[Federal Register Volume 61, Number 57 (Friday, March 22, 1996)]
[Rules and Regulations]
[Pages 11948-11983]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-6312]



      

[[Page 11947]]

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Part III





Department of Housing and Urban Development





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24 CFR Part 885, et al.



Supportive Housing for the Elderly and Persons With Disabilities; Final 
Rule

  Federal Register / Vol. 61, No. 57 / Friday, March 22, 1996 / Rules 
and Regulations  

[[Page 11948]]


DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 885, 889, 890, and 891

[Docket No. FR-3941-F-01]
RIN 2502-AG51


Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner; Supportive Housing for the Elderly and Persons With 
Disabilities

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

ACTION: Final rule.

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

SUMMARY: This rule represents the final rulemaking for HUD's Section 
202 Program of Supportive Housing for the Elderly and the Section 811 
Program of Supportive Housing for Persons with Disabilities, both of 
which HUD has previously implemented through several interim rules. As 
part of President Clinton's regulatory reinvention initiative, this 
final rule also consolidates and streamlines the regulations for these 
two programs in order to make them easier to use and understand. This 
rule also eliminates obsolete regulations from 24 CFR part 885 
regarding the Loans for Housing for the Elderly or Handicapped Program, 
and moves the remaining provisions to a subpart within the consolidated 
supportive housing regulations. Furthermore, information that is also 
in the statute or that should be more appropriately placed in the 
program handbook or in Notices of Funding Availability (NOFAs) has been 
deleted from the regulations.

EFFECTIVE DATE: April 22, 1996.

FOR FURTHER INFORMATION CONTACT: Linda Cheatham, Director, Office of 
Multifamily Housing Development, Department of Housing and Urban 
Development, 451 Seventh Street SW., Room 6134, Washington, DC 20410, 
telephone (202) 708-3000. (This number is not toll-free.) Hearing- or 
speech-impaired persons may access that number by calling toll-free the 
Federal Information Relay Service at (800) 877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

A. Loans for Housing for the Elderly or Handicapped; Part 885

    Under section 202 of the Housing Act of 1959 (12 U.S.C. 1701q) and 
the regulations at 24 CFR part 885, HUD provided direct Federal loans 
to assist private, nonprofit corporations and nonprofit consumer 
cooperatives in the development of housing projects serving elderly or 
handicapped families and individuals. Loans made under part 885 were 
used to finance the construction or substantial rehabilitation of 
projects for elderly or handicapped families, or to finance the 
acquisition with or without moderate rehabilitation of existing housing 
and related facilities for group homes for nonelderly handicapped 
individuals.
    HUD published two interim rules in the Federal Register on June 12, 
1991 (56 FR 27070, 27104) establishing the Section 811 Program of 
Supportive Housing for Persons with Disabilities (24 CFR part 890) and 
the Section 202 Program of Supportive Housing for the Elderly (24 CFR 
part 889). The interim rule for the Section 202 Program (56 FR 27104) 
also amended part 885 and provided that part 885 would continue to 
apply to projects for which Section 202 loan reservations were made in 
Fiscal Year (FY) 1990 and prior years. The rule further provided, 
however, that projects for the elderly selected for funding in FY 1991 
and subsequent years would be covered by part 889. Since no new 
projects are being funded under the regulations in part 885, many of 
the provisions in that part that do not apply to the continued 
management of the projects are unnecessary, and HUD can remove them 
from the Code of Federal Regulations.
    Therefore, this final rule removes several definitions from 
Sec. 885.5. Second, this rule eliminates Secs. 885.200 through 885.405 
and Sec. 885.415 regarding projects that received reservations under 
section 202 of the Housing Act of 1959 and housing assistance under 
section 8 of the United States Housing Act of 1937 (202/8 projects). No 
new 202/8 projects will be funded, and all of the projects have either 
closed or been converted to capital advances under either part 889 or 
part 890. Third, this rule eliminates many sections in subpart C of 
part 885 regarding projects for nonelderly handicapped families 
receiving reservations under section 202 and project assistance 
payments under section 202(h) of the Housing Act of 1959 (202/162 
projects). No new 202/162 projects will be funded, and all existing 
202/162 projects have closed or have been converted to capital advances 
under part 890. Fourth, this rule will also remove other definitions 
and provisions from part 885 that are merely explanatory or 
duplicative. Lastly, this rule moves the remaining provisions from part 
885 to subpart E of the new streamlined regulations for the supportive 
housing programs.

B. June 12, 1991 Interim Rules

    On June 12, 1991, HUD published in the Federal Register two interim 
rules, one for the Section 202 Program of Supportive Housing for the 
Elderly (56 FR 27104) and one for the Section 811 Program of Supportive 
Housing for Persons with Disabilities (56 FR 27070). The interim rule 
for the Section 202 Program (56 FR 27104) provided for the continued 
applicability of part 885 to projects for which Section 202 loan 
reservations had been made in fiscal year (FY) 1990 and prior years, 
and to add part 889 establishing the new Section 202 Program of 
Supportive Housing for the Elderly and enabling FY 1991 funding for the 
program. The interim rule for the Section 811 Program (56 FR 27070) 
added a new part 890 establishing the new program for persons with 
disabilities. These two interim rules contained very similar 
provisions. As stated in the preambles to both rules (56 FR 27070, 
27104), HUD intended to establish additional requirements for the 
supportive housing programs in separate rules.
    HUD received 19 comments on the interim rule for the Section 202 
Program, and 24 comments on the interim rule for the Section 811 
Program. HUD responded to some objections raised by commenters by 
changing the program requirements in the subsequent interim rules 
discussed below. The following discussion summarizes the other comments 
and provides HUD's responses to those comments.
1. Definition of ``Acquisition''
    One commenter objected to the definition of ``acquisition'' in the 
interim rule for the Section 811 Program (Sec. 890.105 of the interim 
rule; Sec. 891.305 of this final rule). This definition provides that 
property other than from the Resolution Trust Corporation (RTC) is only 
eligible for acquisition if at least three years have elapsed from the 
completion of the project or the beginning of occupancy to the date of 
application. The commenter argued that HUD should eliminate this 
limitation, since it is beyond the intent of the statute and it denies 
the opportunity for acquisition of newer properties except through the 
RTC.
    HUD Response: HUD agrees and is removing the three year 
requirement. Furthermore, HUD is removing the prohibition against 
acquiring property to use as independent living facilities. Previously, 
acquisition without rehabilitation was limited to group homes and 
property from the Resolution Trust Corporation.

[[Page 11949]]

2. Definition of ``Independent Living Facility''
    Three commenters objected to the definition of ``independent living 
facility'' in Sec. 890.105 of the interim rule for the Section 811 
Program. The definition limits projects for persons with chronic mental 
illness to occupancy by 20 such persons. The commenters argued that the 
statutory definition allows 24 persons, and makes no distinction 
between persons with chronic mental illness and other persons with 
disabilities. Some of the commenters argued that such a distinction by 
HUD is a violation of the Fair Housing Act and section 504 of the 
Rehabilitation Act of 1973. One of the commenters also objected to 
allowing projects up to 40 persons, arguing that this is an 
``inappropriately large upper limit'' that will result in the 
segregation of persons with disabilities. However, the other commenter 
argued that the smaller number of persons permitted in facilities for 
persons with chronic mental illness will increase costs and make it 
more difficult to develop such facilities in large urban areas.
    HUD Response: Congress originally set the project size limit for 
independent living facilities at 20 persons. Although an amendment to 
the statute increased the project size limit to 24 persons (Pub. L. 
102-27; approved April 10, 1991) (42 U.S.C. 8013(k)(4)), HUD chose to 
retain the 20 person limit for independent living facilities for 
persons with chronic mental illness. In FYs 1993, 1994, and 1995, 
however, HUD decided that the project size limit for independent living 
facilities would be 24 persons regardless of the disabled population 
being served. HUD intends to retain this limit in future funding 
cycles. In response to the commenter who objected to allowing projects 
up to 40 persons, HUD intends to remove the upper limit on exceptions 
to the project size limits in the next Notice of Funding Availability 
to allow this determination to be made at the local level.
3. Definition of ``Person With Disabilities''
    One commenter objected to the definition of ``person with 
disabilities'' in the interim rule for the Section 811 Program 
(Sec. 890.105 of the interim rule; Sec. 891.305 of this final rule), 
which excludes persons whose sole impairment is alcoholism or drug 
addiction. This commenter argued that this definition is contrary to 
the Fair Housing Act, which protects persons disabled by alcoholism or 
substance abuse (although not those who currently and illegally use or 
are addicted to controlled substances).
    HUD Response: HUD has consistently used a definition of ``person 
with disabilities'' for the Section 811 Program and its predecessor, 
the Section 202 Program, that excludes persons whose sole impairment is 
alcoholism or drug addiction. In other words, drug or alcohol addiction 
alone is not a qualifying condition for occupancy in Section 811 
housing. Alcohol or drug addiction would not disqualify a person, 
however, as long as the person meets the required three-pronged test 
for eligibility as a person with a disability (i.e., physical, mental, 
or emotional impairment is of long-continued and indefinite duration, 
the impairment substantially impedes the person's ability to live 
independently, and the person's ability to live independently could be 
improved by more suitable housing conditions).
4. Definition of ``Sponsor''; Prohibited Relationships
    One commenter suggested that the regulations for these programs be 
changed to allow management contracts between the Owner and the Sponsor 
or its nonprofit affiliate or wholly-owned for-profit subsidiary. This 
commenter, who sponsors Section 202 and Section 811 projects, asserts 
that the for-profit nature of its subsidiary has meant that the housing 
needs of more people are fulfilled, since the net profits of the 
subsidiary go back into the nonprofit Sponsor.
    This commenter also objects to the provisions in the interim rules 
that no officer or director of the Sponsor is permitted to have any 
financial interest in any contract with the Owner in connection with 
the rendition of services. This commenter describes a situation in 
which the Owner's attorney is also an unpaid board member. This 
arrangement is desirable because it allows the organizations to take 
advantage of the attorney's unique expertise. However, under the 
definition of ``Sponsor,'' the attorney's fees can no longer be paid 
from project funds.
    Another commenter asserted that these regulations make it virtually 
impossible for Sponsors to pay for project management costs, 
eliminating the benefits of repeat participation by experienced 
nonprofit developers. Specifically, this commenter suggests that HUD 
allow Sponsors to receive consultant fees, so that qualified Sponsors 
that perform such services can be compensated accordingly.
    HUD Response: The handbooks for the Section 202 and Section 811 
Programs provide exceptions to these provisions by permitting the 
Sponsor or its nonprofit affiliate to contract for a fee with the Owner 
to provide management services and/or supportive services. Furthermore, 
attorney's fees can be paid from project funds, unless the attorney is 
an officer or board member of the Sponsor or Owner. The same 
restriction that applies to other development team members also applies 
to attorneys. As part of HUD's efforts to simplify the Section 202/811 
development process, this rule eliminates the housing consultant's fee 
in lieu of a developer's fee from which the Owner can pay the Sponsor 
for consulting services.
5. Project Standards for Group Homes
    With regard to Sec. 890.210(b) of the interim rule for the Section 
811 Program (Sec. 891.310(a) of this final rule), one commenter 
remarked that it may be impossible to meet the space per resident 
requirements within the development cost limits. Another commenter 
requested clarification on the provision requiring that a project 
involving acquisition comply with applicable State requirements. In the 
absence of such requirements, the project must comply with standards as 
described in the interim rule (Sec. 890.210(b) of the interim rule; 
Sec. 891.310(a) of this final rule). This commenter asked whether HUD's 
standards apply if they are greater than the State's standards, and if 
so this commenter requested HUD to state this clearly in the 
regulations. The commenter also requested HUD to state clearly that in 
no case must a project comply with State standards in violation of the 
Fair Housing Act.
    HUD Response: During the past five years of program operation, HUD 
is not aware of Sponsors having difficulty in meeting the space per 
resident requirements within the development cost limits. In the near 
future, HUD will be closely examining the development cost limits to 
ensure that they are reflective of their respective localities. 
Previously, if the fund reservation was not adequate to support the 
development of the project, an amendment to the fund reservation would 
be made for HUD-approved expenses up to the maximum amount allowable. 
Although there will still be amendments to the fund reservation, with 
this final rule, amendments will be available only after initial 
closing. In response to the commenter asking for clarification 
regarding whether HUD's standards apply to acquisition projects if they 
are greater than applicable State requirements, Sec. 891.310 of this 
final rule requires that the project at least meet applicable State 
requirements if they

[[Page 11950]]
exist, and if they do not, the project must meet the HUD requirements. 
The purpose of this provision is to permit flexibility in the group 
home standards when complying with the HUD requirements may prove to be 
cost prohibitive. In regard to the request from the same commenter for 
a statement that in no case must a project comply with State standards 
in violation of the Fair Housing Act, HUD feels that such a statement 
is unnecessary since participation in the program requires a Sponsor to 
certify that it will comply with the requirements of the Fair Housing 
Act and implementing regulations.
6. Limits on Number of Units
    Three commenters objected to the provision of the interim rule for 
the Section 202 Program limiting to 10 percent of the national 
allocation the number of units for which national organizations can 
apply (Sec. 889.215 of the interim rule; Sec. 891.215 of this final 
rule). The commenters argued that this limitation is arbitrary, not 
required by statute, and contrary to the goal of producing the highest 
quality housing. Applications should be funded on merit and local need. 
One commenter suggested that if limits are absolutely necessary, this 
section should be revised so that the limit only applies if there are 
at least 10,000 units being allocated for the program that year. 
Furthermore, HUD should base the limits on the number of units awarded, 
rather than the number of units for which the Sponsor is applying. 
Finally, HUD should waive this requirement if there are no suitable 
competing applicants in a particular region.
    HUD Response: The limit on the number of Section 202 units for 
which national organizations can apply was established to ensure that 
organizations that are not national in scope would have a more 
equitable opportunity to participate in the program. Contrary to the 
opinion of the commenter, applications are funded based on merit and 
local need. However, without a limit on the number of units that 
national organizations can apply for, these organizations have a 
competitive edge over qualified non-national organizations. This 
results in a possible tendency to dominate the program. Although HUD 
intends to continue placing a limit on the number of Section 202 units 
a national organization can apply for, the requirement will be in the 
Notice of Funding Availability published in the Federal Register once 
Congress appropriates Section 202 funds to HUD. Therefore, this final 
rule deletes the limit from the regulations.
7. Project Eligibility and Size Limits
    Seven commenters requested additional guidance with regard to the 
interim rule for the Section 811 Program, under which eligible projects 
include dwelling units in multifamily housing developments, 
condominiums, and cooperatives (Sec. 890.215(a)(3) of the interim 
rule). These commenters argued that one of the core goals of the 
National Affordable Housing Act was to expand available housing options 
beyond group homes and independent living facilities. Therefore, HUD 
should provide guidance as to the applicability of the requirements of 
each section of the interim rule to the newly available options. One 
commenter specifically asked for guidance with regard to limits on the 
number of dwelling units within multifamily developments and limits on 
the number of persons who may reside in such units.
    Another commenter suggested that, in order to encourage independent 
and integrated housing for persons with disabilities, the regulations 
should not require the Sponsor to notify the municipality in the case 
of acquisition of individual dwelling units in multifamily 
developments, condominiums, and cooperatives.
    Three commenters suggested that HUD develop strict guidelines for 
waiving the project size limits of the Section 811 rule 
(Sec. 890.215(c) of the interim rule). Several commenters asserted that 
allowing the development of larger facilities through a waiver of the 
size limits is contrary to the goal of providing quality services and 
an integrated living environment. The other commenter suggested that 
HUD require Sponsors to demonstrate thoroughly the necessity for such 
an exception to the size limits. For instance, HUD should require the 
Sponsor to demonstrate that there is no other residential site within a 
reasonable distance that would make a smaller project feasible. 
However, one commenter argued that rather than making these waivers 
harder to obtain, HUD should make them easier to obtain by expediting 
its review and approval of such waivers.
    HUD Response: In response to the seven commenters that requested 
guidance as to the applicability of each section of the interim rule to 
the newly available options of dwelling units in multifamily housing 
developments, condominiums, and cooperatives, HUD has determined that 
detailed information concerning these housing options would be more 
appropriate in a handbook and intends to issue a revised handbook in 
the near future.
    In response to the commenter that suggested that the Sponsor not be 
required to notify the municipality when acquiring dwelling units in 
multifamily developments, condominiums, and cooperatives in order to 
encourage independent and integrated housing for persons with 
disabilities, HUD does not find that notifying the municipality will 
have any negative impact on integrating persons with disabilities. The 
units will be dispersed within the structure and thus will be difficult 
to identify as housing for disabled persons.
    In response to the comments on exceptions to project size limits, 
HUD has decided to eliminate from the regulation the section on project 
size limits and exceptions. This information will appear in the annual 
Notice of Funding Availability (NOFA). However, since HUD published the 
last interim rule, HUD has expanded the criteria required for Sponsors 
to request a waiver of the project size limits by adding that the 
Sponsor must demonstrate why the site was selected, as well as how the 
size of the project is consistent with State and/or local policies 
governing similar facilities for the proposed population. Furthermore, 
HUD intends to remove the upper limits on the number of units that can 
be requested so that the size of the project can be determined more 
appropriately at the local level.
8. Design and Cost Standards
    This provision of the interim rules (Sec. 891.120(c) of this final 
rule) provided that HUD would not fund certain amenities, such as 
washers and dryers in individual units. One commenter objected, arguing 
that easily accessible washers and dryers do not represent excessive 
costs, but rather are especially important for older and frailer 
persons. This commenter also noted that the failure to provide 
individual laundry facilities may increase service costs for those 
unable to carry their laundry to distant facilities. Several other 
commenters remarked that features such as washers and dryers are 
considered standard features in most new housing today, and many of the 
excluded amenities can materially contribute to the independence of a 
person with disabilities. These commenters argued that Sponsors should 
be allowed to provide these amenities if they can do so within the cost 
limits.
    HUD Response: Section 202 and Section 811 projects must be modest 
in design. Therefore, there are certain amenities such as atriums, 
bowling alleys, and swimming pools, that are considered excessive and 
are not

[[Page 11951]]
eligible to be paid for out of the capital advance (Sec. 891.120(c)). 
However, there is no prohibition against the Sponsor including certain 
excess amenities as long as they pay for them from other sources.
    One commenter also objected to Sec. 890.220(b) in the interim rule 
for the Section 811 Program, which provides that HUD will establish 
limits on unit sizes and number of bathrooms for independent living 
facilities. This commenter remarked that such specifications have 
caused costly delays in construction, and that HUD should be more 
flexible and result-oriented. HUD should focus on enforcing the 
development cost limits and the incentives for savings, as well as the 
minimum construction and space standards, rather than on design and 
cost standards.
    HUD Response: If the project is to be newly constructed and 
designed from the beginning according to the maximum unit sizes and 
number of bathrooms, HUD disagrees with the commenter that this 
requirement could cause costly delays in construction. If the project 
is to be rehabilitated, there is flexibility in meeting this 
requirement when complying with the limitations would be too costly. 
Also, if the Sponsor can develop the project with larger sized units 
and more bathrooms within the appropriate development cost limit the 
Sponsor is permitted to do so. The Sponsor can also pay for the extra 
space and the associated operating cost with funds from other sources. 
The reference to unit size and number of bathrooms for independent 
living facilities will be in the handbook and not in the regulation.
9. Site and Neighborhood Standards
    Two commenters objected to the provision of the interim rule for 
the Section 811 Program (Sec. 890.230(g) of the interim rule; 
Sec. 891.320(b) of this final rule) that prohibits developing projects 
adjacent to certain types of facilities, such as schools or other 
housing primarily for persons with disabilities. One of these 
commenters argued that persons with disabilities might need to be close 
to such supportive services, and developing a project on a site near 
such services would decrease the cost of service delivery. This 
commenter noted that HUD considers the proximity or accessibility of 
such services as a selection criterion for funding 
(Sec. 890.300(c)(6)(i)(A) of the interim rule). The other commenter 
warned that this requirement contradicts the Fair Housing Amendments 
Act of 1988, and that it fuels potential community opposition by 
allowing opponents to protest that their area is ``concentrated'' with 
other facilities for persons with disabilities.
    HUD Response: HUD has determined that the location of the project 
should be decided at the local level, and therefore has relaxed the 
requirement in Sec. 891.320(b) of this final rule by indicating that 
projects ``should'' rather than ``must'' be located in neighborhoods 
where other family housing is located, and ``should not'' rather than 
``may not'' be located adjacent to certain facilities. However, the 
statute still prohibits more than one group home from being located on 
one site, as well as a group home from being located on a site 
contiguous to another site containing such a home.
10. Development Cost Limits
    HUD received many comments on this provision of both interim rules. 
One commenter remarked that the development cost limits are ``woefully 
inadequate.'' Three commenters objected to the calculation of the 
development cost limits under the interim rules. These commenters 
asserted that HUD offices are instructed not to add an additional 10 
percent for Costs Not Attributable, and this will result in lower 
maximum cost limits. They reminded HUD to ensure that the High Cost 
Factors are truly reflective of costs in the area, as is required by 
the conference report on the National Affordable Housing Act.
    Three commenters objected to the development cost limits for the 
acquisition without rehabilitation of properties from the Resolution 
Trust Corporation (RTC). The interim rules provided that in the case of 
RTC properties that require no rehabilitation, the cost limits are 
reduced to 85 percent of the limits listed in the rule. These 
commenters asserted that there is no statutory basis for this reduction 
and that the reduction will effectively eliminate these properties as 
viable options.
    Five commenters remarked that the interim rule for the Section 811 
Program provides no guidance on development cost limits for dwelling 
units in multifamily housing, condominiums, or cooperatives.
    HUD Response: HUD will review the development cost limits, which 
have been deleted from this final rule, to ensure that they adequately 
reflect the cost of developing similar housing in the locality. HUD 
will establish the development cost limits and all future changes to 
them through a notice in the Federal Register.
    Although there is no statutory basis for the lower development cost 
limit for properties acquired from the RTC that will not need any 
rehabilitation, the 85 percent limit is justified since properties can 
be obtained less expensively from the RTC than they can from the 
private market.
    The reason that the interim rule for the Section 811 Program did 
not provide guidance on development cost limits for dwelling units in 
multifamily housing, condominiums, or cooperatives is that these 
housing types are considered independent living units, and therefore 
would use the appropriate development cost limit based upon the number 
and size of the units and whether or not the structure has an elevator.
    In this section (Sec. 891.140 of this final rule), HUD has provided 
incentives for savings by providing that Owners whose actual 
development costs are less than the initial fund reservation for the 
capital advance will retain 50 percent of this savings in their 
Replacement Reserve Account. The Owner will retain 75 percent of this 
savings by adding energy efficiency features. One commenter asked for 
further details concerning which energy efficiency features will 
satisfy this incentive.
    Six commenters remarked on the retention of the savings in the 
Replacement Reserve Account, the funds in which may only be used for 
repairs or replacements in or capital improvements of the project. 
These commenters requested that HUD provide greater flexibility in the 
use of these savings. The commenters suggested HUD change the 
regulations in one of the following ways: relax the requirements for 
the use of at least a portion of the funds in the Replacement Reserve 
Account; retain the funds in the Residual Receipts Account; or split 
the funds between the two accounts, so that the funds can be used for 
resident services after all repair needs have been met. One commenter 
further recommended that HUD's share of the savings should be placed in 
a special account to provide needed repairs and modernization for those 
Section 202 projects with no reserves on which to draw.
    HUD Response: HUD will give further details concerning which energy 
efficiency features will satisfy the incentive to retain 75 percent of 
the savings in the program handbook.
    In response to the request that HUD allow more flexibility in the 
use of the savings, HUD believes that the appropriate account for any 
savings received is the Replacement Reserve Account since there are no 
other funds provided for needed repairs and maintenance. The Residual 
Receipts Account is used for other purposes. The

