale proceeds 
that are generated under the homeownership plan may be used under some 
of the replacement housing options under paragraph (a) of this section 
(e.g., rehabilitation of vacant public housing units, or an eligible 
local program). Where a homeownership plan provides for sale proceeds 
to be used for replacement housing, HUD approval of the plan and 
execution of the PHA-HUD implementing agreement shall satisfy the 
funding commitment requirement of paragraph (a) of this section, with 
regard to the amount of replacement housing to be funded out of sale 
proceeds.
    (d) Consistency with current housing needs. Replacement housing may 
differ from the dwellings sold under the homeownership plan, as to unit 
sizes or family or elderly occupancy, if the PHA determines that such 
change is consistent with current local housing needs for low-income 
families.
    (e) Inapplicability to prior plans. This section shall not apply to 
homeownership plans that were submitted to HUD under the Section 5(h) 
Homeownership Program prior to October 1, 1990.


Sec. 906.17  Records, reports, and audits.

    The PHA shall be responsible for the maintenance of records 
(including sale and financial records, which must include information 
on the racial and ethnic characteristics of the purchasers) for all 
activities incident to implementation of the HUD-approved homeownership 
plan. Until all planned sales of individual dwellings have been 
completed, the PHA shall submit to HUD annual sales reports, in a form 
prescribed by HUD. The receipt, retention, and expenditure of the sale 
proceeds shall be covered in the regular independent audits of the 
PHA's public housing operations, and any supplementary audits that HUD 
may find necessary for monitoring. Where another entity is responsible 
for sale of individual units, pursuant to Sec. 906.7(b), the PHA must 
ensure that the entity's responsibilities include proper recordkeeping 
and accountability to the PHA, sufficient to enable the PHA to monitor 
compliance with the approved homeownership plan, to prepare its reports 
to HUD, and to meet its audit responsibilities. All books and records 
shall be subject to inspection and audit by HUD and the General 
Accounting Office (GAO).

(Approved by the Office of Management and Budget under control 
number 2577-0201)


Sec. 906.18  Submission and review of homeownership plan.

    Whether to develop and submit a proposed homeownership plan is a 
matter within the discretion of each PHA. A PHA may initiate a proposal 
at any time, according to the following procedures:
    (a) Preliminary consultation with HUD staff. Before submission of a 
proposed plan, the PHA shall consult informally with the appropriate 
HUD Field Office to assess feasibility and the particulars to be 
addressed by the plan.
    (b) Submission to HUD. The PHA shall submit the proposed plan, 
together with supporting documentation, in a format prescribed by HUD, 
to the appropriate HUD Field Office.
    (c) Conditional approval. Conditional approval may be given, at HUD 
discretion, where HUD determines that to be justified. For example, 
conditional HUD approval might be a necessary precondition for the PHA 
to obtain the funding commitments required to satisfy the requirements 
for final HUD approval of a complete homeownership plan. Where 
conditional approval is granted, HUD will specify the conditions in 
writing.

(Approved by the Office of Management and Budget under control 
number 2577-0201)


Sec. 906.19  HUD approval and PHA-HUD implementing agreement.

    Upon HUD notification to the PHA that the homeownership plan 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 plan itself, as approved by HUD, 
shall 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 shall be obligated to carry out the approved 
homeownership plan and other provisions of the implementing agreement 
without modification, except with written approval by HUD.

(Approved by the Office of Management and Budget under control 
number 2577-0201)


Sec. 906.20  Content of homeownership plan.