[[Page 11952]]
statute specifically states that if there are savings, HUD retains 50 
percent; it does not permit HUD's share to be folded back into the 
project.
11. Term of Commitment
    Two commenters expressed concern that although HUD requires that 
housing assisted under both programs remain available to very low-
income elderly persons and persons with disabilities for 40 years (480 
months), the initial contract for project rental assistance shall be 
for 240 months, with an extension of not less than 60 months. This 
commenter suggests that the regulations provide for contract extensions 
for not less than 240 months, since rental assistance will be required 
in order to ensure the housing is available.
    HUD Response: HUD recognizes that project rental assistance funds 
will be necessary to keep the Section 202 and Section 811 projects 
viable for 40 years. However, in these times of uncertainty and extreme 
budget constraints, HUD is unable to extend contracts for project 
rental assistance for an additional 240 months. In fact, in the FY 1995 
funding cycle, HUD was permitted to reserve project rental assistance 
contract (PRAC) funds for only 60 months as opposed to the usual 240 
months. HUD will do all it can to assure that residents of Section 202 
and Section 811 housing will continue to receive rental assistance as 
long as they remain eligible.
12. Other Financing Sources
    Two commenters remarked on HUD's statement in the preamble to the 
interim rule for the Section 202 Program (56 FR 27105) that HUD would 
generally not accept borrowed funds from other sources. These 
commenters suggested that HUD remove this limitation and allow Owners 
to use such funds, since Congress intended to encourage mixed financing 
(17 U.S.C. 1701q(h)(6)). One commenter suggested that local HUD offices 
have the ability to approve such loans, especially ``soft loans'' or 
secured grants to ensure program compliance, and that the regulations 
should set general parameters on the loan terms.
    HUD Response: Owners are permitted to use borrowed funds from other 
sources in the case of secondary financing. Field offices must review 
requests for approval of secondary financing, and provided the 
documents meet HUD requirements, they will be approved.
13. Owner Deposit (Minimum Capital Investment)
    HUD received many comments on this provision of both interim rules 
(Sec. 891.145 of this final rule). These commenters remarked that this 
deposit requirement is a serious financial burden. The commenters 
further expressed concern that this provision penalizes Sponsors for 
delays that are often beyond the Sponsors' control or even HUD-related. 
Other delays are caused by having to obtain municipal approval, conduct 
archeological investigations, examine subsurface conditions for toxic 
leaks, conduct public hearings, and obtain a building permit.
    The commenters offered several suggestions. One commenter suggested 
that HUD adopt an approval process that is more decentralized, more 
flexible, and result-oriented. Another commenter suggested that HUD 
should return the deposit once the project has closed and project 
viability is assured; such a provision would allow Sponsors to use the 
experience gained in previous projects in the development of subsequent 
projects. Another commenter suggested that HUD should treat the 18-
month and 6-month time periods as targets, giving local offices the 
permission to extend the time periods based on determinations of 
individual circumstances. Two commenters suggested that any processing 
time by HUD offices in excess of the recommended times should be 
credited to the Sponsor as an extension. Another commenter suggested 
that if HUD is responsible for delaying the final closing beyond the 6-
month time period (plus a 2-month extension), then HUD should return 
the full balance remaining in the Minimum Capital Investment. Finally, 
one commenter suggested that the funds that are returned should be 
placed in either the Replacement Reserve or Residual Receipts Accounts, 
at the Sponsor's option.
    HUD Response: Although HUD appreciates the recommendations, HUD 
established the policies regarding the Minimum Capital Investment to 
provide an incentive for Owners to reach final closing early, and so 
far the policies are working. Therefore, HUD will not make any changes 
to these policies at this time.
14. Provision of Services
    HUD received one comment requesting clarification on the provision 
in Sec. 889.260(b)(3) of the interim rule for the Section 202 Program 
(Sec. 891.225 of this final rule) regarding the $15 per unit per month 
service cost allowance. This commenter inquired whether the funding for 
the service coordinator is different from or included in this $15 per 
unit per month service allowance. Three commenters expressed concern 
that $15 may be an insufficient service allowance for frail elderly 
persons. One of these commenters suggested that more money be allocated 
for service subsidies. The other commenter suggested that HUD revise 
the dollar amount if it should prove to be insufficient, and at least 
annually to reflect the changing cost of services. The third commenter 
recommended that a copayment by the tenant receiving the service should 
only be voluntary; since these tenants will have low incomes, they may 
not have sufficient funds for all their needs.
    Two commenters encouraged HUD to allow a $15 per unit operating 
cost under the Section 811 Program as well as under the Section 202 
Program, since operating costs for housing for persons with 
disabilities may often be equal to or greater than those for elderly 
persons.
    HUD Response: The funding sources for service coordinators and the 
$15 per unit per month service allowance are separate. The amount of 
$15 per unit per month was determined based upon HUD's experience with 
the Congregate Housing Services Program. At this time HUD has not had 
sufficient experience with the service allowance in the Section 202 
Program to determine whether the amount of $15 per unit per month is 
sufficient. The Section 811 statute does not provide for any HUD 
funding for supportive services.
15. Service Coordinator Funds in Housing for Frail Elderly Persons
    Several commenters objected to HUD's decision that the only 
developments that can receive service coordinator funding under the 
Section 202 Program are those in which more than 50 percent of the 
residents are ``frail.'' First, as one commenter asserted, the service 
coordinator is instrumental in assessing clients to determine frailty. 
Further, another commenter cited surveys indicating that approximately 
25 percent of the residents in subsidized senior housing will require 
services. Requiring twice that number of frail elderly tenants will 
overwhelm management, even with a service coordinator. It will also 
lead to an undesirable balance of ``well to frail'' residents. The 
commenters argued that service coordinators are essential to every 
development, and therefore HUD should provide service coordinator funds 
for all developments regardless of the number of ``frail'' elderly 
tenants.
    One commenter expressed concern regarding the assessment of the 
occupants' abilities (with regard to the ``activities of daily 
living'') at the time the Sponsor is developing its supportive

[[Page 11953]]
services plan and the rest of its application. According to the 
nondiscrimination requirements, such as section 504 of the 
Rehabilitation Act of 1973 and the Americans with Disabilities Act, 
this commenter asserts that it will be legally impossible to make such 
determinations in advance. The commenter suggested that HUD require a 
statement from the Sponsor certifying its intent to assess the physical 
characteristics and abilities of the tenants following initial rent-up. 
At that time the Sponsor would have a clear idea of the number of 
tenants needing services and how to deliver those services.
    HUD Response: In response to the objection that only projects with 
at least 50 percent frail elderly persons are eligible for service 
coordinator funding, the actual requirement is that projects 
principally serving the frail elderly are eligible for service 
coordinator funding. Limited funds should be provided where there is 
the most need. In other projects that do not qualify for service 
coordinator funding, management assumes many of the same functions as a 
service coordinator.
    The requirement to assess occupants' abilities with regard to the 
activities of daily living at the time the Sponsor is developing its 
supportive services plan and application does not violate section 504 
or the Americans with Disabilities Act because the requirement is to 
assess in general the abilities of potential occupants from the general 
population.
16. Housing Only Independent Persons
    With regard to the elderly program, one commenter objected that HUD 
has created a loophole by allowing Sponsors to provide no supportive 
services by housing all fully independent persons. This commenter cited 
a draft of HUD's training materials providing that ``if the applicant 
is not going to provide services, it only needs to justify market 
demand for fully independent elderly.'' The commenter argued that this 
may violate section 504 of the Rehabilitation Act of 1973, and it is 
contrary to the purpose of the Section 202 Program. The commenter 
suggested that HUD require all Sponsors to anticipate housing some 
elderly persons requiring services and to plan for the delivery of such 
services.
    HUD Response: At the outset, a Sponsor may serve all fully 
independent elderly people. However, eventually many occupants will 
require services as they get older. Sponsors proposing to serve all 
fully independent elderly people initially must describe in their 
applications how they will address the service needs of their residents 
as they ``age in place.''
17. Provision of Services to Nonresidents
    With regard to the Section 202 Program, the statute provides that 
HUD may permit the provision of services to elderly persons who are not 
residents, as described in the preamble to that interim rule (56 FR 
27106). However, one commenter urged HUD not to allow the provision of 
services to nonresidents unless these recipients are very low-income, 
there is available funding to assist these persons, and the needs of 
current residents are fully met.
    HUD Response: The Section 202 statute allows the Secretary to 
permit the provision of services to elderly persons and persons with 
disabilities who are nonresidents only if doing so will not adversely 
affect the cost-effectiveness or operation of the program or add 
significantly to the need for assistance.
18. Application Contents
    HUD received several comments on the application requirements in 
the interim rules. Several commenters on the elderly program suggested 
that since many Area Agencies on Aging will serve as the primary 
services liaisons with any new Section 202 housing development, the 
regulations should strongly encourage their coordinated efforts during 
the application process under the elderly program.
    Another commenter objected to the requirement in the interim rule 
for the Section 811 Program that Sponsors submit a certification from 
the appropriate State or local agency that it has reviewed the 
supportive services plan (Sec. 890.265(c)(19) of the interim rule). One 
commenter asserted that some State and local agencies have a ``bias'' 
against nonprofit organizations operating housing for the populations 
they also serve. Therefore, this commenter suggested that HUD allow the 
waiver of this requirement upon sufficient documentation that the 
supportive services plan is adequate.
    Several commenters remarked on the requirement that sponsors 
describe their ``ties to the community'' (Sec. 890.265(c) of the 
interim rule). While this requirement could include evidence that the 
sponsor is a viable part of the community and evidence of the sponsor's 
ability to carry out the project, its past experience, and its 
financial and programmatic capability, these commenters argued that HUD 
cannot require statements of support or approval of the application by 
members of the community. The commenters argued that this may be an 
unnecessary and illegal requirement in violation of the Fair Housing 
Amendments Act of 1988.
    HUD Response: This final rule removes the application contents from 
the regulations. Instead, HUD will include them in the annual NOFAs 
published in the Federal Register for the programs, as well as in a 
self-contained application. The requirement that Sponsors submit a 
certification from the appropriate State or local agency with a 
determination as to whether the supportive services plan is well 
designed to meet the needs of persons with disabilities is statutory 
and cannot be waived.
    In response to the commenters who argued that HUD cannot require 
statements of support or approval of the application by members of the 
community, HUD revised this requirement in the interim rule published 
in the Federal Register on May 5, 1993. Since the effective date of 
that rule, applicants have been required to include in their 
applications statements of support for the proposed project from 
nongovernmental organizations that are familiar with the needs of the 
population the project would serve. For example, an applicant proposing 
to develop housing for people with chronic mental illness could include 
in their application a letter of support for the project from a local 
service provider that offers mental health services. Such letters of 
support help HUD determine the Sponsor's ties to the community and the 
amount of local support for the project, both of which are indicators 
of the project's potential sucess.
19. Review of Applications for Fund Reservation
    Four commenters objected to the ranking and selection process 
described in the interim rule for the Section 811 Program (Sec. 890.300 
(d) and (e) of the interim rule). Using this selection process, HUD 
would fund all approvable applications that contain evidence of control 
of an approvable site before it would fund any applications in which 
the Sponsor had identified the site but did not yet have control of the 
site. The commenters argued that this process makes all other selection 
criteria subordinate to control of the site at the time of application. 
This unduly restricts Sponsors from developing innovative housing 
opportunities, and HUD should instead balance site control with the 
other criteria.
    HUD Response: In this final rule, HUD has removed the provisions on 
the ranking and selection process from the

[[Page 11954]]
regulation. These provisions will appear in the annual NOFAs for the 
programs. The statute requires HUD to use, as a selection criterion for 
the Section 811 program, the extent to which the applicant has site 
control. In order to implement this requirement, HUD created two 
categories of applications; Category A for those applicants with 
satisfactory evidence of an approvable site, and Category B for 
applicants that had identified a site. Priority in selection was given 
to Category A applicants. For the FY 1995 program, HUD changed the 
procedures by eliminating the categories in favor of awarding bonus 
points to applicants with satisfactory evidence of an approvable site. 
HUD believes this procedure satisfies the statutory requirement without 
making all other selection criteria subordinate. It does not unduly 
restrict Sponsors from developing innovative housing opportunities, but 
rather provides an incentive for Sponsors to lock-in suitable sites 
that will result in much needed housing being available for persons 
with disabilities sooner.
20. Cancellation of Fund Reservation
    Two commenters suggested that if a project is cancelled, HUD should 
reallocate the funds to another application in the same region in which 
HUD had originally allocated them. This will fulfill the goal of 
balancing housing opportunities across the country. Another commenter 
remarked that HUD should at least inform the public of how HUD will 
reallocate the funds by including this information in the regulations.
    HUD Response: The appropriations act in effect for the year in 
which a project is cancelled governs HUD's ability to recapture and 
reuse Section 202 and Section 811 contract authority.
21. OMB Circular A-110
    In the preamble to the interim rules (56 FR 27073, 27107), HUD 
specifically requested comments regarding the use of OMB Circular A-110 
entitled ``Grants and Agreements with Institutions of Higher Education, 
Hospitals, and other Nonprofit Organizations--Uniform Administrative 
Requirements.'' Three commenters responded that the use of this 
circular should not be required. These commenters explained that the 
development team concept is more appropriate for this program than the 
competitive procurement process. Two of the commenters explained that 
bidding would make it difficult for Sponsors to use professionals who 
are experienced in the program and who are willing to defer fees 
because of their relationship with Sponsors. The other commenter 
asserted that competitive procurement is more costly and time-
consuming.
    HUD Response: The Office of Management and Budget (OMB) has 
determined that OMB Circular A-110 does not apply to the section 202 
and section 811 Programs.

C. August 12, 1992 Interim Rules

    On August 12, 1993, HUD published in the Federal Register two more 
interim rules, one for the section 202 Program of Supportive Housing 
for the Elderly (57 FR 36338), and one for the section 811 Program of 
Supportive Housing for Persons with Disabilities (57 FR 36330). The 
August 12, 1992 interim rules provided guidance on the development of 
supportive housing, elements of which include requests for capital 
advance financing, approval of such requests, and repayment of a 
capital advance. These interim rules also provided guidance regarding 
project rental assistance contracts.
    HUD received one request for information and one comment in 
response to the August 12, 1992 interim rules. The commenter requested 
that HUD allow for-profit corporations, as well as nonprofit 
organizations, to participate in the programs.
    HUD Response: The section 202 and 811 statutes prohibit 
participation in the programs by for-profit corporations.

D. May 5, 1993 Interim Rules

    On May 5, 1993, HUD again published in the Federal Register two 
interim rules, one for the section 202 Program of Supportive Housing 
for the Elderly (58 FR 26836) and one for the section 811 Program of 
Supportive Housing for Persons with Disabilities (58 FR 26816). As HUD 
described in the preambles to these interim rules, the rules 
incorporated amendments to the programs made by the Housing and 
Community Development Act of 1992. The interim rules also clarified and 
simplified many of the requirements in the regulations, including 
substantial improvements to the selection process.
    HUD received eight comments in response to the May 5, 1993 interim 
rules. Several of the comments consisted of inquiries about specific 
aspects of the regulations. Many of the other commenters commended HUD 
on its efforts to clarify and simplify the application and selection 
process. However, two commenters objected to the change in the 
processes for Notices of Funding Availability (NOFAs). In the May 5, 
1993 interim rules, HUD changed the NOFA process so that field offices 
would no longer publish Invitations for Applications in newspapers; the 
field offices must only notify media for minority persons, as well as 
media for elderly persons and persons with disabilities, as applicable. 
The commenters argued that this limits the availability of information 
about relatively new programs that will provide urgently needed housing 
opportunities.
    HUD Response: HUD decided to eliminate the requirement that HUD 
field offices publish Invitations for Applications in newspapers 
because HUD could not afford to continue paying the advertising costs. 
However, each field office keeps a mailing list of organizations that 
are current customers, as well as those that have expressed an interest 
in the programs but that have not yet participated, and mails to each 
of them a copy of the NOFA as soon as it is published in the Federal 
Register.

E. March 2, 1995 Interim Rules

    On March 2, 1995, HUD published in the Federal Register two more 
interim rules, one for each program (60 FR 11828, 11836). These rules 
provided guidance on managing supportive housing for the elderly or 
persons with disabilities. Specifically, these rules contained 
provisions regarding Owner responsibilities, tenant responsibilities, 
leases, security deposits, utility allowances, vacancy payments, and 
HUD reviews.
    HUD received two comments on this set of interim rules. One 
commenter requested that HUD provide funds under other programs for 
elderly housing.
    HUD Response: HUD does provide funds under other programs such as 
the Public Housing Program, the section 8 Rental Certificate and 
Housing Voucher Program and the section 232 Program for elderly 
housing.
    The other commenter expressed two main concerns regarding civil 
rights issues. First, this commenter emphasized that the required 
receipt of supportive services may violate an individual's civil 
rights. Therefore, this commenter urged HUD to include language 
throughout the rule stressing that the available services are voluntary 
and are not a condition of admission or continued occupancy. Second, 
this commenter objected to the provision of ``diagnosis-specific'' 
housing, or housing for persons with similar disabilities or who 
require a similar set of supportive services, under the section 811 
Program. The commenter argued that this type of housing is contrary to 
the goal of integration and general occupancy housing, and it fails to

[[Page 11955]]
affirmatively further fair housing goals. The commenter urged HUD to 
limit the circumstances under which it will approve such housing.
    HUD Response: HUD has been working with consumer advocacy 
organizations on revisions to the Section 811 program. One of the major 
issues of concern to consumers and organizations advocating on their 
behalf is the delinking of housing and supportive services. Although 
the acceptance of supportive services has never been required as a 
condition of occupancy in a Section 811 project, HUD has discovered 
that, in reality, just the opposite occurs. Therefore, in the NOFA for 
the FY 1995 Section 811 program, HUD stated that the acceptance of 
supportive services shall not be a condition of occupancy. This 
statement shall continue to appear in the NOFA for the Section 811 
program and it will also be added to the handbook.
    In regard to the commenter objecting to the provision of 
``diagnosis-specific'' housing or housing for persons with similar 
disabilities or who require a similar set of supportive services, HUD's 
policy is that a Sponsor may design a supportive services package that 
is targeted to persons with similar disabilities such as persons with 
physical disabilities, developmental disabilities or chronic mental 
illness. With the Secretary's approval a Sponsor may design a 
supportive services package targeted at any subset within these three 
main categories (e.g., persons with mental retardation). This provision 
is in the Section 811 statute. In any Section 811 project, however, the 
Sponsor must permit occupancy by any qualified person with a disability 
who could benefit from the housing and/or services provided regardless 
of the person's disability.

F. The Fiscal Year 1995 Rescissions Act

    The Fiscal Year 1995 Rescission Act (Pub. L. 104-19; approved July 
27, 1995) provides in relevant part that in allocating the rescission 
of $1.115 billion of FY 1995 funds, the Secretary may reduce the 
appropriations needs of HUD by waiving any provision of section 202 of 
the Housing Act of 1959 and section 811 of the National Affordable 
Housing Act that the Secretary determines is not necessary to achieve 
the objectives of these programs. On January 30, 1996 (61 FR 3047), HUD 
published a notice in the Federal Register advising the public of the 
impact of the rescissions on the Section 202 and Section 811 Programs. 
As described in the notice, for projects funded in FY 1995, the 
Secretary reserved PRAC funds at 75 percent of the estimated project's 
total operating expenses to take into consideration estimated tenant 
contributions. The Secretary also extended eligibility to low-income 
households (in addition to very low-income households), waived the 
Federal preferences for admission, and reduced the term of the PRAC to 
5 years. The PRAC funds reserved for projects funded in FYs 1993 and 
1994 that had not gone to initial closing or had an Addendum to the 
Agreement to Enter into the Project Rental Assistance Contract (Forms 
HUD-90172-A-CA and HUD-90172-B-CA) alerting the Owner of HUD's right to 
reduce the PRAC reserved for the project at a later time were also 
reduced by 25 percent. However, the authority in the FY 1995 
Rescissions Act to waive statutory provisions is limited to achieving 
the $1.115 billion rescission. Therefore, since the effects of the 
Rescissions Act are temporary, this final rule does not change the 
regulations to reflect the changes described in the January 30, 1996 
notice.

II. Regulatory Reinvention

    In response to Executive Order 12866 and President Clinton's 
memorandum of March 4, 1995 to all Federal departments and agencies on 
the subject of regulatory reinvention, HUD has reviewed all its 
regulations to determine whether certain regulations can be eliminated, 
streamlined, or consolidated with other regulations. As part of this 
review, HUD determined that since the substance of the regulations in 
24 CFR parts 885, 889, and 890 was very duplicative, these parts could 
be consolidated and streamlined into one set of regulations. Therefore, 
this final rule creates a new part 891 in title 24 of the Code of 
Federal Regulations that will contain all the provisions for HUD's 
Supportive Housing Programs. Subpart A of part 891 will contain all the 
requirements that are similar in the programs. Subparts B and C of part 
891 will contain requirements that are unique to the Section 202 and 
Section 811 programs, respectively. Subpart D will contain the project 
management provisions for the Section 202 and Section 811 programs. 
Finally, subpart E will contain the regulations necessary for the 
continued management of projects under the Loans for Housing for the 
Elderly or Handicapped Program.
    In addition to consolidating similar provisions, this rule also 
removes provisions that are redundant of statutes or would more 
appropriately appear in program handbooks or annual Notices of Funding 
Availability (NOFAs). For example, many of the definitions in the 
regulations come directly from section 202 of the Housing Act of 1959 
and section 811 of the National Affordable Housing Act. The provisions 
for the Elder Cottage Housing Demonstration Program are also redundant 
of the statute (section 806 of the Cranston-Gonzalez National 
Affordable Housing Act (Pub. L. 101-625; approved November 28, 1990). 
This final rule removes the redundant provisions and replaces them, as 
appropriate, with references to the statute. This final rule also 
removes the sections on application requirements, review and approval 
of applications, and the ranking and selection process. This 
information will instead appear in the NOFAs published in the Federal 
Register for these programs. As a result of this rule's consolidation 
and streamlining, HUD will eliminate approximately 92 pages of 
unnecessary regulations.

III. Lead-Based Paint

    HUD is taking the opportunity, in this final rule, to update 
technical aspects of its lead-based paint requirements to conform with 
new recommendations of the Centers for Disease Control. For example, in 
Secs. 891.155(g) and 891.325, HUD is changing the childhood age of 
concern from under 7 years of age to under 6 years. In 
Sec. 891.325(b)(2), HUD is changing the definition of ``elevated blood-
lead level (EBL),'' with respect to blood lead levels that require 
environmental intervention, from 25 ug/dl (micrograms per deciliter) to 
20 ug/dl for a single test or 15-19 ug/dl for two consecutive tests 
several months apart. (See U.S. Department of Health and Human 
Services, Public Health Service, Centers for Disease Control, 
Preventing Lead Poisoning in Young Children, A Statement by the Centers 
for Disease Control, October 1991.)
    Analysis of the need for additional changes to the lead-based paint 
requirements is being deferred until the publication of a separate 
proposed rule that would implement sections 1012 and 1013 of the 
Residential Lead-Based Paint Hazard Reduction Act of 1992 and revise 
the lead-based paint requirements for all HUD programs. This proposed 
rule is in its final stages of development.

IV. Other Matters

Environmental Impact

    At the time of publication of the interim rules for these programs, 
Findings of No Significant Impact with respect to the environment were 
made in accordance with HUD regulations at 24 CFR part 50 implementing 
section 102(2)(C) of the National Environmental Policy Act of 1969 (42 
U.S.C. 4332). Those interim rules are being adopted

[[Page 11956]]
by this final rule without significant change in terms of environmental 
impact. Accordingly, the initial Findings of No Significant Impact 
remain applicable, and are available for public inspection and copying 
between 7:30 a.m. and 5:30 p.m. weekdays at the Office of the Rules 
Docket Clerk, 451 Seventh Street S.W., Room 10276, Washington, DC 
20410-0500.

Regulatory Flexibility Act

    Under the Regulatory Flexibility Act (5 U.S.C. 605(b)), the 
undersigned hereby certifies that this final rule does not have a 
significant economic impact on a substantial number of small entities. 
The program will provide capital advances to private nonprofit 
organizations and nonprofit consumer cooperatives to expand the supply 
of supportive housing for the elderly and to nonprofit organizations to 
expand the supply of supportive housing for persons with disabilities. 
Although small entities will participate in the program, the rule will 
not have a significant impact on them.

Executive Order 12606, The Family

    The General Counsel, as the Designated Official for Executive Order 
12606, The Family, has determined that the provisions of this final 
rule will not have a significant impact on family formation, 
maintenance, or general well-being, and thus is not subject to review 
under the Order. No significant change in existing HUD policies or 
programs will result from promulgation of this rule, as those policies 
or programs relate to family concerns.

Executive Order 12612, Federalism

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12611, Federalism, has determined that the policies 
contained in this rule will not have substantial direct effects on 
States or their political subdivisions, or the relationship between the 
Federal government and the States, or on the distribution of power and 
responsibilities among the various levels of government. As a result, 
the rule is not subject to review under the Order.

List of Subjects

24 CFR Part 885

    Aged, Individuals with disabilities, Loan programs--housing and 
community development, Low and moderate income housing, Reporting and 
recordkeeping requirements.

24 CFR Part 889

    Aged, Capital advance programs, Grant programs--housing and 
community development, Loan programs--housing and community 
development, Low and moderate income housing, Rent subsidies, Reporting 
and recordkeeping requirements.

24 CFR Part 890

    Capital advance programs, Civil rights, Grant programs--housing and 
community development, Individuals with disabilities, Loan programs--
housing and community development, Low and moderate income housing, 
Mental health programs, Reporting and recordkeeping requirements.

24 CFR Part 891

    Aged, Capital advance programs, Civil rights, Grant programs--
housing and community development, Individuals with disabilities, Loan 
programs--housing and community development, Low and moderate income 
housing, Mental health programs, Rent subsidies, Reporting and 
recordkeeping requirements.
    Accordingly, under the authority of 42 U.S.C. 3535(d), for the 
reasons stated in the preamble, 24 CFR chapter VIII is amended as set 
forth below:

PART 885--[REMOVED]

    1. Part 885 is removed.

PART 889--[REMOVED]

    2. Part 889 is removed.

PART 890--[REMOVED]

    3. Part 890 is removed.
    4. A new part 891 is added to read as follows:

PART 891--SUPPORTIVE HOUSING FOR THE ELDERLY AND PERSONS WITH 
DISABILITIES

Subpart A--General Program Requirements

Sec.
891.100  Purpose and policy.
891.105  Definitions.
891.110  Allocation of authority.
891.115  Notice of funding availability.
891.120  Project design and cost standards.
891.125  Site and neighborhood standards.
891.130  Prohibited relationships.
891.135  Amount and terms of capital advances.
891.140  Development cost limits.
891.145  Owner deposit (Minimum Capital Investment).
891.150  Operating cost standards.
891.155  Other Federal requirements.
891.160  Audit requirements.
891.165  Duration of capital advance.
891.170  Repayment of capital advance.
891.175  Technical assistance.
Subpart B--Section 202 Supportive Housing for the Elderly
891.200  Applicability.
891.205  Definitions.
891.210  Special project standards.
891.215  Limits on number of units.
891.220  Prohibited facilities.
891.225  Provision of services.
891.230  Selection preferences.
Subpart C--Section 811 Supportive Housing for Persons With Disabilities
891.300  Applicability.
891.305  Definitions.
891.310  Special project standards.
891.315  Prohibited facilities.
891.320  Site and neighborhood standards.
891.325  Lead-based paint requirements.

Subpart D--Project Management

891.400  Responsibilities of Owner.
891.405  Replacement reserve.
891.410  Selection and admission of tenants.
891.415  Obligations of the household or family.
891.420  Overcrowded and underoccupied units.
891.425  Lease requirements.
891.430  Termination of tenancy and modification of lease.
891.435  Security deposits.
891.440  Adjustment of utility allowances.
891.445  Conditions for receipt of vacancy payments for assisted 
units.
891.450  HUD review.
Subpart E--Loans for Housing for the Elderly and Handicapped
891.500  Purpose and policy.
891.505  Definitions
891.510  Displacement, relocation, and real property acquisition.
891.515  Audit requirements.

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

891.520  Definitions applicable to 202/8 projects.
891.525  Amount and terms of financing.
891.530  Prepayment privileges.
891.535  Requirements for awarding construction contracts.
891.540  Loan disbursement procedures.
891.545  Completion of project, cost certification, and HUD 
approvals.
891.550  Selection preferences.
891.555  Smoke detectors.
891.560  HAP contract.
891.565  Term of HAP contract.
891.570  Maximum annual commitment and project account.
891.575  Leasing to eligible families.
891.580  HAP contract administration.
891.585  Default by Borrower.
891.590  Notice upon HAP contract expiration.
891.595  HAP contract extension or renewal.
891.600  Responsibilities of Borrower.
891.605  Replacement reserve.
891.610  Selection and admission of tenants.
891.615  Obligations of the family.
891.620  Overcrowded and underoccupied units.
891.625  Lease requirements.
891.630  Termination of tenancy and modification of lease.

[[Page 11957]]

891.635  Security deposits.
891.640  Adjustment of rents.
891.645  Adjustment of utility allowances.
891.650  Conditions for receipt of vacancy payments for assisted 
units.

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

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

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

Subpart A--General Program Requirements


Sec. 891.100  Purpose and policy.

    (a) Purpose. The Section 202 Program of Supportive Housing for the 
Elderly and the Section 811 Program of Supportive Housing for Persons 
with Disabilities provide Federal capital advances and project rental 
assistance under section 202 of the Housing Act of 1959 (12 U.S.C. 
1701q) (section 202) and section 811 of the National Affordable Housing 
Act (42 U.S.C. 8013) (section 811), respectively, for housing projects 
serving elderly households and persons with disabilities. Section 202 
projects shall provide a range of services that are tailored to the 
needs of the residents. Owners of Section 811 projects shall ensure 
that the residents are provided with any necessary supportive services 
that address their individual needs.
    (b) General policy. (1) Supportive Housing for the Elderly. A 
capital advance and contract for project rental assistance provided 
under this program shall be used for the purposes described in Section 
202 (12 U.S.C. 1701q(b)).
    (2) Supportive Housing for Persons with Disabilities. A capital 
advance and contract for project rental assistance provided under this 
program shall be used for the purposes described in Section 811 (42 
U.S.C. 8013(b)).
    (c) Use of capital advance funds. No part of the funds reserved may 
be transferred by the Sponsor, except to the Owner caused to be formed 
by the Sponsor. This action must be accomplished prior to issuance of a 
commitment for capital advance funding.
    (d) Amendments. Subject to the availability of funds, HUD may amend 
the amount of an approved capital advance only after initial closing 
has occurred.


Sec. 891.105  Definitions.

    The following definitions apply, as appropriate, throughout this 
part. Other terms with definitions unique to the particular program are 
defined in Secs. 891.205, 891.305, and 891.505, as applicable.
    Affiliated entities means entities that the field office determines 
to be related to each other in such a manner that it is appropriate to 
treat them as a single entity. Such relationship shall include any 
identity of interest among such entities or their principals and the 
use by any otherwise unaffiliated entities of a single Sponsor or of 
Sponsors (or of a single Borrower or of Borrowers, as applicable) that 
have any identity of interest themselves or their principals.
    Annual income is defined in part 813 of this chapter. In the case 
of an individual residing in an intermediate care facility for the 
developmentally disabled that is assisted under title XIX of the Social 
Security Act and this part, the annual income of the individual shall 
exclude protected personal income as provided under that Act. For the 
purposes of determining the total tenant payment, the income of such 
individuals shall be imputed to be the amount that the household would 
receive if assisted under title XVI of the Social Security Act.
    Household (eligible household) means an elderly or disabled 
household (as defined in Secs. 891.205 or 891.305, respectively), as 
applicable, that meets the project occupancy requirements approved by 
HUD and, if the household occupies an assisted unit, meets the very 
low-income requirements described in Sec. 813.102 of this chapter, as 
modified by the definition of annual income in this section.
    Housing and related facilities means rental housing structures 
constructed, rehabilitated, or acquired as permanent residences for use 
by elderly or disabled households, as applicable. The term includes 
necessary community space. Except for intermediate care facilities for 
individuals with developmental disabilities, this term does not include 
nursing homes, hospitals, intermediate care facilities, or transitional 
care facilities. For the Loans for the Elderly and Persons with 
Disabilities Program, see Sec. 891.505.
    Low-income families shall have the same meaning provided in section 
3(b)(2) of the United States Housing Act of 1937 (42 U.S.C. 1437a).
    National Sponsor means a Sponsor that has one or more Section 202 
or one or more Section 811 project(s) under reservation, construction, 
or management in two or more different HUD geographical regions.
    Operating costs means HUD-approved expenses related to the 
provision of housing and includes:
    (1) Administrative expenses, including salary and management 
expenses related to the provision of shelter and, in the case of the 
Section 202 Program, the coordination of services;
    (2) Maintenance expenses, including routine and minor repairs and 
groundskeeping;
    (3) Security expenses;
    (4) Utilities expenses, including gas, oil, electricity, water, 
sewer, trash removal, and extermination services. The term ``operating 
costs'' excludes telephone services for households;
    (5) Taxes and insurance;
    (6) Allowances for reserves; and
    (7) Allowances for services (in the Section 202 Program only).
    Project rental assistance contract (PRAC) means the contract 
entered into by the Owner and HUD setting forth the rights and duties 
of the parties with respect to the project and the payments under the 
PRAC.
    Project rental assistance payment means the payment made by HUD to 
the Owner for assisted units as provided in the PRAC. The payment is 
the difference between the total tenant payment and the HUD-approved 
per unit operating expenses except for expenses related to items not 
eligible under design and cost provisions. An additional payment is 
made to a household occupying an assisted unit when the utility 
allowance is greater than the total tenant payment. A project rental 
assistance payment, known as a ``vacancy payment,'' may be made to the 
Owner when an assisted unit is vacant, in accordance with the terms of 
the PRAC.

[[Page 11958]]

    Rehabilitation means the improvement of the condition of a property 
from deteriorated or substandard to good condition. Rehabilitation may 
vary in degree from the gutting and extensive reconstruction to the 
cure of substantial accumulation of deferred maintenance. Cosmetic 
improvements alone do not qualify as rehabilitation under this 
definition. Rehabilitation may also include renovation, alteration, or 
remodeling for the conversion or adaptation of structurally sound 
property to the design and condition required for use under this part, 
or the repair or replacement of major building systems or components in 
danger of failure. Improvement of an existing structure must require 15 
percent or more of the estimated development cost to rehabilitate the 
project to a useful life of 55 years.
    Replacement Reserve Account means a project account into which 
specified funds are deposited. Such funds may be used only with the 
approval of the Secretary for repairs, replacement, and capital 
improvements to the project.
    Section 202 means section 202 of the Housing Act of 1959 (12 U.S.C. 
1701q), as amended, or the Supportive Housing for the Elderly Program 
authorized by that section.
    Section 811 means section 811 of the National Affordable Housing 
Act (42 U.S.C. 8013), as amended, or the Supportive Housing for Persons 
with Disabilities Program authorized by that section.
    Start-up expenses mean necessary costs (to plan a Section 202 or 
Section 811 project, as applicable) incurred by the Sponsor or Owner 
prior to initial closing.
    Tenant payment to Owner equals total tenant payment less utility 
allowance, if any.
    Total tenant payment means the monthly amount defined in, and 
determined in accordance with part 813 of this chapter.
    Utility allowance is defined in part 813 of this chapter and is 
determined or approved by HUD.
    Very low-income families shall have the same meaning provided in 
section 3(b)(2) of the United States Housing Act of 1937 (42 U.S.C. 
1437a).


Sec. 891.110  Allocation of authority.

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


Sec. 891.115  Notice of funding availability.

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


Sec. 891.120  Project design and cost standards.

    In addition to the special project standards described in 
Secs. 891.210 and 891.310, as applicable, the following standards 
apply:
    (a) Property standards. Projects under this part must comply with 
HUD Minimum Property Standards, unless otherwise indicated in this 
part.
    (b) Accessibility requirements. Projects under this part must 
comply with the Uniform Federal Accessibility Standards (See 24 CFR 
40.7 for availability), section 504 of the Rehabilitation Act of 1973 
and HUD's implementing regulations (24 CFR part 8), and for new 
construction multifamily housing projects, the design and construction 
requirements of the Fair Housing Act and HUD's implementing regulations 
at 24 CFR part 100. For the Section 811 Program of Supportive Housing 
for Persons with Disabilities, see additional accessibility 
requirements in Sec. 891.310(b).
    (c) Restrictions on amenities. Projects must be modest in design. 
Amenities not eligible for HUD funding include individual unit 
balconies and decks, atriums, bowling alleys, swimming pools, saunas, 
jacuzzis, and dishwashers, trash compactors, and washers and dryers in 
individual units in supportive housing for the elderly or in 
independent living facilities for persons with disabilities. Sponsors 
may include certain excess amenities but they must pay for them from 
sources other than the section 202 or 811 capital advance. They must 
also pay for the continuing operating costs associated with any excess 
amenities from sources other than the Section 202 or 811 project rental 
assistance contract.
    (d) Smoke detectors. After October 30, 1992, each dwelling unit 
must include at least one battery-operated or hard-wired smoke 
detector, in proper working condition, on each level of the unit.


Sec. 891.125  Site and neighborhood standards.

    All sites must meet the following site and neighborhood 
requirements:
    (a) The site must be adequate in size, exposure, and contour to 
accommodate the number and type of units proposed, and adequate 
utilities (water, sewer, gas, and electricity) and streets must be 
available to service the site.
    (b) The site and neighborhood must be suitable from the standpoint 
of facilitating and furthering full compliance with the applicable 
provisions of Title VI of the Civil Rights Act of 1964, the Fair 
Housing Act, Executive Order 11063 (27 FR 11527, 3 CFR, 1958-1963 
Comp., p. 652); as amended by Executive Order 12259, (46 FR 1253, 3 
CFR, 1980 Comp., p. 307)); section 504 of the Rehabilitation Act of 
1973, and implementing HUD regulations.
    (c) New construction sites must meet the following site and 
neighborhood requirements:
    (1) The site must not be located in an area of minority 
concentration (or minority elderly concentration under the Section 202 
Program) except as permitted under paragraph (c)(2) of this section, 
and must not be located in a racially mixed area if the project will 
cause a significant increase in the proportion of minority to 
nonminority residents (or minority elderly to nonminority elderly 
residents, under the Section 202 Program) in the area.
    (2) A project may be located in an area of minority concentration 
(or minority elderly concentration, under the Section 202 Program) only 
if:
    (i) Sufficient, comparable opportunities exist for housing for 
minority elderly households or minority disabled households, as 
applicable (or minority families, for projects funded under 
Secs. 891.655 through 891.790), in the income range to be served by the 
proposed project, outside areas of minority concentration (see 
paragraph (c)(3) of this section for further guidance on this 
criterion); or
    (ii) The project is necessary to meet overriding housing needs that 
cannot be met in that housing market area (see paragraph (c)(4) of this 
section for further guidance on this criterion).
    (3) (i) Sufficient does not require that in every locality there be 
an equal number of assisted units within and outside of areas of 
minority concentration. Rather, application of this standard should 
produce a reasonable distribution of assisted units each year which 
over a period of several

[[Page 11959]]
years will approach an appropriate balance of housing opportunities 
within and outside areas of minority concentration. An appropriate 
balance in any jurisdiction must be determined in light of local 
conditions affecting the range of housing choices available for very 
low-income minority elderly or disabled households, as applicable (or 
low-income minority families, for projects funded under Secs. 891.655 
through 891.790), and in relation to the racial mix of the locality's 
population.
    (ii) Units may be considered to be comparable opportunities if they 
have the same household type (elderly or disabled, as applicable) and 
tenure type (owner/renter); require approximately the same total tenant 
payment; serve the same income group; are located in the same housing 
market; and are in standard condition.
    (iii) Application of this sufficient, comparable opportunities 
standard involves assessing the overall impact of HUD-assisted housing 
on the availability of housing choices for very low-income minority 
elderly or disabled households, as applicable (or low-income minority 
families, for projects funded under Secs. 891.655 through 891.790), in 
and outside areas of minority concentration, and must take into account 
the extent to which the following factors are present, along with any 
other factor relevant to housing choice:
    (A) A significant number of assisted housing units are available 
outside areas of minority concentration.
    (B) There is significant integration of assisted housing projects 
constructed or rehabilitated in the past ten years, relative to the 
racial mix of the eligible population.
    (C) There are racially integrated neighborhoods in the locality.
    (D) Programs are operated by the locality to assist minority 
elderly or disabled households, as applicable (or minority families, 
for projects funded under Secs. 891.655 through 891.790), that wish to 
find housing outside areas of minority concentration.
    (E) Minority elderly or disabled households, as applicable (or 
minority families, for projects funded under Secs. 891.655 through 
891.790), have benefitted from local activities (e.g., acquisition and 
write-down of sites, tax relief programs for homeowners, acquisitions 
of units for use as assisted housing units) undertaken to expand choice 
for minority households (or families) outside of areas of minority 
concentration.
    (F) A significant proportion of minority elderly or disabled 
households, as applicable (or minority households, for projects funded 
under Secs. 891.655 through 891.790), have been successful in finding 
units in nonminority areas under the Section 8 Certificate and Housing 
Voucher programs.
    (G) Comparable housing opportunities have been made available 
outside areas of minority concentration through other programs.
    (4) Application of the overriding housing needs criterion, for 
example, permits approval of sites that are an integral part of an 
overall local strategy for the preservation or restoration of the 
immediate neighborhood and of sites in a neighborhood experiencing 
significant private investment that is demonstrably changing the 
economic character of the area (a ``revitalizing area''). An overriding 
housing need, however, may not serve as the basis for determining that 
a site is acceptable if the only reason the need cannot otherwise be 
feasibly met is that discrimination on the basis of race, color, creed, 
sex, or national origin renders sites outside areas of minority 
concentration unavailable, or if the use of this standard in recent 
years has had the effect of circumventing the obligation to provide 
housing choice.
    (d) The neighborhood must not be one that is seriously detrimental 
to family life or in which substandard dwellings or other undesirable 
conditions predominate, unless there is actively in progress a 
concerted program to remedy the undesirable conditions.
    (e) The housing must be accessible to social, recreational, 
educational, commercial, and health facilities and services, and other 
municipal facilities and services that are at least equivalent to those 
typically found in neighborhoods consisting largely of unassisted, 
standard housing of similar market rents.
    (f) For the Section 811 Program of Supportive Housing for Persons 
with Disabilities, the additional site and neighborhood requirements in 
Sec. 891.320 apply.


Sec. 891.130  Prohibited relationships.

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


Sec. 891.135  Amount and terms of capital advances.

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


Sec. 891.140  Development cost limits.

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

[[Page 11960]]



Sec. 891.145  Owner deposit (Minimum Capital Investment).

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


Sec. 891.150  Operating cost standards.

    HUD shall establish operating cost standards based on the average 
annual operating cost of comparable housing for the elderly or for 
persons with disabilities in each field office, and shall adjust the 
standard annually based on appropriate indices of increases in housing 
costs such as the Consumer Price Index. The operating cost standards 
shall be developed based on the number of units. However, under the 
Section 811 Program and for projects funded under Secs. 891.655 through 
891.790, the operating cost standard for group homes shall be based on 
the number of residents. HUD may adjust the operating cost standard 
applicable to an approved project to reflect such factors as 
differences in costs based on location within the field office 
jurisdiction. The operating cost standard will be used to determine the 
amount of the project assistance initially reserved for a project.


Sec. 891.155  Other Federal requirements.

    In addition to the requirements set forth in 24 CFR part 5, the 
following requirements in this Sec. 891.155 apply to the Section 202 
and Section 811 Programs, as well as projects funded under 
Secs. 891.655 through 891.790. Other requirements unique to a 
particular program are described in subparts B and C of this part, as 
applicable.
    (a) Affirmative fair housing marketing. (1) The affirmative fair 
housing marketing requirements of 24 CFR part 200, subpart M and the 
implementing regulations at 24 CFR part 108; and
    (2) The fair housing advertising and poster guidelines at 24 CFR 
parts 109 and 110.
    (b) Environmental. The National Environmental Policy Act of 1969, 
HUD's implementing regulations at 24 CFR part 50, including the related 
authorities described in 24 CFR 50.4. For the purposes of Executive 
Order No. 11988, Floodplain Management (42 FR 26951, 3 CFR, 1977 Comp., 
p. 117); as amended by Executive Order 12148 (44 FR 43239, 3 CFR, 1979 
Comp., p. 412)), and implementing regulations in 24 CFR part 55, all 
applications for intermediate care facilities for persons with 
developmental disabilities shall be treated as critical actions 
requiring consideration of the 500-year floodplain.
    (c) Flood insurance. The Flood Disaster Protection Act of 1973 (42 
U.S.C. 4001).
    (d) Labor standards. (1) All laborers and mechanics (other than 
volunteers under the conditions set out in 24 CFR part 70) employed by 
contractors and subcontractors in the construction (including 
rehabilitation) of housing with 12 or more units assisted under this 
part shall be paid wages at rates not less than those prevailing in the 
locality, as determined by the Secretary of Labor in accordance with 
the Davis-Bacon Act (40 U.S.C. 276a-276a-5). A group home for persons 
with disabilities is not covered by the labor standards.
    (2) Contracts involving employment of laborers and mechanics shall 
be subject to the provisions of the Contract Work Hours and Safety 
Standards Act (40 U.S.C. 327-333).
    (3) Sponsors, Owners, contractors, and subcontractors must comply 
with all related rules, regulations, and requirements.
    (e) Displacement, relocation, and real property acquisition. (1) 
Minimizing displacement. Consistent with the other goals and objectives 
of this part, Sponsors and Owners (or Borrowers, if applicable) shall 
assure that they have taken all reasonable steps to minimize the 
displacement of persons (families, individuals, businesses, nonprofit 
organizations, and farms) as a result of a project assisted under this 
part.
    (2) Relocation assistance for displaced persons. A displaced person 
must be provided relocation assistance at the levels described in, and 
in accordance with the requirements of, the Uniform Relocation 
Assistance and Real Property Acquisition Policies Act of 1970, as 
amended (URA) (42 U.S.C. 4201-4655), as implemented by 49 CFR part 24.
    (3) Real property acquisition requirements. The acquisition of real 
property for a project is subject to the URA and the requirements 
described in 49 CFR part 24, subpart B.
    (f) Intergovernmental review. The requirements for 
intergovernmental review in Executive Order No. 12372 (47 FR 30959, 3 
CFR, 1982 Comp., p. 197; as amended by Executive Order No. 12416 (48 FR 
15587, 3 CFR, 1983 Comp., p. 186)) and the implementing regulations at 
24 CFR part 52 are applicable to this program.
    (g) Lead-based paint. (1) The requirements of the Lead-Based Paint 
Poisoning Prevention Act (42 U.S.C. 4821-4846) and implementing 
regulations at 24 CFR part 35 apply to any dwellings (except zero-
bedroom dwelling units) in section 811 housing that were:
    (i) Constructed or substantially rehabilitated before 1978; and
    (ii) In which any child under 6 years of age resides or is expected 
to reside.
    (2) Under the Section 811 Program and projects funded under 
Secs. 891.655 through 891.790, the lead-based paint requirements 
described in Sec. 891.325 also apply.