    The homeownership plan must address the following matters, as 
applicable to the particular factual situation:
    (a) Property description. A description of the property, including 
identification of the development and the specific dwellings to be 
sold.
    (b) Repair or rehabilitation. If applicable, a plan for any repair 
or rehabilitation required under Sec. 906.6, based on the assessment of 
the physical condition of the property that is included in the 
supporting documentation.
    (c) 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. 906.8. If the homeownership plan allows 
application for purchase of vacant 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 plan 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.
    (d) Sale and financing. Terms and conditions of sale and financing 
(see, particularly, Secs. 906.11 through 906.14).
    (e) Future consultation with residents. A plan for consultation 
with residents during the implementation stage (See Sec. 906.5). If 
appropriate, this may be combined with the plan for counseling.
    (f) Counseling. Counseling, training, and technical assistance to 
be provided in accordance with Sec. 906.9.
    (g) Sale via resident-controlled entity. If the plan contemplates 
sale to residents via an entity other than the PHA, a description of 
that entity's responsibilities and information demonstrating that the 
requirements of Sec. 906.7(b) have been met or will be met in a timely 
fashion.
    (h) Nonpurchasing residents. If applicable, a plan for 
nonpurchasing residents, in accordance with Sec. 906.10.
    (i) Sale proceeds. An estimate of the sale proceeds and an 
explanation of how they will be used, in accordance with Sec. 906.15.
    (j) Replacement housing. A replacement housing plan, in accordance 
with Sec. 906.16.
    (k) Administration. An administrative plan, including estimated 
staffing requirements.
    (l) Records, accounts and reports. A description of the 
recordkeeping, accounting and reporting procedures to be used, 
including those required by Sec. 906.17.
    (m) Budget. A budget estimate, showing the costs of implementing 
the plan, and the sources of the funds that will be used.
    (n) Timetable. An estimated timetable for the major steps required 
to carry out the plan.

(Approved by the Office of Management and Budget under control 
number 2577-0201)


Sec. 906.21  Supporting documentation.

    The following supporting documentation shall be submitted to HUD 
with the proposed homeownership plan, as appropriate for the particular 
plan:
    (a) Property value estimate. An estimate of the fair market value 
of the property, including the range of fair market values of 
individual dwellings, with information to support the reasonableness of 
the estimate. (The purpose of this data is merely to assist HUD in 
determining whether, taking into consideration the estimated fair 
market value of the property, the plan adequately addresses any risks 
of fraud and abuse pursuant to Sec. 906.13 and of windfall profit upon 
resale, pursuant to Sec. 906.14. A formal appraisal need not be 
submitted with the proposed homeownership plan.)
    (b) Physical assessment. An assessment of the physical condition of 
the property, based on the standards specified in Sec. 906.6.
    (c) Workability. A statement demonstrating the practical 
workability of the plan, based on analysis of data on such elements as 
purchase prices, costs of repair or rehabilitation, 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. 906.4(a)).
    (d) Commitment and capability. Information to substantiate the 
commitment and capability of the PHA and any other entity with 
substantial responsibilities for implementing the plan.
    (e) Resident planning input. A description of resident consultation 
activities carried out pursuant to Sec. 906.5 before submission of the 
plan, with a summary of the views and recommendations of residents and 
copies of any written comments that may have been submitted to the PHA 
by individual residents and resident organizations, and any other 
individuals and organizations.

    (f) Nondiscrimination certification. The PHA'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, and implementing regulations, and will assure 
compliance with those requirements by any other entity that may assume 
substantial responsibilities for implementing the plan.

    (g) Legal opinion. An opinion by legal counsel to the PHA, stating 
that counsel has reviewed the plan and finds it consistent with all 
applicable requirements of Federal, State, and local law, including 
regulations as well as statutes. In addition, counsel must identify the 
major legal requirements that remain to be met in implementing the 
plan, if approved by HUD as submitted, indicating an opinion about 
whether those requirements can be met without special problems that may 
disrupt the timetable or other features contained in the plan.

    (h) Board resolution. A resolution by the PHA's Board of 
Commissioners, evidencing its approval of the plan.

    (i) Other information. Any other information that may reasonably be 
required for HUD review of the plan. Except for the PHA-HUD 
implementing agreement under Sec. 906.19, HUD approval is not required 
for documents to be prepared and used by the PHA in implementing the 
plan (such as contracts, applications, deeds, mortgages, promissory 
notes, and cooperative or condominium documents), if their essential 
terms and conditions are described in the plan. Consequently, those 
documents need not be submitted as part of the plan or the supporting 
documentation.

    Dated: September 20, 1994.
Joseph Shuldiner,
Assistant Secretary for Public and Indian Housing.
[FR Doc. 94-27897 Filed 11-9-94; 8:45 am]
BILLING CODE 4210-33-P