Sec. 891.160  Audit requirements.

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


Sec. 891.165  Duration of capital advance.

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


Sec. 891.170  Repayment of capital advance.

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

[[Page 11961]]



Sec. 891.175  Technical assistance.

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

Subpart B--Section 202 Supportive Housing for the Elderly


Sec. 891.200  Applicability.

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


Sec. 891.205  Definitions.

    As used in this part in reference to the Section 202 Program, and 
in addition to the applicable definitions in Sec. 891.105:
    Acquisition means the purchase of (or otherwise obtaining title to) 
existing housing and related facilities from the Resolution Trust 
Corporation.
    Activities of daily living (ADL) means eating, dressing, bathing, 
grooming, and household management activities, as further described 
below:
    (1) Eating--May need assistance with cooking, preparing, or serving 
food, but must be able to feed self;
    (2) Bathing--May need assistance in getting in and out of the 
shower or tub, but must be able to wash self;
    (3) Grooming--May need assistance in washing hair, but must be able 
to take care of personal appearance;
    (4) Dressing--Must be able to dress self, but may need occasional 
assistance; and
    (5) Home management activities--May need assistance in doing 
housework, grocery shopping, laundry, or getting to and from activities 
such as going to the doctor and shopping, but must be mobile. The 
mobility requirement does not exclude persons in wheelchairs or those 
requiring mobility devices.
    Congregate space (hereinafter referred to as community space) shall 
have the meaning provided in section 202 (12 U.S.C. 1701q(h)(1)). The 
term ``community spaces'' excludes offices, halls, mechanical rooms, 
laundry rooms, parking areas, dwelling units, and lobbies. Community 
space does not include commercial areas.
    Elderly person means a household composed of one or more persons at 
least one of whom is 62 years of age or more at the time of initial 
occupancy.
    Frail elderly means an elderly person who is unable to perform at 
least three activities of daily living as defined in this section. 
Owners may establish additional eligibility requirements acceptable to 
HUD based on the standards in local supportive services programs.
    Owner means a single-purpose private nonprofit organization that 
may be established by the Sponsor that will receive a capital advance 
and project rental assistance payments to develop and operate 
supportive housing for the elderly as its legal owner. Owner does not 
mean a public body or the instrumentality of any public body. The 
purposes of the Owner must include the promotion of the welfare of the 
elderly. The Owner may not be controlled by or under the direction of 
persons or firms seeking to derive profit or gain therefrom.
    Private nonprofit organization means any incorporated private 
institution or foundation:
    (1) That has tax-exempt status under section 501(c)(3) or (c)(4) of 
the Internal Revenue Code of 1986 (26 U.S.C. 1 et seq.);
    (2) No part of the net earnings of which inures to the benefit of 
any member, founder, contributor, or individual;
    (3) That has a governing board:
    (i) The membership of which is selected in a manner to assure that 
there is significant representation of the views of the community in 
which such housing is located; and
    (ii) That is responsible for the operation of the housing assisted 
under this part; and
    (4) That is approved by HUD as to administrative and financial 
responsibility.
    Services expenses means those costs needed to provide the necessary 
services for the elderly tenants, which may include, but are not 
limited to: health related activities, continuing education, welfare, 
informational, recreational, homemaking, meal and nutritional services, 
counseling, and referral services as well as transportation as 
necessary to facilitate access to these services.
    Sponsor means any private nonprofit entity, including a consumer 
cooperative:
    (1) No part of the net earnings of which inures to the benefit of 
any private shareholder, member, founder, contributor, or individual;
    (2) That is not controlled by, or under the direction of, persons 
or firms seeking to derive profit or gain therefrom; and
    (3) That is approved by the Secretary as to administrative and 
financial capacity and responsibility. The term ``Sponsor'' does not 
mean a public body or the instrumentality of a public body.


Sec. 891.210  Special project standards.

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


Sec. 891.215  Limits on number of units.

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


Sec. 891.220  Prohibited facilities.

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


Sec. 891.225  Provision of services.

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


Sec. 891.230  Selection preferences.

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

[[Page 11962]]


Subpart C--Section 811 Supportive Housing for Persons With 
Disabilities


Sec. 891.300  Applicability.

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


Sec. 891.305  Definitions.

    As used in this part in reference to the Section 811 Program, and 
in addition to the applicable definitions in Sec. 891.105:
    Acquisition means the purchase of (or otherwise obtaining title to) 
existing structures to be used as housing for persons with 
disabilities, including housing and related facilities from the 
Resolution Trust Corporation. Capital advances are not available in 
connection with facilities owned and operated by the Sponsor as housing 
for persons with disabilities.
    Congregate space (hereinafter referred to as community space) means 
space for multipurpose rooms, common areas, and other space necessary 
for the provision of supportive services. Community space does not 
include commercial areas.
    Disabled household means a household composed of:
    (1) One or more persons at least one of whom is an adult (18 years 
or older) who has a disability;
    (2) Two or more persons with disabilities living together, or one 
or more such persons living with another person who is determined by 
HUD, based upon a certification from an appropriate professional (e.g., 
a rehabilitation counselor, social worker, or licensed physician) to be 
important to their care or well being; or
    (3) The surviving member or members of any household described in 
paragraph (1) of this definition who were living in a unit assisted 
under this part, with the deceased member of the household at the time 
of his or her death.
    Nonprofit organization means any institution or foundation:
    (1) That has tax-exempt status under section 501(c)(3) of the 
Internal Revenue Code of 1986 (26 U.S.C. 1 et seq.);
    (2) No part of the net earnings of which inures to the benefit of 
any Board member, founder, contributor, or individual;
    (3) That has a governing board;
    (i) The membership of which is selected in a manner to assure that 
there is significant representation of the views of the community in 
which such housing is located (including persons with disabilities); 
and
    (ii) That is responsible for the operation of the housing assisted 
under this part; and
    (4) That is approved by HUD as to financial responsibility.
    Owner means a single-purpose nonprofit organization established by 
the Sponsor that will receive a capital advance and project rental 
assistance payments to develop and operate, as its legal owner, 
supportive housing for persons with disabilities under this part. The 
purposes of the Owner must include the promotion of the welfare of 
persons with disabilities. The Owner may not be controlled by or under 
the direction of persons or firms seeking to derive profit or gain 
therefrom.
    Person with disabilities shall have the meaning provided in Section 
811 (42 U.S.C. 8013(k)(2)). The term ``person with disabilities'' shall 
also include the following:
    (1) A person who has a developmental disability, as defined in 
section 102(7) of the Developmental Disabilities Assistance and Bill of 
Rights Act (42 U.S.C. 6001(5)), i.e., if he or she has a severe chronic 
disability which:
    (i) Is attributable to a mental or physical impairment or 
combination of mental and physical impairments;
    (ii) Is manifested before the person attains age twenty-two;
    (iii) Is likely to continue indefinitely;
    (iv) Results in substantial functional limitation in three or more 
of the following areas of major life activity:
    (A) Self-care;
    (B) Receptive and expressive language;
    (C) Learning;
    (D) Mobility;
    (E) Self-direction;
    (F) Capacity for independent living;
    (G) Economic self-sufficiency; and
    (v) Reflects the person's need for a combination and sequence of 
special, interdisciplinary, or generic care, treatment, or other 
services which are of lifelong or extended duration and are 
individually planned and coordinated.
    (2) A person with a chronic mental illness, i.e., a severe and 
persistent mental or emotional impairment that seriously limits his or 
her ability to live independently, and which impairment could be 
improved by more suitable housing conditions.
    (3) A person infected with the human acquired immunodeficiency 
virus (HIV) and a person who suffers from alcoholism or drug addiction, 
provided they meet the definition of ``person with disabilities'' in 
Section 811 (42 U.S.C. 8013(k)(2)). A person whose sole impairment is a 
diagnosis of HIV positive or alcoholism or drug addiction (i.e., does 
not meet the qualifying criteria in section 811 (42 U.S.C. 8013(k)(2)) 
will not be eligible for occupancy in a section 811 project.
    Sponsor means any nonprofit entity:
    (1) That has tax-exempt status under section 501(c)(3) of the 
Internal Revenue Code of 1986 (26 U.S.C. 1 et seq.);
    (2) No part of the net earnings of which inures to the benefit of 
any private shareholder, member, founder, contributor or individual;
    (3) That is not controlled by or under the direction of persons or 
firms seeking to derive profit or gain therefrom;
    (4) That has a governing board the membership of which is selected 
in a manner to assure that there is significant representation of the 
views of persons with disabilities; and
    (5) That is approved by HUD as to administrative and financial 
capacity and responsibility.


Sec. 891.310  Special project standards.

    In addition to the applicable project standards in Sec. 891.120, 
the following special standards apply to the Section 811 Program and to 
projects funded under Secs. 891.655 through 891.790:
    (a) Minimum group home standards. Each group home must provide a 
minimum of 290 square feet of prorated space for each resident, 
including a minimum area of 80 square feet for each resident in a 
shared bedroom (with no more than two residents occupying a shared 
bedroom) and a minimum area of 100 square feet for a single occupant 
bedroom; at least one full bathroom for every four residents; space for 
recreation at indoor and outdoor locations on the project site; and 
sufficient storage for each resident in the bedroom and other storage 
space necessary for the operation of the home. If the project involves 
acquisition (with or without rehabilitation), the structure must at 
least be in compliance with applicable State requirements. In the 
absence of such requirements, the above standards shall apply.
    (b) Additional accessibility requirements. In addition to the 
accessibility requirements in Sec. 891.120(b), the following 
requirements apply to the Section 811 Program and to projects funded 
under Secs. 891.655 through 891.790:
    (1) All entrances, common areas, units to be occupied by resident 
staff, and amenities must be readily accessible to and usable by 
persons with disabilities.
    (2) In projects for chronically mentally ill individuals, a minimum 
of 10 percent of all dwelling units in an independent living facility 
(or 10 percent of all bedrooms and bathrooms in a group home, but at 
least one of each such space), must be designed to be

[[Page 11963]]
accessible or adaptable for persons with disabilities.
    (3) In projects for developmentally disabled or physically disabled 
persons, all dwelling units in an independent living facility (or all 
bedrooms and bathrooms in a group home) must be designed to be 
accessible or adaptable for persons with physical disabilities. A 
project involving acquisition and/or rehabilitation may provide a 
lesser number if:
    (i) The cost of providing full accessibility makes the project 
financially infeasible;
    (ii) Fewer than one-half of the intended occupants have mobility 
impairments; and
    (iii) The project complies with the requirements of 24 CFR 8.23.
    (4) For the purposes of paragraph (b) of this section, the 
following definitions apply:
    (i) Accessible describes a site, building, facility, or portion 
thereof that complies with the Uniform Federal Accessibility Standards 
and that can be approached, entered, and used by physically disabled 
people;
    (ii) Adaptability means the ability of certain building spaces and 
elements, such as kitchen counters, sinks, and grab bars, to be added 
or altered so as to accommodate the needs of either disabled or 
nondisabled persons, or to accommodate the needs of either disabled or 
nondisabled persons, or to accommodate the needs of persons with 
different types or degrees of disability.


Sec. 891.315  Prohibited facilities.

    This section shall apply to capital advances under the Section 811 
Program, as well as loans financed under subpart E of this part. 
Project facilities may not include infirmaries, nursing stations, 
spaces dedicated to the delivery of medical treatment or physical 
therapy, padded rooms, or space for respite care or sheltered 
workshops, even if paid for from sources other than the HUD capital 
advance or loan. Except for office space used by the Owner (or 
Borrower, if applicable) exclusively for the administration of the 
project, project facilities may not include office space.


Sec. 891.320  Site and neighborhood standards.

    In addition to the requirements in Sec. 891.125 and Sec. 891.680, 
if applicable, the following site and neighborhood requirements apply 
to the Section 811 Program:
    (a) Travel time and cost via public transportation or private 
automobile, from the neighborhood to places of employment providing a 
range of jobs for very low-income workers (or low-income workers, as 
applicable), must not be excessive.
    (b) Projects should be located in neighborhoods where other family 
housing is located. Projects should not be located adjacent to the 
following facilities, or in areas where such facilities are 
concentrated: schools or day-care centers for persons with 
disabilities, workshops, medical facilities, or other housing primarily 
serving persons with disabilities. Not more than one group home may be 
located on any one site and no such home may be located on a site 
contiguous to another site containing such a home.


Sec. 891.325  Lead-based paint requirements.

    In addition to the other Federal requirements described in 
Sec. 891.155, the following lead-based paint requirements apply to the 
Section 811 Program and to projects funded under Secs. 891.655 through 
891.790:
    (a) The requirements of the Lead-Based Paint Poisoning Prevention 
Act (42 U.S.C. 4821-4846) and implementing regulations at 24 CFR part 
35 (except as superseded in paragraph (b) of this section) apply to the 
dwellings (except zero-bedroom dwelling units or units that are 
certified by a qualified inspector to be free of lead-based paint or 
the lead-based paint hazards have been eliminated) in housing assisted 
under this subpart and to projects funded under Secs. 891.655 through 
891.790 that:
    (1) Were constructed before 1978; and
    (2) In which any child under 6 years of age resides or is expected 
to reside.
    (b) (1) This paragraph (b) implements the provisions of the Lead-
Based Paint Poisoning Prevention Act, 42 U.S.C. 4821 et seq., by 
establishing procedures to eliminate, as far as practicable, the 
hazards of lead-based paint poisoning with respect to covered 
structures for which assistance is provided under the Section 811 
Program and under Secs. 891.655 through 891.790. This paragraph (b) is 
promulgated under 24 CFR 35.24(b)(4) and supersedes, with respect to 
these programs, the requirements prescribed in subpart C of 24 CFR part 
35.
    (2) The following definitions apply to this section:
    Applicable surface means all intact and nonintact painted interior 
and exterior surfaces of a residential structure.
    Chewable surface means all protruding painted surfaces up to five 
feet from the floor or ground, that are readily accessible to children 
under 6 years of age, e.g., protruding corners, windowsills and frames, 
doors and frames, and other protruding woodwork.
    Defective paint surfaces means a surface on which the paint is 
cracking, scaling, chipping, peeling, or loose.
    Elevated blood lead level or EBL means excessive absorption of 
lead: that is, a confirmed concentration of lead in whole blood of 20 
ug/dl (micrograms of lead per deciliter) for a single test or of 15-19 
ug/dl in two consecutive tests 3-4 months apart.
    Lead-based paint means a paint surface, whether or not defective, 
identified as having a lead content greater than or equal to 1 mg/cm2 
(milligram per square centimeter) or .5 percent by weight or 5000 parts 
per million (PPM).
    (3) In the case of a structure constructed before 1978, the Sponsor 
must inspect the structure for defective paint surfaces before it 
submits site information. If defective paint surfaces are found, 
treatment in accordance with paragraph (a)(5) of this section is 
required. Correction of defective surfaces found during the initial 
inspection must be completed before initial occupancy of the project. 
Correction of defective paint conditions discovered at periodic 
inspection must be completed within 30 calendar days of their 
discovery. When weather conditions prevent completion of repainting of 
exterior surfaces within the 30-day period, repainting may be delayed, 
but covering or removal of the defective paint must be completed within 
the prescribed period.
    (4) In the case of a structure constructed before 1978, if the 
Owner (or Borrower, if applicable) is presented with test results that 
indicate that a child under the age of 6 years occupies the structure 
and has an elevated blood lead level (EBL), the Owner (or Borrower, if 
applicable) must cause the unit to be tested for lead-based paint on 
chewable surfaces. Testing must be conducted by a State or local health 
or housing agency, by an inspector certified or regulated by a State or 
local health or housing agency, or an organization recognized by HUD. 
Lead content shall be tested by using an X-ray fluorescence analysis 
(XRF) or by laboratory analysis of paint samples. Where lead-based 
paint on chewable surfaces is identified, covering or removal of the 
paint surface in accordance with paragraph (a)(5) of this section is 
required and treatment shall be completed within the time limits in 
paragraph (b)(3) of this section.
    (5) Treatment of defective paint surfaces and chewable surfaces 
must consist of covering or removal of the

[[Page 11964]]
paint in accordance with the following requirements:
    (i) A defective paint surface shall be treated if the total area of 
defective paint on a component is:
    (A) More than 10 square feet on an exterior wall;
    (B) More than 2 square feet on an interior or exterior component 
with a large surface area, excluding exterior walls and including, but 
not limited to, ceilings, floors, doors, and interior walls; or
    (C) More than 10 percent of the total surface area on an interior 
or exterior component with a small surface area, including, but not 
limited to, window sills, baseboards and trim.
    (ii) Acceptable methods of treatment are: removal by wet scraping, 
wet sanding, chemical stripping on or off site, replacing painted 
components, scraping with infra-red or coil type heat gun with 
temperatures below 1100 degrees, HEPA vacuum sanding, HEPA vacuum 
needle gun, contained hydroblasting or high pressure wash with HEPA 
vacuum, and abrasive sandblasting with HEPA vacuum. Surfaces must be 
covered with durable materials with joints and edges sealed and caulked 
as needed to prevent the escape of lead contaminated dust.
    (iii) Prohibited methods of removal are: open flame burning or 
torching; machine sanding or grinding without a HEPA exhaust; 
uncontained hydroblasting or high pressure wash; and dry scraping 
except around electrical outlets or except when treating defective 
paint spots no more than two square feet in any one interior room or 
space (hallway, pantry, etc.) or totalling no more than twenty square 
feet on exterior surfaces.
    (iv) During exterior treatment, soil and playground equipment must 
be protected from contamination.
    (v) All treatment procedures must be concluded with a thorough 
cleaning of all surfaces in the room or area of treatment to remove 
fine dust particles. Cleanup must be accomplished by wet washing 
surfaces with a lead solubilizing detergent such as trisodium phosphate 
or an equivalent solution.
    (vi) Waste and debris must be disposed of in accordance with all 
applicable Federal, State and local laws.
    (6) In lieu of the procedures set forth in the preceding clause, 
the Owner (or Borrower, if applicable) may, at its discretion, abate 
all interior and exterior chewable surfaces in accordance with the 
methods set out paragraph (a)(5) of this section.
    (7) The Owner (or Borrower, if applicable) must take appropriate 
action to protect tenants from hazards associated with abatement 
procedures.
    (8) The Owner (or Borrower, if applicable) must keep a copy of each 
inspection report for at least three years. If a unit requires testing, 
or treatment of chewable surfaces based on the testing, the Owner must 
keep the test results, and, if applicable, the certification of 
treatment indefinitely. The records must indicate which chewable 
surfaces in the units have been tested or treated. If records establish 
that certain chewable surfaces were tested, or tested and treated, in 
accordance with the standards prescribed in this section, these 
surfaces do not have to be tested or treated at any subsequent time.

Subpart D--Project Management


Sec. 891.400  Responsibilities of Owner.

    (a) Marketing. (1) The Owner must commence and continue diligent 
marketing activities not later than 90 days before the anticipated date 
of availability of the first unit or occupancy of the group home. 
Market activities shall include the provision of notices of the 
availability of housing under the program to operators of temporary 
housing for the homeless in the same housing market.
    (2) Marketing must be done in accordance with a HUD-approved 
affirmative fair housing marketing plan and all Federal, State or local 
fair housing and equal opportunity requirements. The purpose of the 
plan and requirements is to achieve a condition in which eligible 
households of similar income levels in the same housing market area 
have a like range of housing choices available to them regardless of 
discriminatory considerations such as their race, color, creed, 
religion, familial status, disability, sex or national origin.
    (3) At the time of PRAC execution, the Owner must submit to HUD a 
list of leased and unleased assisted units (or in the case of a group 
home, leased and unleased residential spaces) with a justification for 
the unleased units or residential spaces, in order to qualify for 
vacancy payments for the unleased units or residential spaces.
    (b) Management and maintenance. The Owner is responsible for all 
management functions. These functions include selection and admission 
of tenants, required reexaminations of incomes for households occupying 
assisted units or residential spaces, collection of tenant payments, 
termination of tenancy and eviction, and all repair and maintenance 
functions (including ordinary and extraordinary maintenance and 
replacement of capital items). All functions must be performed in 
compliance with equal opportunity requirements.
    (c) Contracting for services. (1) With HUD approval, the Owner may 
contract with a private or public entity for performance of the 
services or duties required in paragraphs (a) and (b) of this section. 
However, such an arrangement does not relieve the Owner of 
responsibility for these services and duties. All such contracts are 
subject to the restrictions governing prohibited contractual 
relationships described in Sec. 891.130. (These prohibitions do not 
extend to management contracts entered into by the Owner with the 
Sponsor or its nonprofit affiliate.)
    (2) Consistent with the objectives of Executive Order No. 11625 (36 
FR 19967, 3 CFR, 1971-1975 Comp., p. 616; as amended by Executive Order 
No. 12007 (42 FR 42839, 3 CFR, 1977 Comp., p. 139)); Executive Order 
No. 12432 (48 FR 32551, 3 CFR, 1983 Comp., p. 198); and Executive Order 
No. 12138 (44 FR 29637, 3 CFR, 1979 Comp., p. 393; as amended by 
Executive Order No. 12608 (52 FR 34617, 3 CFR, 1987 Comp., p. 245)), 
the Owner will promote awareness and participation of minority and 
women's business enterprises in contracting and procurement activities.
    (d) Submission of financial and operating statements. The Owner 
must submit to HUD:
    (1) Within 60 days after the end of each fiscal year of project 
operations, financial statements for the project audited by an 
independent public accountant and in the form required by HUD; and
    (2) Other statements regarding project operation, financial 
conditions and occupancy as HUD may require to administer the PRAC and 
to monitor project operations.
    (e) Use of project funds. The Owner shall maintain a separate 
interest bearing project fund account in a depository or depositories 
which are members of the Federal Deposit Insurance Corporation or 
National Credit Union Share Insurance Fund and shall deposit all tenant 
payments, charges, income and revenues arising from project operation 
or ownership to this account. All project funds are to be deposited in 
Federally insured accounts. All balances shall be fully insured at all 
times, to the maximum extent possible. Project funds must be used for 
the operation of the project (including required insurance coverage), 
and to make required deposits to the replacement reserve under 
Sec. 891.405, in accordance with HUD-approved budget.

[[Page 11965]]
Any remaining project funds in the project funds account (including 
earned interest) following the expiration of the fiscal year shall be 
deposited in a Federally-insured residual receipts account within 60 
days following the end of the fiscal year. Withdrawals from this 
account may be made only for project purposes and with the approval of 
HUD. If there are funds remaining in the residual receipts account when 
the mortgage is satisfied, such funds shall be returned to HUD.
    (f) Reports. The Owner shall submit such reports as HUD may 
prescribe to demonstrate compliance with applicable civil rights and 
equal opportunity requirements. See Sec. 891.410(a).

(Approved by the Office of Management and Budget under control 
number 2502-0470)


Sec. 891.405  Replacement reserve.

    (a) Establishment of reserve. The Owner shall establish and 
maintain a replacement reserve to aid in funding extraordinary 
maintenance and repair and replacement of capital items.
    (b) Deposits to reserve. The Owner shall make monthly deposits to 
the replacement reserve in an amount determined by HUD.
    (c) Level of reserve. The reserve must be built up to and 
maintained at a level determined by HUD to be sufficient to meet 
projected requirements. Should the reserve reach that level, the amount 
of the deposit to the reserve may be reduced with the approval of HUD.
    (d) Administration of reserve. Replacement reserve funds must be 
deposited with HUD or in a Federally-insured depository in an interest-
bearing account(s) whose balances(s) are fully insured at all times. 
All earnings including interest on the reserve must be added to the 
reserve. Funds may be drawn from the reserve and used only in 
accordance with HUD guidelines and with the approval of, or as directed 
by, HUD.


Sec. 891.410  Selection and admission of tenants.

    (a) Written procedures. The Owner shall adopt written tenant 
selection procedures that ensure nondiscrimination in the selection of 
tenants and that are consistent with the purpose of improving housing 
opportunities for very low-income elderly persons and persons with 
disabilities (as applicable); and reasonably related to program 
eligibility and an applicant's ability to perform the obligations of 
the lease. Owners shall promptly inform in writing any rejected 
applicant of the grounds for any rejection. Additionally, Owners shall 
maintain a written, chronological waiting list showing the name, race, 
gender, ethnicity, and date of each person applying for the program.
    (b) Application for admission. The Owner must accept applications 
for admission to the project in the form prescribed by HUD, and (under 
the Section 202 Program only) is obligated to confirm all information 
provided by applicant families on the application. Applicant households 
applying for assisted units (or residential spaces in a group home) 
must complete a certification of eligibility as part of the application 
for admission. Applicant households must meet the disclosure and 
verification requirements for Social Security Numbers, as provided by 
24 CFR part 5, subpart B. Applicant families must sign and submit 
consent forms for the obtaining of wage and claim information from 
State Wage Information Collection Agencies, as provided by 24 CFR part 
5, subpart B. Both the Owner and the applicant household must complete 
and sign the application for admission. On request, the Owner must 
furnish copies of all applications for admission to HUD.
    (c) Determination of eligibility and selection of tenants. (1) The 
Owner is responsible for determining whether applicants are eligible 
for admission and for the selection of households. To be eligible for 
admission, an applicant must be an elderly person or a person with 
disabilities, as applicable (as defined in Secs. 891.205 and 891.305, 
respectively); must meet the disclosure and verification requirements 
for Social Security Numbers, as provided by 24 CFR part 5, subpart B; 
must sign and submit consent forms for the obtaining of wage and claim 
information from State Wage Information Collection Agencies, as 
provided by 24 CFR part 5, subpart B; and must be a very low-income 
family, as defined in Sec. 891.105.
    (2) Under the Section 811 Program:
    (i) In order to be eligible for admission, the applicant must also 
meet any project occupancy requirements approved by HUD.
    (ii) Owners shall make selections in a nondiscriminatory manner 
without regard to considerations such as race, religion, color, sex, 
national origin, familial status, or disability. An Owner may, with the 
approval of the Secretary, limit occupancy within housing developed 
under this part 891 to persons with disabilities who have similar 
disabilities and require a similar set of supportive services in a 
supportive housing environment. However, the Owner must permit 
occupancy by any qualified person with a disability who could benefit 
from the housing and/or services provided regardless of the person's 
disability.
    (d) Unit assignment. If the Owner determines that the household is 
eligible and is otherwise acceptable and units (or residential spaces 
in a group home) are available, the Owner will assign the household a 
unit or residential space in a group home. If the household will occupy 
an assisted unit, the Owner will assign the household a unit of the 
appropriate size in accordance with HUD's general occupancy guidelines. 
If no suitable unit (or residential space in a group home) is 
available, the Owner will place the household on a waiting list for the 
project and notify the household when a suitable unit or residential 
space may become available. If the waiting list is so long that the 
applicant would not be likely to be admitted for the next 12 months, 
the Owner may advise the applicant that no additional applications for 
admission are being considered for that reason.
    (e) Ineligibility determination. If the Owner determines that an 
applicant is ineligible for admission or the Owner is not selecting the 
applicant for other reasons, the Owner will promptly notify the 
applicant in writing of the determination, the reasons for the 
determination, and the applicant's right to request a meeting to review 
the rejection, in accordance with HUD requirements. The review, if 
requested, may not be conducted by a member of the Owner's staff who 
made the initial decision to reject the applicant. The applicant may 
also exercise other rights (e.g., rights granted under Federal, State 
or local civil rights laws) if the applicant believes he or she is 
being discriminated against on a prohibited basis.
    (f) Records. Records on applicants and approved eligible 
households, which provide racial, ethnic, gender and place of previous 
residency data required by HUD, must be retained for three years. See 
Sec. 891.410(a).
    (g) Reexamination of household family income and composition. (1) 
Regular reexaminations. The Owner must reexamine the income and 
composition of the household at least every 12 months. Upon 
verification of the information, the Owner must make appropriate 
adjustments in the total tenant payment in accordance with part 813 of 
this chapter, as modified by Sec. 891.105, and must determine whether 
the household's unit size is still appropriate. The Owner must adjust 
tenant payment and the project rental assistance payment, and must 
carry out any unit transfer in accordance with HUD standards. At the 
time of reexamination under paragraph (g)(1) of

[[Page 11966]]
this section, the Owner must require the household to meet the 
disclosure and verification requirements for Social Security Numbers, 
as provided by 24 CFR part 5, subpart B. For requirements regarding the 
signing and submitting of consent forms by families for obtaining of 
wage and claim information from State Wage Information Collection 
Agencies, see 24 CFR part 5, subpart B.
    (2) Interim reexaminations. The household must comply with the 
provisions in its lease regarding interim reporting of changes in 
income. If the Owner receives information concerning a change in the 
household's income or other circumstances between regularly scheduled 
reexaminations, the Owner must consult with the household and make any 
adjustments determined to be appropriate. See 24 CFR part 5, subpart B 
for the requirements for the disclosure and verification of Social 
Security Number at interim reexaminations involving new household 
members. For requirements regarding the signing and submitting of 
consent forms by families for the obtaining of wage and claim 
information from State Wage Information Collection Agencies, see 24 CFR 
part 5, subpart B. Any change in the household's income or other 
circumstances that result in an adjustment in the total tenant payment, 
tenant payment, and project rental assistance payment must be verified.
    (3) Continuation of project rental assistance payment. (i) A 
household shall remain eligible for project rental assistance payment 
until the total tenant payment equals or exceeds the gross rent (or a 
pro rata share of the gross rent in a group home). The termination of 
subsidy eligibility will not affect the household's other rights under 
its lease. Project rental assistance payment may be resumed if, as a 
result of changes in income, rent or other relevant circumstances 
during the term of the PRAC, the household meets the income eligibility 
requirements of 24 CFR part 813 (as modified in Sec. 891.105) and 
project rental assistance is available for the unit or residential 
space under the terms of the PRAC. The household will not be required 
to establish its eligibility for admission to the project under the 
remaining requirements of paragraph (c) of this section.
    (ii) A household's eligibility for project rental assistance 
payment may be terminated in accordance with HUD requirements for such 
reasons as failure to submit requested verification information, 
including information related to disclosure and verification of Social 
Security Numbers, as provided by 24 CFR part 5, subpart B or failure to 
sign and submit consent forms for the obtaining of wage and claim 
information from State Wage Information Collection Agencies (as 
provided by 24 CFR part 5, subpart B).
    (h) Selection preferences. Under the Section 202 Program, the 
selection preferences in 24 CFR part 5, subpart D apply.


Sec. 891.415  Obligations of the household or family.

    This section shall apply to capital advances under the Section 202 
Program and the Section 811 Program, as well as loans financed under 
subpart E of this part.
    (a) Requirements. The household (or family, as applicable) shall:
    (1) Pay amounts due under the lease directly to the Owner (or 
Borrower, as applicable);
    (2) Supply such certification, release of information, consent, 
completed forms or documentation as the Owner (or Borrower, as 
applicable) or HUD determines necessary, including information and 
documentation relating to the disclosure and verification of Social 
Security Numbers, as provided by 24 CFR part 5, subpart B, and the 
signing and submission of consent forms for the obtaining of wage and 
claim information from State Wage Information Collection Agencies, as 
provided by 24 CFR part 5, subpart B;
    (3) Allow the Owner (or Borrower, as applicable) to inspect the 
dwelling unit or residential space at reasonable times and after 
reasonable notice;
    (4) Notify the Owner (or Borrower, as applicable) before vacating 
the dwelling unit or residential space; and
    (5) Use the dwelling unit or residential space solely for residence 
by the household (or family, as applicable) and as the household's (or 
family's) principal place of residence.
    (b) Prohibitions. The household (or family, as applicable) shall 
not:
    (1) Assign the lease or transfer the unit or residential space; or
    (2) Occupy, or receive assistance for the occupancy of, a unit or 
residential space governed under this part 891 while occupying, or 
receiving assistance for the occupancy of, another unit assisted under 
any Federal housing assistance program, including any section 8 
program.

(Approved by the Office of Management and Budget under control 
number 2502-0470)


Sec. 891.420  Overcrowded and underoccupied units.

    If the Owner determines that because of change in household size, 
an assisted unit is smaller than appropriate for the eligible household 
to which it is leased, or that the assisted unit is larger than 
appropriate, project rental assistance payment with respect to the unit 
will not be reduced or terminated until the eligible household has been 
relocated to an appropriate alternate unit. If possible, the Owner 
will, as promptly as possible, offer the household an appropriate 
alternate unit. The Owner may receive vacancy payments for the vacated 
unit if the Owner complies with the requirements of Sec. 891.445.


Sec. 891.425  Lease requirements.

    This section shall apply to capital advances under the Section 202 
Program and the Section 811 Program, as well as loans financed under 
subpart E of this part.
    (a) Term of lease. The term of the lease may not be less than one 
year. Unless the lease has been terminated by appropriate action, upon 
expiration of the lease term, the household and Owner (or family and 
Borrower, as applicable) may execute a new lease for a term not less 
than one year, or may take no action. If no action is taken, the lease 
will automatically be renewed for successive terms of one month.
    (b) Termination by the household (or family, as applicable). All 
leases may contain a provision that permits the household (or family) 
to terminate the lease upon 30 days advance notice. A lease for a term 
that exceeds one year must contain such provision.
    (c) Form. The Owner (or Borrower, as applicable) shall use the 
lease form prescribed by HUD. In addition to required provisions of the 
lease form, the Owner (or Borrower) may include a provision in the 
lease permitting the Owner (or Borrower) to enter the leased premises 
at any time without advance notice when there is reasonable cause to 
believe that an emergency exists or that health or safety of a family 
member is endangered.


Sec. 891.430  Termination of tenancy and modification of lease.

    The provisions of part 247 of this title apply to all decisions by 
an Owner to terminate the tenancy or modify the lease of a household 
residing in a unit (or residential space in a group home).


Sec. 891.435  Security deposits.

    This section shall apply to capital advances under the Section 202 
Program and the Section 811 Program, as well as loans financed under 
subpart E of this part. For loans financed under subpart E of this 
part, the requirements in Sec. 891.635 also apply.
    (a) Collection of security deposits. At the time of the initial 
execution of the lease, the Owner (or Borrower, as applicable) will 
require each household

[[Page 11967]]
(or family, as applicable) occupying an assisted unit or residential 
space in a group home to pay a security deposit in an amount equal to 
one month's tenant payment or $50, whichever is greater. The household 
(or family) is expected to pay the security deposit from its own 
resources and other available public or private resources. The Owner 
(or Borrower) may collect the security deposit on an installment basis.
    (b) Security deposit provisions applicable to units. (1) 
Administration of security deposit. The Owner (or Borrower, as 
applicable) must place the security deposits in a segregated interest-
bearing account. The amount of the segregated, interest-bearing account 
maintained by the Owner (or Borrower) must at all times equal the total 
amount collected from the households (or families, as applicable) then 
in occupancy plus any accrued interest and less allowable 
administrative cost adjustments. The Owner (or Borrower) must comply 
with any applicable State and local laws concerning interest payments 
on security deposits.
    (2) Household (or family, as applicable) notification requirement. 
In order to be considered for the refund of the security deposit, a 
household (or family) must provide the Owner (or Borrower, as 
applicable) with a forwarding address or arrange to pick up the refund.
    (3) Use of security deposit. The Owner (or Borrower, as 
applicable), subject to State and local law and the requirements of 
paragraphs (b)(1) and (b)(3) of this section, may use the household's 
(or family's, as applicable) security deposit balance as reimbursement 
for any unpaid amounts that the household (or family) owes under the 
lease. Within 30 days (or shorter time if required by State or local 
law) after receiving notification under paragraph (b)(2) of this 
section, the Owner (or Borrower) must:
    (i) Refund to a household (or family) that does not owe any amount 
under the lease the full amount of the household's (or family's) 
security deposit balance;
    (ii) Provide to a household (or family) owing amounts under the 
lease a list itemizing each amount, along with a statement of the 
household's (or family's) rights under State and local law. If the 
amount that the Owner (or Borrower) claims is owed by the household (or 
family) is less than the amount of the household's (or family's) 
security deposit balance, the Owner (or Borrower) must refund the 
excess balance to the household (or family). If the Owner (or Borrower) 
fails to provide the list, the household (or family) will be entitled 
to the refund of the full amount of the household's (or family's) 
security deposit balance.
    (4) Disagreements. If a disagreement arises concerning 
reimbursement of the security deposit, the household (or family, if 
applicable) will have the right to present objections to the Owner (or 
Borrower, if applicable) in an informal meeting. The Owner (or 
Borrower) must keep a record of any disagreements and meetings in a 
tenant file for inspection by HUD. The procedures of this paragraph do 
not preclude the household (or family) from exercising its rights under 
State or local law.
    (5) Decedent's interest in security deposit. Upon the death of a 
member of a household (or family, as applicable), the decedent's 
interest, if any, in the security deposit will be governed by State or 
local law.
    (c) Reimbursement by HUD for assisted units. If the household's (or 
family's, if applicable) security deposit balance is insufficient to 
reimburse the Owner (or Borrower, if applicable) for any amount that 
the household (or family) owes under the lease for an assisted unit or 
residential space, and the Owner (or Borrower) has provided the 
household (or family) with the list required by paragraph (b)(3)(ii) of 
this section, the Owner (or Borrower) may claim reimbursement from HUD 
for an amount not to exceed the lesser of:
    (1) The amount owed the Owner (or Borrower); or
    (2) One month's per unit operating cost (or contract rent, if 
applicable), minus the amount of the household's (or family's) security 
deposit balance. Any reimbursement under this section will be applied 
first toward any unpaid tenant payment (or rent, if applicable) due 
under the lease. No reimbursement may be claimed for any unpaid tenant 
payment (or rent) for the period after termination of the tenancy. The 
Owner (or Borrower) may be eligible for vacancy payments following a 
vacancy in accordance with the requirements of Sec. 891.445 (or 
Secs. 891.650 or 891.790, as applicable).


Sec. 891.440  Adjustment of utility allowances.

    This section shall apply to projects funded under the Section 202 
Program, to independent living complexes funded under Section 811 
Program, and to projects financed with loans under subpart E of this 
part. The Owner (or Borrower, as applicable) must submit an analysis of 
any utility allowances applicable. Such data as changes in utility 
rates and other facts affecting utility consumption should be provided 
as part of this analysis to permit appropriate adjustments in the 
utility allowances for assisted units. In addition, when utility rate 
changes would result in a cumulative increase of 10 percent or more in 
the most recently approved utility allowances, the Owner (or Borrower) 
must advise HUD and request approval of new utility allowances. 
Whenever a utility allowance for an assisted unit is adjusted, the 
Owner (or Borrower) will promptly notify affected households (or 
families, as applicable) and make a corresponding adjustment of the 
tenant payment (or rent, as applicable) and the amount of the project 
rental assistance payment (or housing or project assistance payment, as 
applicable).

(Approved by the Office of Management and Budget under control 
number 2502-0470)


Sec. 891.445  Conditions for receipt of vacancy payments for assisted 
units.

    (a) General. Vacancy payments under the PRAC will not be made 
unless the conditions for receipt of these project rental assistance 
payments set forth in this section are fulfilled.
    (b) Vacancies during rent-up. For each unit (or residential space 
in a group home) that is not leased as of the effective date of the 
PRAC, the Owner is entitled to vacancy payments in the amount of 50 
percent of the per unit operating cost (or pro rata share of the group 
home operating cost) for the first 60 days of vacancy, if the Owner:
    (1) Conducted marketing in accordance with Sec. 891.400(a) and 
otherwise complied with Sec. 891.400;
    (2) Has taken and continues to take all feasible actions to fill 
the vacancy; and
    (3) Has not rejected any eligible applicant except for good cause 
acceptable to HUD.
    (c) Vacancies after rent-up. If an eligible household vacates an 
assisted unit (or residential space in a group home) the Owner is 
entitled to vacancy payments in the amount of 50 percent of the 
approved per unit operating cost (or pro rata share of the group home 
operating cost) for the first 60 days of vacancy if the Owner:
    (1) Certifies that it did not cause the vacancy by violating the 
lease, the PRAC, or any applicable law;
    (2) Notified HUD of the vacancy or prospective vacancy and the 
reasons for the vacancy upon learning of the vacancy or prospective 
vacancy;
    (3) Has fulfilled and continues to fulfill the requirements 
specified in Sec. 891.400(a) (2) and (3) and Sec. 891.445(b) (2) and 
(3); and
    (4) For any vacancy resulting from the Owner's eviction of an 
eligible household, certifies that it has complied with Sec. 891.430.
    (d) Prohibition of double compensation for vacancies. If the

[[Page 11968]]
Owner collects payments for vacancies from other sources (tenant 
payment, security deposits, payments under Sec. 891.435(c), or 
governmental payments under other programs), the Owner shall not be 
entitled to collect vacancy payments to the extent these collections 
from other sources plus the vacancy payment exceed the approved per 
unit operating cost.


Sec. 891.450  HUD review.

    HUD shall conduct periodic on-site management reviews of the 
Owner's compliance with the requirements of this part.

Subpart E--Loans for Housing for the Elderly and Handicapped


Sec. 891.500  Purpose and policy.

    (a) Purpose. The program under subpart E of this part provides 
direct Federal loans under section 202 of the Housing Act of 1959 (42 
U.S.C. 1701q) for housing projects serving elderly or handicapped 
families and individuals. The housing projects shall provide the 
necessary services for the occupants which may include, but are not 
limited to: Health, continuing education, welfare, informational, 
recreational, homemaking, meal and nutritional services, counseling, 
and referral services, as well as transportation where necessary to 
facilitate access to these services.
    (b) General policy. A loan made under subpart E of this part shall 
be used to finance the construction or the substantial rehabilitation 
of projects for elderly or handicapped families, or for the acquisition 
with or without moderate rehabilitation of existing housing and related 
facilities for group homes for nonelderly handicapped individuals.
    (c) Applicability. Subpart E of this part applies to all fund 
reservations made before October 1, 1990, except for loans not 
initially closed that were converted to capital advances. Specifically, 
Sec. 891.520 through 891.650 of subpart E apply to projects for elderly 
or handicapped families that received reservations under section 202 of 
the Housing Act of 1959 (12 U.S.C. 1701q) and housing assistance under 
section 8 of the United States Housing Act of 1937 (42 U.S.C. 1437 et 
seq). Sections 891.655 through 891.790 of subpart E apply to projects 
for nonelderly handicapped families receiving reservations under 
section 202 and project assistance payments under section 202(h) of the 
Housing Act of 1959.


Sec. 891.505  Definitions.

    For the purposes of this subpart E:
    Act means section 202 of the Housing Act of 1959, as amended (12 
U.S.C. 1701q).
    Borrower means a private nonprofit corporation or a nonprofit 
consumer cooperative that may be established by the Sponsor, which will 
obtain a Section 202 loan and execute a mortgage in connection 
therewith as the legal owner of the project. ``Borrower'' does not mean 
a public body or the instrumentality of any public body. The purposes 
of the Borrower must include the promotion of the welfare of elderly 
and/or handicapped families. No part of the net earnings of the 
Borrower may inure to the benefit of any private shareholder, 
contributor, or individual, and the Borrower may not be controlled by 
or under the direction of persons or firms seeking to derive profit or 
gain therefrom. Because of the nonprofit nature of the Section 202 
program, no officer or director, or trustee, member, stockholder or 
authorized representative of the Borrower is permitted to have any 
financial interest in any contract in connection with the rendition of 
services, the provision of goods or supplies, project management, 
procurement of furnishings and equipment, construction of the project, 
procurement of the site or other matters whatsoever.
    Elderly family means:
    (1) Families of two or more persons the head of which (or his or 
her spouse) is 62 years of age or older;
    (2) The surviving member or members of any family described in 
paragraph (1) of this definition living in a unit assisted under 
subpart E of this part with the deceased member of the family at the 
time of his or her death;
    (3) A single person who is 62 years of age or older; or
    (4) Two or more elderly persons living together, or one or more 
such persons living with another person who is determined by HUD, based 
upon a licensed physician's certificate provided by the family, to be 
essential to their care or well being.
    Handicapped family means:
    (1) Families of two or more persons the head of which (or his or 
her spouse) is handicapped;
    (2) The surviving member or members of any family described in 
paragraph (1) of this definition living in a unit assisted under 
subpart E of this part with the deceased member of the family at the 
time of his or her death;
    (3) A single handicapped person over the age of 18; or
    (4) Two or more handicapped persons living together, or one or more 
such persons living with another person who is determined by HUD, based 
upon a licensed physician's certificate provided by the family, to be 
essential to their care or well being.
    Handicapped person or individual means:
    (1) Any adult having a physical, mental, or emotional impairment 
that is expected to be of long-continued and indefinite duration, 
substantially impedes his or her ability to live independently, and is 
of a nature that such ability could be improved by more suitable 
housing conditions.
    (2) A person with a developmental disability, as defined in section 
102(7) of the Developmental Disabilities Assistance and Bill of Rights 
Act (42 U.S.C. 6001(5), i.e., a person with a severe chronic disability 
that:
    (i) Is attributable to a mental or physical impairment or 
combination of mental and physical impairments;
    (ii) Is manifested before the person attains age twenty-two;
    (iii) Is likely to continue indefinitely;
    (iv) Results in substantial functional limitation in three or more 
of the following areas of major life activity:
    (A) Self-care;
    (B) Receptive and expressive language;
    (C) Learning;
    (D) Mobility;
    (E) Self-direction;
    (F) Capacity for independent living;
    (G) Economic self-sufficiency; and
    (v) Reflects the person's need for a combination and sequence of 
special, interdisciplinary, or generic care, treatment, or other 
services that are of lifelong or extended duration and are individually 
planned and coordinated.
    (3) A person with a chronic mental illness, i.e., if he or she has 
a severe and persistent mental or emotional impairment that seriously 
limits his or her ability to live independently, and whose impairment 
could be improved by more suitable housing conditions.
    (4) Persons infected with the human acquired immunodeficiency virus 
(HIV) who are disabled as a result of infection with the HIV are 
eligible for occupancy in section 202 projects designed for the 
physically disabled, developmentally disabled, or chronically mentally 
ill depending upon the nature of the person's disability. A person 
whose sole impairment is alcoholism or drug addition (i.e., who does 
not have a developmental disability, chronic mental illness, or 
physical disability that is the disabling condition required for 
eligibility in a particular project) will not be considered to be 
disabled for the purposes of the section 202 program.
    Housing and related facilities means rental or cooperative housing 
structures constructed or substantially

[[Page 11969]]
rehabilitated as permanent residences for use by elderly or handicapped 
families, or acquired with or without moderate rehabilitation for use 
by nonelderly handicapped families as group homes. The term includes 
structures suitable for use by families residing in the project or in 
the area, such as cafeterias or dining halls, community rooms, or 
buildings, or other essential service facilities. In the case of 
acquisition with or without moderate rehabilitation, at least three 
years must have elapsed from the later of the date of completion of the 
project or the beginning of occupancy to the date of the application 
for a Section 202 fund reservation. Except for intermediate care 
facilities for the mentally retarded and individuals with related 
conditions, this term does not include nursing homes, hospitals, 
intermediate care facilities, or transitional care facilities.
    Nonelderly handicapped family means a handicapped family in which 
the head of the family (and spouse, if any) is less than 62 years of 
age at the time of the family's initial occupancy of a project.
    Section 8 Program means the housing assistance payments program 
that implements section 8 of the United States Housing Act of 1937 (42 
U.S.C. 1437f note).


Sec. 891.510  Displacement, relocation, and real property acquisition.

    (a) Minimizing displacement. Consistent with the other goals and 
objectives of subpart E of this part, Sponsors and Borrowers shall 
assure that they have taken all reasonable steps to minimize the 
displacement of persons (families, individuals, businesses, nonprofit 
organizations, and farms) as a result of a project assisted under 
subpart E of this part.
    (b) Relocation assistance for displaced persons. A displaced person 
(defined in paragraph (f) of this section) must be provided relocation 
assistance at the levels described in, and in accordance with the 
requirements of the Uniform Relocation Assistance and Real Property 
Acquisition Policies Act of 1970, as amended (URA) (42 U.S.C. 4201-
4655), as implemented by 49 CFR part 24. A displaced person shall be 
advised of his or her rights under the Fair Housing Act (42 U.S.C. 
3601-3619). If the comparable replacement dwellings are located in 
areas of minority concentration, minority persons also must be given, 
if possible, referrals to suitable, decent, safe, and sanitary 
replacement dwellings not located in such areas.
    (c) Real property acquisition requirements. The acquisition of real 
property for a project is subject to the URA and the requirements 
described in 49 CFR part 24, subpart B.
    (d) Appeals. A person who disagrees with the Sponsor's/Borrower's 
determination concerning whether the person qualifies as a ``displaced 
person,'' or with the amount of relocation assistance for which the 
person is eligible, may file a written appeal of that determination 
with the Sponsor/Borrower. A low-income person who is dissatisfied with 
the Sponsor's/Borrower's determination on his or her appeal may submit 
a written request for review of that determination to the HUD field 
office.
    (e) Responsibility of Sponsor/Borrower. The Sponsor/Borrower shall 
certify that it will comply (i.e., provide assurance of compliance, as 
required by 49 CFR part 24) with the URA, the regulations at 49 CFR 
part 24, and the requirements of this section, and shall ensure such 
compliance notwithstanding any third party's contractual obligation to 
comply with these provisions. The Sponsor/Borrower shall maintain 
records in sufficient detail to demonstrate compliance with the 
provisions of this section. The Sponsor/Borrower shall maintain data on 
the race, ethnic, gender, and handicap status of displaced persons.
    (f) Definition of a displaced person. (1) For purposes of this 
section, the term ``displaced person'' means a person (family, 
individual, business, nonprofit organization, or farm) that moves from 
real property, or moves personal property from real property, 
permanently, as a direct result of acquisition, rehabilitation, or 
demolition for a project assisted under this part. This includes any 
permanent, involuntary move for an assisted project including any 
permanent move from the real property that is made:
    (i) After notice by the Sponsor/Borrower to move permanently from 
the property if the move occurs on or after:
    (A) The date of the submission of an application to HUD that is 
later approved, if the Sponsor has control of an appropriate site; or
    (B) The date that the Sponsor obtains control of an approvable 
site, if such control is obtained after the submission of an 
application to HUD:
    (ii) Before the date described in paragraph (f)(1)(i) of this 
section, if the Sponsor, Borrower or HUD determines that the 
displacement resulted directly from acquisition, rehabilitation, or 
demolition for the project;
    (iii) By a tenant-occupant of a dwelling unit, if any one of the 
following three situations occurs;
    (A) The tenant moves after execution of the Agreement between the 
Sponsor/Borrower and HUD, and the move occurs before the tenant is 
provided written notice offering him or her the opportunity to lease 
and occupy a suitable, decent, safe, and sanitary dwelling in the same 
building/complex upon completion of the project under reasonable terms 
and conditions. Such reasonable terms and conditions include a monthly 
rent and estimated average monthly utility costs that do not exceed the 
greater of:
    (1) The tenant's monthly rent and estimated average monthly utility 
costs before the Agreement; or
    (2) The total tenant payment, as determined under 24 CFR 813.107, 
if the tenant is low-income, or 30 percent of gross household income, 
if the tenant is not low-income; or
    (B) The tenant is required to relocate temporarily, does not return 
to the building/complex, and either:
    (1) The tenant is not offered payment for all reasonable out-of-
pocket expenses incurred in connection with the temporary relocation; 
or
    (2) Other conditions of the temporary relocation are not 
reasonable; or
    (C) The tenant is required to move to another dwelling in the same 
building/complex but is not offered reimbursement for all reasonable 
out-of-pocket expenses incurred in connection with the move, or other 
conditions of the move are not reasonable.
    (2) Notwithstanding the provisions of paragraph (f)(1) of this 
section, however, a person does not qualify as a ``displaced person'' 
(and is not eligible for relocation assistance at URA levels), if:
    (i) The person has been evicted for cause based upon a serious or 
repeated violation of the terms and conditions of the lease or 
occupancy agreement, violation of applicable Federal, State, or local 
law, or other good cause, and HUD determines that the eviction was not 
undertaken for the purpose of evading the obligation to provide 
relocation assistance.
    (ii) The person moved into the property after the submission of the 
application and, before signing a lease and commencing occupancy, was 
provided written notice of the project, its possible impact on the 
person (e.g., displacement, temporary relocation or a rent increase) 
and the fact that he or she will not qualify as a displaced person as a 
result of the project;
    (iii) The person is ineligible under 49 CFR 24.2(g)(2); or
    (iv) HUD determines that the person was not displaced as a direct 
result of

[[Page 11970]]
acquisition, rehabilitation, or demolition for the project;
    (3) The Sponsor/Borrower may request, at any time, a HUD 
determination of whether a displacement is or would be covered by this 
section.


Sec. 891.515  Audit requirements.

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

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


Sec. 891.520  Definitions applicable to 202/8 projects.

    The following definitions apply to projects for eligible families 
receiving assistance under section 8 of the United States Housing Act 
of 1937 in addition to reservations under section 202 of the Housing 
Act of 1959 (202/8 projects):
    Assisted unit means a dwelling unit eligible for assistance under a 
HAP contract.
    Contract rent means the total amount of rent specified in the HAP 
contract as payable by HUD and the tenant to the Borrower for an 
assisted unit.
    Family (eligible family) means an elderly or handicapped family 
that meets the project occupancy requirements approved by HUD and, if 
the family occupies an assisted unit, meets the requirements described 
in part 813 of this chapter.
    Gross rent is defined in part 813 of this chapter.
    HAP contract (housing assistance payments contract) means the 
contract entered into by the Borrower and HUD setting forth the rights 
and duties of the parties with respect to the project and the payments 
under the HAP contract.
    Housing assistance payment means the payment made by HUD to the 
Borrower for assisted units as provided in the HAP contract. The 
payment is the difference between the contract rent and the tenant 
rent. An additional payment is made to a family occupying an assisted 
unit when the utility allowance is greater than the total tenant 
payment. A housing assistance payment, known as a ``vacancy payment,'' 
may be made to the Borrower when an assisted unit is vacant, in 
accordance with the terms of the HAP contract.
    Project account means a specifically identified and segregated 
account for each project that is established in accordance with 
Sec. 891.570(b) out of the amounts by which the maximum annual 
commitment exceeds the amount actually paid out under the HAP contract 
each year.
    Project occupancy requirements means that eligible populations to 
be served under the Section 202 program are qualified individuals or 
families whose head of household or spouse is elderly, physically 
handicapped, developmentally disabled, or chronically mentally ill. 
Projects are designed to meet the special needs of the particular 
tenant population that the Borrower was selected to serve. Individuals 
from one eligible group may not be accepted for occupancy in a project 
designed for a different tenant group. However, a Sponsor can propose 
to house eligible tenant groups other than the one it was selected to 
serve, but must apply to the HUD field office for permission to do so, 
based on a plan that demonstrates that it can adequately serve the 
proposed tenant group. Upon review and recommendation by the field 
office, HUD Headquarters will approve or disapprove the request.
    Rent, in the case of a unit in a cooperative project, means the 
carrying charges payable to the cooperative with respect to occupancy 
of the unit.
    Tenant rent means the monthly amount defined in, and determined in 
accordance with part 813 of this chapter.
    Total tenant payment means the monthly amount defined in, and 
determined in accordance with part 813 of this chapter.
    Utility allowance is defined in part 813 of this chapter and is 
determined or approved by HUD.
    Utility reimbursement is defined in part 813 of this chapter.
    Vacancy payment means the housing assistance payment made to the 
Borrower by HUD for a vacant assisted unit if certain conditions are 
fulfilled, as provided in the HAP contract. The amount of the vacancy 
payment varies with the length of the vacancy period and is less after 
the first 60 days of any vacancy.


Sec. 891.525  Amount and terms of financing.

    (a) The amount of financing approved shall be the amount stated in 
the Notice of Section 202 Fund Reservation, including any increase 
approved by the field office prior to the final closing of a loan; 
provided, however, that the amount of financing provided shall not 
exceed the lesser of:
    (1) The dollar amounts stated in paragraphs (b) through (f) of this 
section; or
    (2) The total development cost of the project as determined by the 
field office.
    (b) For such part of the property or project attributable to 
dwelling use (excluding exterior land improvements, as defined by the 
Assistant Secretary) the maximum loan amount, depending on the number 
of bedrooms, may not exceed:
    (1) $28,032 per family unit without a bedroom.
    (2) $32,321 per family unit with one bedroom.
    (3) $38,979 per family unit with two bedrooms.
    (c) In order to compensate for the higher costs incident to 
construction of elevator type structures of sound standards of 
construction and design, the field office may increase the dollar 
limitations per family unit, as provided in paragraph (b) of this 
section, to not to exceed:
    (1) $29,500 per family unit without a bedroom.
    (2) $33,816 per family unit with one bedroom.
    (3) $41,120 per family unit with two bedrooms.
    (d) Reduced loan amount--leaseholds. In the event the loan is 
secured by a leasehold estate rather than a fee simple estate, the 
allowable cost of the property upon which the loan amount is based 
shall be reduced by the value of the leased fee.
    (e) Adjusted loan amount--rehabilitation projects. A loan amount 
that involves a project to be rehabilitated shall be subject to the 
following additional limitations:
    (1) Property held in fee. If the Borrower is the fee simple owner 
of the project not encumbered by a mortgage, the maximum loan amount 
shall not exceed 100 percent of the cost of the proposed 
rehabilitation.
    (2) Property subject to existing mortgage. If the Borrower owns the 
project subject to an outstanding indebtedness, which is to be 
refinanced with part of the Section 202 loan, the maximum loan amount 
shall not exceed the cost of rehabilitation plus such portion of the 
outstanding indebtedness as does not exceed the fair market value of 
such land and improvements prior to the rehabilitation, as determined 
by the field office.
    (3) Property to be acquired. If the project is to be acquired by 
the Borrower and the purchase price is to be financed with a part of 
the Section 202 loan, the maximum loan amount shall not exceed the cost 
of the rehabilitation plus such portion of the purchase price as does 
not exceed the fair market value of such land and improvements prior to 
the rehabilitation, as determined by the field office.
    (f) Increased Mortgage Limits--High Cost Areas. (1)(i) The 
Assistant Secretary may increase the dollar amount limitations in 
paragraphs (b) and (c) of this section:

[[Page 11971]]

    (A) By not to exceed 110 percent in any geographical area in which 
the Assistant Secretary finds that cost levels so require; and
    (B) By not to exceed 140 percent where the Assistant Secretary 
determines it necessary on a project-by-project basis.
    (ii) In no case, however, may any such increase exceed 90 percent, 
where the Assistant Secretary determines that there is involved a 
mortgage purchased or to be purchased by the Government National 
Mortgage Association (GNMA) in implementing its Special Assistance 
Functions under section 305 of the National Housing Act (as section 305 
existed immediately before its repeal on November 30, 1983).
    (2) If the Assistant Secretary finds that because of high costs in 
Alaska, Guam, or Hawaii it is not feasible to construct dwellings 
without the sacrifice of sound standards of construction, design, and 
livability within the limitations of maximum loan amounts provided in 
this section, the principal amount of mortgages may be increased by 
such amounts as may be necessary to compensate for such costs, but not 
to exceed in any event the maximum, including high cost area increases, 
if any, otherwise applicable by more than one-half thereof.
    (g) Loan interest rate. Loans shall bear interest at a rate 
determined by HUD in accordance with this section.
    (1) Annual interest rate. Except as provided under paragraph 
(g)(2), loans shall bear interest at the rate in effect at the time the 
loan is made. The loan interest rate shall not exceed:
    (i) The average yield on the most recently issued 30-year 
marketable obligations of the United States during the 3-month period 
immediately preceding the fiscal year in which the loan is made 
(adjusted to the nearest one-eighth of one percent), plus an allowance 
to cover administrative costs and probable losses under the program; 
and
    (ii) Any applicable statutory ceiling on the loan interest rate 
including the allowance to cover administrative costs and probable 
losses.
    (2) Optional interest rate. The Borrower may elect an optional loan 
interest rate. To elect the optional rate, the Borrower must request 
that HUD determine the loan interest rate at the time of the Borrower's 
request for conditional or firm commitment for direct loan financing.
    (i) If the Borrower elects the optional loan interest rate, the 
loan interest rate shall not exceed:
    (A) The average yield on the most recently issued 30-year 
marketable obligations of the United States during the 3-month period 
immediately preceding the fiscal year in which the request for 
commitment is submitted (adjusted to the nearest one-eighth of one 
percent), plus an allowance to cover administrative costs and probable 
losses under the program;
    (B) The average yield on the most recently issued 30-year 
marketable obligations of the United States during the 1-month period 
immediately preceding the month in which the request for commitment is 
submitted (adjusted to the nearest one-eighth of one percent), plus an 
allowance to cover the administrative costs and probable losses under 
the program; and (C) Any applicable statutory ceiling on the loan 
interest rate including an allowance to cover administrative costs and 
probable losses under the program.
    (ii) The date of submission of a request for conditional or firm 
commitment is the date that the Borrower submits the complete and 
acceptable request to HUD. The date of the submission of a request for 
commitment will not be affected by any subsequent resubmission of the 
request by the Borrower or by any reprocessing of the request by HUD.
    (iii) The Borrower may withdraw its election of the optional 
interest rate at any time before initial loan closing. If the Borrower 
elected the optional interest rate with its request for conditional 
commitment and withdraws its election, the loan will bear interest at 
the rate determined under paragraph (g)(1) of this section, unless the 
Borrower elects an optional interest rate with its request for firm 
commitment. If the Borrower withdraws its election after the date of 
submission of its request for firm commitment, the loan will bear 
interest at the rate determined under paragraph (g)(1) of this section.
    (iv) If initial loan closing has not occurred within 18 months 
after the Notice of Section 202 Fund Reservation is issued, the 
Borrower's election of the optional rate will be cancelled and the loan 
will bear interest at the rate determined under paragraph (g)(1) of 
this section.
    (3) Allowance for administrative costs and probable losses. For the 
purpose of computing the loan interest rate under paragraphs (g) (1) 
and (2) of this section, the allowance to cover administrative costs 
and probable losses under the program is one-fourth of one percent 
(.25%) per annum for both the construction and permanent loan periods.
    (h) Announcement of interest rates. (1) HUD will annually announce 
the loan interest rate determination under paragraph (g)(1) of this 
section by publishing notice of the rate in the Federal Register. The 
Federal Register notice will include a statement explaining the basis 
for the interest rate determination.
    (2) Upon the Borrower's request, HUD will provide available current 
information concerning the determination of the interest rate under 
paragraph (g)(2) of this section.
    (i) The loan shall be secured by a first mortgage on real estate in 
fee simple or long term leasehold. The mortgage shall be repayable 
during a term not to exceed 40 years and shall be subject to such terms 
and conditions as shall be determined by the Assistant Secretary.
    (j) In order to assure HUD of the Borrower's continued commitment 
to the development, management, and operation of the project, a minimum 
capital investment is required of Section 202 Borrowers of one-half of 
one percent (0.5%) of the mortgage amount committed to be disbursed, 
not to exceed the amount of $10,000. Section 106(b) loans made pursuant 
to section 106 of the Housing Act of 1968 may not be utilized to meet 
the minimum capital investment requirement. Such minimum capital 
investment shall be placed in escrow at the initial closing of the 
Section 202 loan and shall be held by HUD or other escrow agent 
acceptable to the field office for not less than a 3-year period from 
the date of initial occupancy and may be used for operating expenses or 
deficits as may be directed by the field office. Any unexpended balance 
remaining in the minimum capital investment account at the end of the 
escrow period shall be returned to the Borrower.


Sec. 891.530  Prepayment privileges.

    (a) The prepayment (whether in whole or in part) or the assignment 
or transfer of physical and financial assets of any Section 202 project 
is prohibited, unless the Secretary gives prior written approval.
    (b) The Secretary may not grant approval unless he or she has 
determined that the prepayment or transfer of the loan is part of a 
transaction that will ensure the continued operation of the project, 
until the original maturity date of the loan, in a manner that will 
provide rental housing for the elderly and handicapped on terms at 
least as advantageous to existing and future tenants as the terms 
required by the original Section 202 loan agreement and any other loan 
agreements entered into under other provisions of law.

[[Page 11972]]



Sec. 891.535  Requirements for awarding construction contracts.

    (a) Awards shall be made only to responsible contractors that 
possess the potential ability to perform successfully under the terms 
and conditions of a proposed construction contract. Consideration shall 
be given to such matters as contractor integrity, compliance with 
public policy, record of past performance, and financial and technical 
resources.
    (b) Each Borrower is permitted to use either competitive bidding 
(formal advertising) in selecting a construction contractor or the 
negotiated noncompetitive method of contract award under paragraph (c) 
of this section. In competitive bidding, sealed bids are publicly 
solicited and a firm, fixed-price contract is awarded (in accordance 
with the requirements of this paragraph (b)) to the responsible bidder 
whose bid, conforming with all the material terms and conditions of the 
invitation for bids, is lowest in price. Regardless of which method a 
Borrower uses, there should be an opportunity for minority owned and 
women owned businesses to be awarded a contract.
    (1) Bids shall be solicited from an adequate number of known 
contractors a reasonable time prior to the date set forth for opening 
of bids. In addition, the invitation shall be publicly advertised.
    (2) The invitation for bids shall specify:
    (i) The name of the Borrower;
    (ii) A brief description of the proposed project and the proposed 
construction contract;
    (iii) A preliminary estimate of cost;
    (iv) That bids will be received at a specified place until a 
specified time at which time and place all bids will be publicly 
opened;
    (v) The location where the proposed forms of contract and bid 
documents, including plans and specifications, are on file and may be 
obtained on payment of a specified returnable deposit;
    (vi) That a certified check or bank draft or satisfactory bid bond 
in the amount of 5 percent of the bid shall be submitted with the bid;
    (vii) That the successful bidder will be required to provide 
assurance of completion in the form of a performance and payment bond 
or cash escrow; and
    (viii) That the Borrower reserves the right to reject any or all 
bids and to waive any informality.
    (3) The bid form, which must be submitted by all bidders, must 
specify:
    (i) The name of the project;
    (ii) The name and address of the bidder;
    (iii) That the bidder proposes to furnish all labor, materials, 
equipment and services required to construct and complete the project, 
as described in the invitation for bids (including the contents of all 
documents on file), for a specified lump-sum price;
    (iv) That the security specified in paragraph (b)(2)(vi) of this 
section accompanies the bid;
    (v) The period after the bid opening during which the bid shall not 
be withdrawn without the consent of the Borrower;
    (vi) That the bidder will, if notified of acceptance of such bid 
within a specified period after the opening, execute and deliver a 
contract in the prescribed form and furnish the required bond within 
ten days thereafter;
    (vii) That the bidder acknowledges any amendments to the invitation 
for bids; and
    (viii) That the bidder certifies that the bid is in strict 
accordance with all terms of the invitation for bids (including the 
contents of all documents on file) and that the bid is signed by a 
person authorized to bind the bidder.
    (4) Bidding shall be open to all general contractors who furnish 
the security guaranteeing their bid, as described in paragraph 
(b)(2)(vi) of this section.
    (5) All bids shall be opened publicly at the time and place stated 
in the invitation for bids, in the presence of the HUD Regional 
Administrator or his designee.
    (6) A firm, fixed-price contract award shall be made by written 
notice to the responsible bidder whose bid, conforming to the 
invitation for bids, is lowest. The contract may provide for an 
incentive payment to the contractor for an early completion.
    (c) A Sponsor or Borrower may award a negotiated, noncompetitive 
construction contract.


Sec. 891.540  Loan disbursement procedures.

    (a) Disbursements of loan proceeds shall be made directly by HUD to 
or for the account of the Borrower and may be made through an approved 
lender, mortgage servicer, title insurance company, or other agent 
satisfactory to the Borrower and HUD.
    (b) All disbursements to the Borrower shall be made on a periodic 
basis in an amount not to exceed the HUD-approved cost of portions of 
construction or rehabilitation work completed and in place (except as 
modified in paragraph (d) of this section), minus the appropriate 
holdback, as determined by the field office.
    (c) Requisitions for loan disbursements shall be submitted by the 
Borrower on forms to be prescribed by the Assistant Secretary and shall 
be accompanied by such additional information as the field office may 
require in order to approve loan disbursements under subpart E of this 
part, including but not limited to evidence of compliance with the 
Davis-Bacon Act, Department of Labor regulations, all applicable 
zoning, building, and other governmental requirements, and such 
evidence of continued priority of the mortgage of the Borrower as the 
Assistant Secretary may prescribe.
    (d) In loan disbursements for building components stored off-site, 
the term ``building component'' shall mean any manufactured or 
preassembled part of a structure as defined by HUD and that the 
Assistant Secretary has designated for off-site storage because it is 
of such size or weight that storage of the components required for 
timely construction progress at the construction site is impractical, 
or weather damage or other adverse conditions prevailing at the 
construction site would make storage at the site impractical or unduly 
costly. Each building component must be specifically identified for 
incorporation into the property as provided under paragraph (d)(1)(ii) 
of this section.
    (1) Storage. (i) A loan disbursement may be made for up to 90 
percent of the invoice value (to exclude costs of transportation and 
storage) of the building components stored off-site if the components 
are stored at a location approved by HUD.
     (ii) Each building component shall be adequately marked so as to 
be readily identifiable in the inventory of the off-site location. It 
shall be kept together with all other building components of the same 
manufacturer intended for use in the same project for which loan 
disbursements have been made and separate and apart from similar units 
not for use in the project.
    (iii) Storage costs, if any, shall be borne the general contractor.
    (2) Responsibility for transportation, storage and insurance of 
off-site building components. The general contractor of the project 
shall have the responsibility for:
    (i) Insuring the components in the name of the Borrower while in 
transit and storage; and
    (ii) Delivering or contracting for the delivery of the components 
to the storage area and to the construction site, including payment of 
freight.
    (3) Loan disbursements. (i) Before a loan disbursement for a 
building component stored off-site is made, the Borrower shall:

[[Page 11973]]

    (A) Obtain a bill of sale for the component;
    (B) Provide HUD with a security agreement pledged by a first lien 
on the building components with the exception of such other liens or 
encumbrances as may be approved by HUD; and
    (C) File a financing statement in accordance with the Uniform 
Commercial Code.
    (ii) Before each loan disbursement for building components stored 
off-site is made the manufacturer and the general contractor shall 
certify to HUD that the components, in their intended use, comply with 
HUD-approved contract plan and specifications.
    (iii) Loan disbursements may be made only for components stored 
off-site in a quantity required to permit uninterrupted installation at 
the site.
    (iv) At no time shall the invoice value of building components 
being stored off-site, for which advances have been insured, represent 
more than 25 percent of the total estimated construction costs for the 
insured mortgaged project as specified in the construction contract. 
Notwithstanding the preceding sentence and other regulatory 
requirements that set bonding requirements, the percentage of total 
estimated construction costs insured by advances under this section may 
exceed 25 percent but not 50 percent if the mortgagor furnishes 
assurance of completion in the form of a corporate surety bond for the 
payment and performance each in the amount of 100 percent of the amount 
of the construction contract. In no event will insurance of components 
stored off-site be made in the absence of a payment and performance 
bond.
    (v) No single loan disbursement which is to be made shall be in an 
amount less than ten thousand ($10,000) dollars.


Sec. 891.545  Completion of project, cost certification, and HUD 
approvals.

    (a) The Borrower must satisfy the requirements for completion of 
construction and substantial rehabilitation and approvals by HUD before 
submission of a final requisition for disbursement of loan proceeds.
    (b) The Borrower shall submit to the field office all documentation 
required for final disbursement of the loan, including:
    (1) A Borrower's/Mortgagor's Certificate of Actual Cost, showing 
the actual cost to the mortgagor of the construction contract, 
architectural, legal, organizational, offsite costs, and all other 
items of eligible expense. The certificate shall not include as actual 
cost any kickbacks, rebates, trade discounts, or other similar payments 
to the mortgagor or to any of its officers, directors, or members.
    (2) A verification of the Certificate of Actual Cost by an 
independent Certified Public Accountant or independent public 
accountant acceptable to the field office.
    (3) In the case of projects not subject to competitive bidding, a 
certification of the general contractor (and of such subcontractors, 
material suppliers, and equipment lessors as the Assistant Secretary or 
field office may require), on a form prescribed by the Assistant 
Secretary, as to all actual costs paid for labor, materials, and 
subcontract work under the general contract exclusive of the builder's 
fee and kickbacks, rebates, trade discounts, or other similar payments 
to the general contractor, the mortgagor, or any of its officers, 
directors, stockholders, partners, or members.
    (c) In lieu of the requirements set forth in paragraphs (c)(1) and 
(3) of this section, a simplified form of cost certification prescribed 
by the Secretary may be completed and submitted by the Borrower for 
projects with mortgages of $500,000 or less. The simplified cost 
certification shall be verified by an independent Certified Public 
Accountant or an independent public accountant in a manner acceptable 
to the Secretary.
    (d) If the Borrower's certified costs provided in accordance with 
paragraph (c) or (d) of this section and as approved by HUD are less 
than the loan amount, the contract rents will be reduced accordingly.
    (e) If the contract rents are reduced pursuant to paragraph (e) of 
this section, the maximum annual HAP Contract commitment will be 
reduced. If contract rents are reduced based on cost certification 
after HAP Contract execution, any overpayment after the effective date 
of the Contract will be recovered from the Borrower by HUD.

(Approved by the Office of Management and Budget under control 
number 2502-0044.)


Sec. 891.550  Selection preferences.

    For purposes of projects assisted under Secs. 891.520 through 
891.650, the selection preferences in 24 CFR part 5, subpart D apply.


Sec. 891.555  Smoke detectors.

    (a) Performance requirement. After October 30, 1992, each dwelling 
unit must include at least one battery-operated or hard-wired smoke 
detector, in proper working condition, on each level of the unit. If 
the unit is occupied by hearing-impaired persons, smoke detectors must 
have an alarm system designed for hearing-impaired persons in each 
bedroom occupied by a hearing-impaired person.
    (b) Acceptability criteria. The smoke detector must be located, to 
the extent practicable, in a hallway adjacent to a bedroom, unless the 
unit is occupied by a hearing-impaired person, in which case each 
bedroom occupied by a hearing-impaired person must have an alarm system 
connected to the smoke detector installed in the hallway.


Sec. 891.560  HAP contract.

    (a) HAP contract. The housing assistance payments contract sets 
forth rights and duties of the Borrower and HUD with respect to the 
project and the housing assistance payments.
    (b) HAP contract execution. (1) Upon satisfactory completion of the 
project, the Borrower and HUD shall execute the HAP contract on the 
form prescribed by HUD.
    (2) The effective date of the HAP contract may be earlier than the 
date of execution, but no earlier than the date of HUD's issuance of 
the permission to occupy.
    (3) If the project is completed in stages, the procedures of 
paragraph (b) of this section shall apply to each stage.
    (c) Housing assistance payments to owners under the HAP contract. 
The housing assistance payments made under the HAP contract are:
    (1) Payments to the Borrower to assist eligible families leasing 
assisted units. The amount of the housing assistance payment made to 
the Borrower for an assisted unit leased to an eligible family is equal 
to the difference between the contract rent for the unit and the tenant 
rent payable by the family.
    (2) Payments to the Borrower for vacant assisted units (vacancy 
payments). The amount of and conditions for vacancy payments are 
described in Sec. 891.650. The housing assistance payments are made 
monthly by HUD upon proper requisition by the Borrower, except payments 
for vacancies of more than 60 days, which are made semiannually by HUD 
upon requisition by the Borrower.
    (d) Payment of utility reimbursement. As applicable, a utility 
reimbursement will be paid to a family occupying an assisted unit as an 
additional housing assistance payment. The HAP contract will provide 
that the Borrower will make this payment on behalf of HUD. Funds will 
be paid to the Borrower in trust solely for the purpose of making the 
additional payment. The Borrower may pay the utility reimbursement 
jointly to the family and the utility company, or, if the family and 
utility

[[Page 11974]]
company consent, directly to the utility company.


Sec. 891.565  Term of HAP contract.

    The term of the HAP contract for assisted units shall be 20 years. 
If the project is completed in stages, the term of the HAP contract for 
assisted units in each stage shall be 20 years. The term of the HAP 
contract for all assisted units in all stages of a project shall not 
exceed 22 years.


Sec. 891.570  Maximum annual commitment and project account.

    (a) Maximum annual commitment. The maximum annual amount that may 
be committed under the HAP contract is the total of the contract rents 
and utility allowances for all assisted units in the project.
    (b) Project account. (1) HUD will establish and maintain a 
specifically identified and segregated project account for each 
project. The project account will be established out of the amounts by 
which the maximum annual commitment exceeds the amount actually paid 
out under the HAP contract each year. HUD will make payments from this 
account for housing assistance payments as needed to cover increases in 
contract rents or decreases in tenant income and other payments for 
costs specifically approved by the Secretary.
    (2) If the HUD-approved estimate of required annual payments under 
the HAP contract for a fiscal year exceeds the maximum annual 
commitment for that fiscal year plus the current balance in the project 
account, HUD will, within a reasonable time, take such steps authorized 
by section 8(c)(6) of the United States Housing Act of 1937 (42 U.S.C. 
1437f note), as may be necessary, to assure that payments under the HAP 
contract will be adequate to cover increases in contract rents and 
decreases in tenant income.


Sec. 891.575  Leasing to eligible families.

    (a) Availability of assisted units for occupancy by eligible 
families. (1) During the term of the HAP contract, a Borrower shall 
make available for occupancy by eligible families the total number of 
units for which assistance is committed under the HAP contract. For 
purposes of this section, making units available for occupancy by 
eligible families means that the Borrower:
    (i) Is conducting marketing in accordance with Sec. 891.600(a);
    (ii) Has leased or is making good faith efforts to lease the units 
to eligible and otherwise acceptable families, including taking all 
feasible actions to fill vacancies by renting to such families;
    (iii) Has not rejected any such applicant family except for reasons 
acceptable to HUD.
    (2) If the Borrower is temporarily unable to lease all units for 
which assistance is committed under the HAP contract to eligible 
families, one or more units may, with the prior approval of HUD, be 
leased to otherwise eligible families that do not meet the income 
eligibility requirements of part 813 of this chapter. Failure on the 
part of the Borrower to comply with these requirements is a violation 
of the HAP contract and grounds for all available legal remedies, 
including an action for specific performance of the HAP contract, 
suspension or debarment from HUD programs, and reduction of the number 
of units under the HAP contract as set forth in paragraph (b) of this 
section.
    (b) Reduction of number of units covered by the HAP contract. HUD 
may reduce the number of units covered by the HAP contract to the 
number of units available for occupancy by eligible families if:
    (1) The Borrower fails to comply with the requirements of paragraph 
(a) of this section; or
    (2) Notwithstanding any prior approval by HUD, HUD determines that 
the inability to lease units to eligible families is not a temporary 
problem.
    (c) Restoration. HUD will agree to an amendment of the HAP contract 
to provide for subsequent restoration of any reduction made under 
paragraph (b) of this section if:
    (1) HUD determines that the restoration is justified by demand;
    (2) The Borrower otherwise has a record of compliance with the 
Borrower's obligations under the HAP contract; and
    (3) Contract and budget authority is available.
    (d) Applicability. In accordance with section 555 of the Cranston-
Gonzalez National Affordable Housing Act of 1990, paragraphs (a) and 
(b) of this section apply to all contracts. An owner who had leased an 
assisted unit to an ineligible family consistent with the regulations 
in effect at the time will continue to lease the unit to that family. 
However, the owner must make the unit available for occupancy by an 
eligible family when the ineligible family vacates the unit.
    (e) Occupancy by families that are not elderly or handicapped. HUD 
may permit units in the project to be leased to other than elderly or 
handicapped families if:
    (1) The Borrower has made reasonable efforts to lease assisted and 
unassisted units to eligible families;
    (2) The Borrower has been granted HUD approval under paragraph (a) 
of this section; and
    (3) The Borrower is temporarily unable to achieve or maintain a 
level of occupancy sufficient to prevent financial default and 
foreclosure under the Section 202 loan documents. HUD approval under 
paragraph (e)(3) of this section will be of limited duration. HUD may 
impose terms and conditions to this approval that are consistent with 
program objectives and necessary to protect its interest in the Section 
202 loan.


Sec. 891.580  HAP contract administration.

    HUD is responsible for the administration of the HAP contract.


Sec. 891.585  Default by Borrower.

    (a) HAP contract provisions. The HAP contract will provide:
    (1) That if HUD determines that the Borrower is in default under 
the HAP contract, HUD will notify the Borrower of the actions required 
to be taken to cure the default and of the remedies to be applied by 
HUD including an action for specific performance under the HAP 
contract, reduction or suspension of housing assistance payments and 
recovery of overpayments, where appropriate; and
    (2) That if the Borrower fails to cure the default, HUD has the 
right to terminate the HAP contract or to take other corrective action.
    (b) Loan provisions. Additional provisions governing default under 
the section 202 loan are included in the regulatory agreement and other 
loan documents.


Sec. 891.590  Notice upon HAP contract expiration.

    (a) Notice required. The HAP contract will provide that the 
Borrower will, at least one year before the end of the HAP contract 
term, notify each family leasing an assisted unit of any increase in 
the amount the family will be required to pay as rent as a result of 
the expiration.
    (b) Service requirements. The notice under paragraph (a) of this 
section shall be accomplished by sending a letter by first class mail, 
properly stamped and addressed, to the family at its address at the 
project, with a proper return address; and serving a copy of the notice 
on any adult person answering the door at the leased dwelling unit, or 
if no adult responds, by placing the notice under or through the door, 
if possible, or else by affixing the notice to the door. Service shall 
not be considered to be effective until both required notices have been 
accomplished. The date on which the notice shall be considered to

[[Page 11975]]
be received by the family shall be the date on which the Borrower mails 
the first class letter provided for in paragraph (b) of this section, 
or the date on which the notice provided for in paragraph (b) of this 
section is properly given, whichever is later.
    (c) Contents of notice. The notice shall advise each affected 
family that, after the expiration date of the HAP contract, the family 
will be required to bear the entire cost of the rent and that the 
Borrower may, subject to requirements and restrictions contained in the 
regulatory agreement, the lease, and State or local law, change the 
rent. The notice also shall state:
    (1) The actual (if known) or the estimated rent that will be 
charged following the expiration of the HAP contract;
    (2) The difference between the new rent and the total tenant 
payment toward rent under the HAP contract; and
    (3) The date the HAP contract will expire.
    (d) Certification to HUD. The Borrower shall give HUD a 
certification that families have been notified in accordance with this 
section and shall attach to the certification an example of the text of 
the notice.
    (e) Applicability. This section applies to all HAP contracts 
entered into under an agreement to enter into a housing assistance 
payments contract executed on or after October 1, 1981, or entered into 
under such an agreement executed before October 1, 1981 but renewed or 
amended after February 9, 1995.

(Approved by the Office of Management and Budget under control 
number 2502-0371.)


Sec. 891.595  HAP contract extension or renewal.

    Upon expiration of the term of the HAP contract, HUD and the 
Borrower may agree (subject to available funds) to extend the term of 
the HAP contract or to renew the HAP contract. The number of assisted 
units under the extended or renewed HAP contract shall equal the number 
of assisted units under the original HAP contract, except that:
    (a) HUD and the Borrower may agree to reduce the number of assisted 
units by the number of assisted units that are not occupied by eligible 
families at the time of the extension or renewal; and
    (b) HUD and the Borrower may agree to permit reductions in the 
number of assisted units during the term of the extended or renewed HAP 
contract as assisted units are vacated by eligible families. Nothing in 
this section shall prohibit HUD from reducing the number of units 
covered under the extended or renewed HAP contract in accordance with 
Sec. 891.575(b).


Sec. 891.600  Responsibilities of Borrower.

    (a) Marketing. (1) The Borrower must commence and continue diligent 
marketing activities not later than 90 days before the anticipated date 
of availability for occupancy of the first unit of the project. Market 
activities shall include the provision of notices of availability of 
housing under the program to operators of temporary housing for the 
homeless in the same housing market.
    (2) Marketing must be done in accordance with the HUD-approved 
affirmative fair housing marketing plan and all Federal, State, or 
local fair housing and equal opportunity requirements. The purpose of 
the plan and requirements is to achieve a condition in which eligible 
families of similar income levels in the same housing market have a 
like range of housing choices available to them regardless of 
discriminatory considerations, such as their race, color, creed, 
religion, familial status, disability, sex or national origin. 
Marketing must also be done in accordance with the communication and 
notice requirements of Section 504 at 24 CFR 8.6 and 24 CFR 8.54.
    (3) At the time of HAP contract execution, the Borrower must submit 
to HUD a list of leased and unleased assisted units, with a 
justification for the unleased units, in order to qualify for vacancy 
payments for the unleased units.
    (b) Management and maintenance. The Borrower is responsible for all 
management functions. These functions include selection and admission 
of tenants, required reexaminations of incomes for families occupying 
assisted units (or residential spaces, as applicable), collection of 
rents, termination of tenancy and eviction, and all repair and 
maintenance functions (including ordinary and extraordinary maintenance 
and replacement of capital items). All functions must be performed in 
compliance with equal opportunity requirements.
    (c) Contracting for services. (1) With HUD approval, the Borrower 
may contract with a private or public entity for performance of the 
services or duties required in paragraphs (a) and (b) of this section. 
However, such an arrangement does not relieve the Borrower of 
responsibility for these services and duties. All such contracts are 
subject to the restrictions governing prohibited contractual 
relationships described in Secs. 891.130 and 891.505, if applicable. 
(These prohibitions do not extend to management contracts entered into 
by the Borrower with the Sponsor or its nonprofit affiliate).
    (2) Consistent with the objectives of Executive Order No. 11625 (36 
FR 19967, 3 CFR, 1971-1975 Comp., p. 616; as amended by Executive Order 
No. 12007 (42 FR 42839, 3 CFR, 1977 Comp., p. 139; unless otherwise 
noted); Executive Order No. 12432 (48 FR 32551, 3 CFR, 1983 Comp., p. 
198; unless otherwise noted); and Executive Order No. 12138 (44 FR 
29637, 3 CFR, 1979 Comp., p. 393; unless otherwise noted), the Borrower 
will promote awareness and participation of minority and women's 
business enterprises in contracting and procurement activities.
    (d) Submission of financial and operating statements. The Borrower 
must submit to HUD:
    (1) Within 60 days after the end of each fiscal year of project 
operations, financial statements for the project audited by an 
independent public accountant and in the form required by HUD; and
    (2) Other statements regarding project operation, financial 
conditions and occupancy as HUD may require to administer the housing 
assistance payments contract (HAP contract) or the project assistance 
contract (PAC), as applicable, and to monitor project operations.
    (e) Use of project funds. The Borrower shall maintain a separate 
project fund account in a depository or depositories that are members 
of the Federal Deposit Insurance Corporation or National Credit Union 
Share Insurance Fund and shall deposit all rents, charges, income and 
revenues arising from project operation or ownership to this account. 
All project funds are to be deposited in Federally-insured accounts. 
All balances shall be fully insured at all times, to the maximum extent 
possible. Project funds must be used for the operation of the project 
(including required insurance coverage), to make required principal and 
interest payments on the Section 202 loan, and to make required 
deposits to the replacement reserve under Secs. 891.605 and 891.745 (as 
applicable), in accordance with a HUD-approved budget. Any project 
funds in the project funds account (including earned interest) 
following the expiration of the fiscal year shall be deposited in a 
Federally-insured residual receipts account within 60 days following 
the end of the fiscal year. Withdrawals from this account may be made 
only for project purposes and with the approval of HUD. If there are 
funds remaining in the residual receipts account when the

[[Page 11976]]
mortgage is satisfied, such funds shall be returned to HUD.
    (f) Reports. The Borrower shall submit such reports as HUD may 
prescribe to demonstrate compliance with applicable civil rights and 
equal opportunity requirements.

(Approved by the Office of Management and Budget under control 
number 2502-0371.)


Sec. 891.605  Replacement reserve.

    (a) Establishment of reserve. The Borrower shall establish and 
maintain a replacement reserve to aid in funding extraordinary 
maintenance, and repair and replacement of capital items.
    (b) Deposits to reserve. The Borrower shall make monthly deposits 
to the replacement reserve in an amount determined by HUD. Further 
requirements regarding the amount of the deposits for projects funded 
under Secs. 891.655 through 891.790 are provided in Sec. 891.745.
     (c) Level of reserve. The reserve must be built up to and 
maintained at a level determined by HUD to be sufficient to meet 
projected requirements. Should the reserve reach that level, the amount 
of the deposit to the reserve may be reduced with the approval of HUD.
     (d) Administration of reserve. Replacement reserve funds must be 
deposited with HUD or in a Federally-insured depository in an interest-
bearing account(s) whose balances are fully insured at all times. All 
earnings including interest on the reserve must be added to the 
reserve. Funds may be drawn from the reserve and used only in 
accordance with HUD guidelines and with the approval of, or as directed 
by, HUD.


Sec. 891.610  Selection and admission of tenants.

     (a) Written procedures. The Owner shall adopt written tenant 
selection procedures that ensure nondiscrimination in the selection of 
tenants and that are consistent with the purpose of improving housing 
opportunities for very low-income elderly or handicapped persons; and 
reasonably related to program eligibility and an applicant's ability to 
perform the obligations of the lease. Owners shall promptly notify in 
writing any rejected applicant of the grounds for any rejection. 
Additionally, owners shall maintain a written, chronological waiting 
list showing the name, race, gender, ethnicity and date of each person 
applying for the program.
     (b) Application for admission. The Borrower must accept 
applications for admission to the project in the form prescribed by HUD 
and is obligated to confirm all information provided by the applicant 
families on the application. Applicant families must be requested to 
complete a release of information consent for verification of 
information. Applicants applying for assisted units must complete a 
certification of eligibility as part of the application for admission. 
Applicant families must meet the disclosure and verification 
requirements for Social Security Numbers, and sign and submit consent 
forms for the obtaining of wage and claim information from State Wage 
Information Collection Agencies, as provided by 24 CFR part 5, subpart 
B. Both the Borrower and the applicant must complete and sign the 
application for admission. On request, the Borrower must furnish copies 
of all applications for admission to HUD.
     (c) Determination of eligibility and selection of tenants. The 
Borrower is responsible for determining whether applicants are eligible 
for admission and for the selection of families. To be eligible for 
admission, an applicant must be an elderly or handicapped family as 
defined in Sec. 891.505; meet any project occupancy requirements 
approved by HUD; meet the disclosure and verification requirements for 
Social Security Numbers and sign and submit consent forms for obtaining 
of wage and claim information from State Wage Information Collection 
Agencies, as provided by 24 CFR part 5, subpart B; and, if applying for 
an assisted unit, be eligible for admission under part 813 of this 
chapter.
     (d) Unit assignment. If the Borrower determines that the family is 
eligible and is otherwise acceptable and units are available, the 
Borrower will assign the family a unit. The Borrower will assign the 
family a unit of the appropriate size in accordance with HUD's general 
occupancy guidelines. If no suitable unit is available, the Borrower 
will place the family on a waiting list for the project and notify the 
family of when a suitable unit may become available. If the waiting 
list is so long that the applicant would not be likely to be admitted 
within the next 12 months, the Borrower may advise the applicant that 
no additional applications for admission are being considered for that 
reason, except that the Borrower may not refuse to place an applicant 
on the waiting list if the applicant is otherwise eligible for 
assistance and claims that he or she qualifies for a Federal preference 
as provided in 24 CFR part 5, subpart D.
    (e) Ineligibility determination. If the Borrower determines that an 
applicant is ineligible for admission or the Borrower is not selecting 
the applicant for other reasons, the Borrower will promptly notify the 
applicant in writing of the determination, the reasons for the 
determination, and that the applicant has a right to request a meeting 
with the Borrower or managing agent to review the rejection, in 
accordance with HUD requirements. The review, if requested, may not be 
conducted by a member of the Borrower's staff who made the initial 
decision to reject the applicant. The applicant may also exercise other 
rights (e.g., rights granted under Federal, State, or local civil 
rights laws) if the applicant believes he or she is being discriminated 
against on a prohibited basis. The informal review provisions for the 
denial of a Federal preference are provided in Sec. 5.410(g) of this 
title.
    (f) Records. Records on applicants and approved eligible families, 
which provide racial, ethnic, gender, handicap status, and place of 
previous residency data required by HUD, must be retained for three 
years.
    (g) Reexamination of family income and composition. (1) Regular 
reexaminations. The Borrower must reexamine the income and composition 
of the family at least every 12 months. Upon verification of the 
information, the Borrower shall make appropriate adjustments in the 
total tenant payment in accordance with part 813 of this chapter and 
determine whether the family's unit size is still appropriate. The 
Borrower must adjust tenant rent and the housing assistance payment and 
must carry out any unit transfer in accordance with the administrative 
instructions issued by HUD. At the time of reexamination under 
paragraph (g)(1) of this section, the Borrower must require the family 
to meet the disclosure and verification requirements for Social 
Security Numbers, as provided by 24 CFR part 5, subpart B.
    (2) Interim reexaminations. The family must comply with the 
provisions in its lease regarding interim reporting of changes in 
income. If the Borrower receives information concerning a change in the 
family's income or other circumstances between regularly scheduled 
reexaminations, the Borrower must consult with the family and make any 
adjustments determined to be appropriate. Any change in the family's 
income or other circumstances that results in an adjustment in the 
total tenant payment, tenant rent and housing assistance payment must 
be verified.
    (3) Continuation of housing assistance payments. (i) A family shall 
remain eligible for housing assistance payments until the total tenant 
payment equals or exceeds the gross rent. The termination of subsidy 
eligibility will not affect the family's other rights under its lease. 
Housing assistance payments may be

[[Page 11977]]
resumed if, as a result of changes in income, rent or other relevant 
circumstances during the term of the HAP contract, the family meets the 
income eligibility requirements of part 813 of this chapter and housing 
assistance is available for the unit under the terms of the HAP 
contract. The family will not be required to establish its eligibility 
for admission to the project under the remaining requirements of 
paragraph (c) of this section.
    (ii) A family's eligibility for housing assistance payments may be 
terminated in accordance with HUD requirements for such reasons as 
failure to submit requested verification information, including 
information related to disclosure and verification of Social Security 
Numbers, or failure to sign and submit consent forms for the obtaining 
of wage and claim information from State wage information collection 
agencies, as provided by 24 CFR part 5, subpart B.

(Approved by the Office of Management and Budget under control 
number 2502-0371.)


Sec. 891.615  Obligations of the family.

     The obligations of the family are provided in Sec. 891.415.


Sec. 891.620  Overcrowded and underoccupied units.

     If the Borrower determines that because of change in family size, 
an assisted unit is smaller than appropriate for the eligible family to 
which it is leased, or that the assisted unit is larger than 
appropriate, housing assistance payments or project assistance payments 
(as applicable) with respect to the unit will not be reduced or 
terminated until the eligible family has been relocated to an 
appropriate alternate unit. If possible, the Borrower will, as promptly 
as possible, offer the family an appropriate alternate unit. The 
Borrower may receive vacancy payments for the vacated unit if the 
Borrower complies with the requirements of Sec. 891.650.


Sec. 891.625  Lease requirements.

     The lease requirements are provided in Sec. 891.425.


Sec. 891.630  Termination of tenancy and modification of lease.

     The provisions of part 247 of this title apply to all decisions by 
a Borrower to terminate the tenancy or modify the lease of a family 
residing in a unit.


Sec. 891.635  Security deposits.

     The general requirements for security deposits on assisted units 
are provided in Sec. 891.435. For purposes of subpart E of this part, 
the additional requirements apply:
    (a) The Borrower may require each family occupying an unassisted 
unit (or residential space in a group home) to pay a security deposit 
equal to one month's rent payable by the family.
    (b) The Borrower shall maintain a record of the amount in the 
segregated interest-bearing account that is attributable to each family 
in residence in the project. Annually for all families, and when 
computing the amount available for disbursement under 
Sec. 891.435(b)(3), the Borrower shall allocate to the family's balance 
the interest accrued on the balance during the year. Unless prohibited 
by State or local law, the Borrower may deduct for the family, from the 
accrued interest for the year, the administrative cost of computing the 
allocation to the family's balance. The amount of the administrative 
cost adjustment shall not exceed the accrued interest allocated to the 
family's balance for the year.


Sec. 891.640  Adjustment of rents.

     (a) Contract rents. (1) Adjustment based on approved budget. If 
the HAP contract provides, or has been amended to provide, that 
contract rents will be adjusted based upon a HUD-approved budget, HUD 
will calculate contract rent adjustments based on the sum of the 
project's operating costs and debt service (as calculated by HUD), with 
adjustments for vacancies, the project's nonrental income, and other 
factors that HUD deems appropriate. The calculation will be made on the 
basis of information provided by the Borrower on a form acceptable to 
the Secretary. The automatic adjustment factor described in part 888 of 
this chapter is not used to adjust contract rents under paragraph 
(a)(1) of this section, except to the extent that the amount of the 
replacement reserve deposit is adjusted under Sec. 880.602 of this 
chapter.
    (2) Annual and special adjustments. If the HAP contract provides 
that contract rents will be adjusted based on the application of an 
automatic adjustment factor and by special additional adjustments:
    (i) Consistent with the HAP contract, contract rents may be 
adjusted in accordance with part 888 of this chapter;
    (ii) Special additional adjustments will be granted, to the extent 
determined necessary by HUD, to reflect increases in the actual and 
necessary expenses of owning and maintaining the assisted units that 
have resulted from substantial general increases in real property 
taxes, assessments, utility rates or similar costs (i.e., assessments 
and utilities not covered by regulated rates), and that are not 
adequately compensated for by an annual adjustment. The Borrower must 
submit to HUD required supporting data, financial statements, and 
certifications for the special additional adjustment.
    (b) Rent for unassisted units. The rent payable by families 
occupying units that are not assisted under the HAP contract shall be 
equal to the contract rent computed under paragraph (a) of this 
section.

(Approved by the Office of Management and Budget under control 
number 2502-0371.)


Sec. 891.645  Adjustment of utility allowances.

     In connection with adjustments of contract rents as provided in 
Sec. 891.640(a), the requirements for the adjustment of utility 
allowances provided in Sec. 891.440 apply.


Sec. 891.650  Conditions for receipt of vacancy payments for assisted 
units.

     (a) General. Vacancy payments under the HAP contract will not be 
made unless the conditions for receipt of these housing assistance 
payments set forth in this section are fulfilled.
     (b) Vacancies during rent-up. For each unit that is not leased as 
of the effective date of the HAP contract, the Borrower is entitled to 
vacancy payments in the amount of 80 percent of the contract rent for 
the first 60 days of vacancy, if the Borrower:
    (1) Complied with Sec. 891.600;
    (2) Has taken and continues to take all feasible actions to fill 
the vacancy; and
    (3) Has not rejected any eligible applicant except for good cause 
acceptable to HUD.
    (c) Vacancies after rent-up. If an eligible family vacates a unit, 
the Borrower is entitled to vacancy payments in the amount of 80 
percent of the contract rent for the first 60 days of vacancy if the 
Borrower:
    (1) Certifies that it did not cause the vacancy by violating the 
lease, the HAP contract, or any applicable law;
    (2) Notified HUD of the vacancy or prospective vacancy and the 
reasons for the vacancy immediately upon learning of the vacancy or 
prospective vacancy;
    (3) Has fulfilled and continues to fulfill the requirements 
specified in Sec. 891.600(a)(2) and (3), and in paragraphs (b)(2) and 
(3) of this section; and
    (4) For any vacancy resulting from the Borrower's eviction of an 
eligible family, certifies that it has complied with Sec. 891.630.
    (d) Vacancies for longer than 60 days. If a unit continues to be 
vacant after the 60-day period specified in paragraph (b) or (c) of 
this section, the Borrower may

[[Page 11978]]
apply to receive additional vacancy payments in an amount equal to the 
principal and interest payments required to amortize that portion of 
the debt service attributable to the vacant unit for up to 12 
additional months for the unit if:
    (1) The unit was in decent, safe, and sanitary condition during the 
vacancy period for which payment is claimed;
    (2) The Borrower has fulfilled and continues to fulfill the 
requirements specified in paragraph (b) or (c) of this section, as 
appropriate; and
    (3) The Borrower has demonstrated to the satisfaction of HUD that:
    (i) For the period of vacancy, the project is not providing the 
Borrower with revenues at least equal to project expenses (exclusive of 
depreciation) and the amount of payments requested is not more than the 
portion of the deficiency attributable to the vacant unit; and
    (ii) The project can achieve financial soundness within a 
reasonable time.
    (e) Prohibition of double compensation for vacancies. If the 
Borrower collects payments for vacancies from other sources (tenant 
rent, security deposits, payments under Sec. 891.435(c), or 
governmental payments under other programs), the Borrower shall not be 
entitled to collect vacancy payments to the extent these collections 
from other sources plus the vacancy payment exceed contract rent.

(Approved by the Office of Management and Budget under control 
number 2502-0371.)

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


Sec. 891.655  Definitions applicable to 202/162 projects.

    The following definitions apply to projects for eligible families 
receiving project assistance payments under section 202(h) of the 
Housing Act of 1959 in addition to reservations under section 202 (202/
162 projects):
    Annual income is defined in part 813 of this chapter. In the case 
of an individual residing in an intermediate care facility for the 
mentally retarded that is assisted under Title XIX of the Social 
Security Act and subpart E of this part, the annual income of the 
individual shall exclude protected personal income as provided under 
that Act. For the purposes of determining the total tenant payment, the 
income of such individuals shall be imputed to be the amount that the 
family would receive if assisted under Title XVI of the Social Security 
Act.
    Assisted unit means a dwelling unit that is eligible for assistance 
under a project assistance contract (PAC).
    Contract rent means the total amount of rent specified in the PAC 
as payable by HUD and the family to the Borrower for an assisted unit 
or residential space.
    Family (eligible family) means a handicapped family (as defined in 
Sec. 891.505) that meets the project occupancy requirements approved by 
HUD and, if the family occupies an assisted unit, meets the low-income 
requirements described in Sec. 813.102 of this chapter, as modified by 
the definition of ``annual income'' in this section.
    Gross rent is defined in part 813 of this chapter.
    Group home means a single family residential structure designed or 
adapted for occupancy by nonelderly handicapped individuals.
    Housing for handicapped families means housing and related 
facilities occupied by handicapped families that are primarily 
nonelderly handicapped families.
    Independent living complex means a project designed for occupancy 
by nonelderly handicapped families in separate dwelling units where 
each dwelling unit includes a kitchen and a bath.
     Operating costs means expenses related to the provision of housing 
and excludes expenses related to administering, or managing the 
provision of, supportive services. Operating costs include:
    (1) Administrative expenses, including salary and management 
expenses related to the provision of shelter;
    (2) Maintenance expenses, including routine and minor repairs and 
groundskeeping;
    (3) Security expenses;
    (4) Utilities expenses, including gas, oil, electricity, water, 
sewer, trash removal, and extermination services. Operating costs 
exclude telephone services for families;
    (5) Taxes and insurance; and
    (6) Allowances for reserves.
     PAC (project assistance contract) means the contract entered into 
by the Borrower and HUD setting forth the rights and duties of the 
parties with respect to the project and the payments under the PAC.
    Project account means a specifically identified and segregated 
account for each project which is established in accordance with 
Sec. 891.715(b) out of the amounts by which the maximum annual 
commitment exceeds the amount actually paid out under the PAC each 
year.
    Project assistance payment means the payment made by HUD to the 
Borrower for assisted units as provided in the PAC. The payment is the 
difference between the contract rent and the tenant rent. An additional 
payment is made to a family occupying an assisted unit in an 
independent living complex when the utility allowance is greater than 
the total tenant payment. A project assistance payment, known as a 
``vacancy payment,'' may be made to the Borrower when an assisted unit 
(or residential space in a group home) is vacant, in accordance with 
the terms of the PAC.
     Rent is defined in Sec. 891.505.
    Tenant rent means the monthly amount defined in, and determined in 
accordance with part 813 of this chapter.
    Total tenant payment means the monthly amount defined in, and 
determined in accordance with part 813 of this chapter.
    Utility allowance is defined in part 813 of this chapter and is 
determined or approved by HUD.
    Utility reimbursement is defined in part 813 of this chapter.
     Vacancy payment means the project assistance payment made to the 
Borrower by HUD for a vacant assisted unit (or residential space in a 
group home) if certain conditions are fulfilled, as provided in the 
PAC. The amount of the vacancy payment varies with the length of the 
vacancy period and is less after the first 60 days of any vacancy.


Sec. 891.660  Project standards.

    (a) Property standards. The property standards for 202/162 projects 
are provided in Sec. 891.120(a).
    (b) Minimum group home standards. The minimum group home standards 
for 202/162 projects are provided in Sec. 891.310(a).
    (c) Accessibility requirements. The accessibility requirements for 
202/162 projects are provided in Secs. 891.120(b) and 891.310(b).
     (d) Smoke detectors. The requirements for smoke detectors for 202/
162 projects are provided in Sec. 891.120(d).


Sec. 891.665  Project size limitations.

     (a) Maximum project size. Projects funded under Secs. 891.655 
through 891.790 are subject to the following project size limitations:
    (1) Group homes may not be designed to serve more than 15 persons 
on one site;
    (2) Independent living complexes for chronically mentally ill 
individuals may not be designed to serve more than 20 persons on one 
site; and
    (3) Independent living complexes for handicapped families in the 
developmental disability or physically

[[Page 11979]]
handicapped occupancy categories may not have more than 24 units nor 
more than 24 households on one site. For the purposes of this section, 
``household'' has the same meaning as ``handicapped family,'' except 
that unrelated handicapped individuals sharing a unit (other than a 
handicapped person living with another person who is essential to the 
handicapped person's well-being) are counted as separate households. 
For independent living complexes for handicapped families in the 
developmental disability or physically handicapped occupancy 
categories, units with three or more bedrooms may only be developed to 
serve handicapped families of one or two parents with children.
    (b) Additional limitations. Based on the amount of loan authority 
appropriated for a fiscal year, HUD may have imposed additional 
limitations on the number of units or residents that may be proposed 
under an application for Section 202 loan fund reservation, as 
published in the annual notice of funding availability or the 
invitation for Section 202 fund reservation.
    (c) Exemptions. On a case-by-case basis, HUD may approve 
independent living complexes that do not comply with the project size 
limitations prescribed in paragraphs (a)(2), (a)(3), or (b) of this 
section. HUD may approve such projects if the Sponsor demonstrates:
    (1) The increased number of units is necessary for the economic 
feasibility of the project;
    (2) A project of the size proposed is compatible with other 
residential development and the population density of the area in which 
the project is to be located;
    (3) A project of the size proposed can be successfully integrated 
into the community; and
    (4) A project of the size proposed is marketable in the community.


Sec. 891.670  Cost containment and modest design standards.

     (a) Restrictions on amenities. Projects must be modest in design. 
Except as provided in paragraph (d) of this section, amenities must be 
limited to those amenities, as determined by HUD, that are generally 
provided in unassisted decent, safe, and sanitary housing for low-
income families in the market area. Amenities not eligible for HUD 
funding include balconies, atriums, decks, bowling alleys, swimming 
pools, saunas, and jacuzzis. Dishwashers, trash compactors, and washers 
and dryers in individual units will not be funded in independent living 
complexes. The use of durable materials to control or reduce 
maintenance, repair, and replacement costs is not an excess amenity.
    (b) Unit sizes. For independent living complexes, HUD will 
establish limitations on the size of units and number of bathrooms, 
based on the number of bedrooms that are in the unit.
     (c) Special spaces and accommodations. (1) The costs of 
construction of special spaces and accommodations may not exceed 10 
percent of the total cost of construction, except as provided in 
paragraph (d) of this section. Special spaces and accommodations 
include multipurpose rooms, game rooms, libraries, lounges, and, in 
independent living complexes, central kitchens and dining rooms.
    (2) Special spaces and accommodations exclude offices, halls, 
mechanical rooms, laundry rooms, and parking areas; dwelling units and 
lobbies in independent living complexes; and bedrooms, living rooms, 
dining and kitchen areas, shared bathrooms, and resident staff dwelling 
units in group homes.
    (d) Exceptions. HUD may approve a project that does not comply with 
the cost containment and modest design standards of paragraphs (a) 
through (c) of this section if:
    (1) The Sponsor demonstrates a willingness and ability to 
contribute the incremental development cost and continuing operating 
costs associated with the additional amenities or design features; or
    (2) The proposed project involves substantial rehabilitation or 
acquisition with or without moderate rehabilitation, the additional 
amenities or design features were incorporated into the existing 
structure before the submission of the application, and the total 
development cost of the project with the additional amenities or design 
features does not exceed the cost limits.


Sec. 891.675  Prohibited facilities.

     The requirements for prohibited facilities for 202/162 projects 
are provided in Sec. 891.315, except that Section 202/162 projects may 
not include commercial spaces.


Sec. 891.680  Site and neighborhood standards.

    The general requirements for site and neighborhood standards for 
202/162 projects are provided in Secs. 891.125 and 891.320. In addition 
to the requirements in Secs. 891.125 and 891.320, the following 
requirements apply to 202/162 projects:
    (a) The site must promote greater choice of housing opportunities 
and avoid undue concentration of assisted persons in areas containing a 
high proportion of low-income persons.
    (b) Projects must be located in neighborhoods where other family 
housing is located. Except as provided below, projects may not be 
located adjacent to the following facilities, or in areas where such 
facilities are concentrated: schools or day care centers for 
handicapped persons, workshops, medical facilities, or other housing 
primarily serving handicapped persons. Projects may be located adjacent 
to other housing primarily serving handicapped persons if the projects 
together do not exceed the project size limitations under 
Sec. 891.665(a).


Sec. 891.685  Prohibited relationships.

    The requirements for prohibited relationships for 202/162 projects 
are provided in Sec. 891.130.


Sec. 891.690  Other Federal requirements.

    In addition to the Federal requirements set forth in 24 CFR part 5, 
other Federal requirements for the 202/162 projects are provided in 
Secs. 891.155 and 891.325.


Sec. 891.695  Operating cost standards.

     The requirements for the operating cost standards are provided in 
Sec. 891.150.


Sec. 891.700  Prepayment of loans.

     (a) Prepayment prohibition. The prepayment (whether in whole or in 
part) or the assignment or transfer of physical and financial assets of 
any Section 202 project is prohibited, unless the Assistant Secretary 
gives prior written approval.
    (b) HUD-approved prepayment. Approval for prepayment or transfer 
will not be granted unless HUD determines that the prepayment or 
transfer of the loan is a part of a transaction that will ensure the 
continued operation of the project until the original maturity date of 
the loan in a manner that will provide rental housing for the 
handicapped families on terms at least as advantageous to existing and 
future tenants as the terms required by the original Section 202 loan 
agreement and any other loan agreements entered into under other 
provisions of law.


Sec. 891.705  Project assistance contract.

     (a) Project assistance contract (PAC). The PAC sets forth rights 
and duties of the Borrower and HUD with respect to the project and the 
project assistance payments.
     (b) PAC execution. (1) Upon satisfactory completion of the 
project, the Borrower and HUD shall execute the PAC on the form 
prescribed by HUD.

[[Page 11980]]

    (2) The effective date of the PAC may be earlier than the date of 
execution, but no earlier than the date of HUD's issuance of the 
permission to occupy.
    (3) If the project is completed in stages, the procedures of 
paragraph (b) of this section shall apply to each stage.
    (c) Project assistance payments to owners under the PAC. The 
project assistance payments made under the PAC are:
    (1) Payments to the Borrower to assist eligible families leasing 
assisted units. The amount of the project assistance payment made to 
the Borrower for an assisted unit (or residential space in a group 
home) that is leased to an eligible family is equal to the difference 
between the contract rent for the unit (or pro rata share of the 
contract rent in a group home) and the tenant rent payable by the 
family.
    (2) Payments to the Borrower for vacant assisted units (``vacancy 
payments''). The amount of and conditions for vacancy payments are 
described in Sec. 891.790. HUD makes the project assistance payments 
monthly upon proper requisition by the Borrower, except payments for 
vacancies of more than 60 days, which HUD makes semiannually upon 
requisition by the Borrower.
    (d) Payment of utility reimbursement. If applicable, a utility 
reimbursement will be paid to a family occupying an assisted unit in an 
independent living complex as an additional project assistance payment. 
The PAC will provide that the Borrower will make this payment on behalf 
of HUD. Funds will be paid to the Borrower in trust solely for the 
purpose of making the additional payment. The Borrower may pay the 
utility reimbursement jointly to the family and the utility company, 
or, if the family and utility company consent, directly to the utility 
company.


Sec. 891.710  Term of PAC.

    The term of the PAC shall be 20 years. If the project is completed 
in stages, the term of the PAC for each stage shall be 20 years. The 
term of the PAC for stages of a project shall not exceed 22 years.


Sec. 891.715  Maximum annual commitment and project account.

     (a) Maximum annual commitment. The maximum annual amount that may 
be committed under the PAC is the total of the initial contract rents 
and utility allowances for all assisted units in the project.
    (b) Project account. (1) HUD will establish and maintain a 
specifically identified and segregated project account for each 
project. The project account will be established out of the amounts by 
which the maximum annual commitment exceeds the amount actually paid 
out under the PAC each year. HUD will make payments from this account 
for project assistance payments as needed to cover increases in 
contract rents or decreases in tenant income and other payments for 
costs specifically approved by the Secretary.
     (2) If the HUD-approved estimate of required annual payments under 
the PAC for a fiscal year exceeds the maximum annual commitment for 
that fiscal year plus the current balance in the project account, HUD 
will, within a reasonable time, take such steps authorized by section 
202(h)(4)(A) of the Housing Act of 1959, as may be necessary, to assure 
that payments under the PAC will be adequate to cover increases in 
contract rents and decreases in tenant income.


Sec. 891.720  Leasing to eligible families.

     (a) Availability of assisted units for occupancy by eligible 
families. During the term of the PAC, a Borrower shall make all units 
(or residential spaces in a group home) available for eligible 
families. For purposes of this section, making units or residential 
spaces available for occupancy by eligible families means that the 
Borrower:
    (1) Is conducting marketing in accordance with Sec. 891.740(a);
    (2) Has leased or is making good faith efforts to lease the units 
or residential spaces to eligible and otherwise acceptable families, 
including taking all feasible actions to fill vacancies by renting to 
such families; and (3) Has not rejected any such applicant family 
except for reasons acceptable to HUD. If the Borrower is temporarily 
unable to lease all units or residential spaces to eligible families, 
one or more units or residential spaces may, with the prior approval of 
HUD, be leased to otherwise eligible families that do not meet the 
income requirements of part 813 of this chapter, as modified by 
Sec. 891.505. Failure on the part of the Borrower to comply with these 
requirements is a violation of the PAC and grounds for all available 
legal remedies, including an action for specific performance of the 
PAC, suspension or debarment from HUD programs, and reduction of the 
number of units (or in the case of group homes, reduction of the number 
of residential spaces) under the PAC as set forth in paragraph (b) of 
this section.
    (b) Reduction of number of units covered by the PAC. HUD may reduce 
the number of units (or in the case of group homes, the number of 
residential spaces) covered by the PAC to the number of units or 
residential spaces available for occupancy by eligible families if:
     (1) The Borrower fails to comply with the requirements of 
paragraph (a) of this section; or
    (2) Notwithstanding any prior approval by HUD, HUD determines that 
the inability to lease units or residential spaces to eligible families 
is not a temporary problem.
    (c) Restoration. HUD will agree to an amendment of the PAC to 
provide for subsequent restoration of any reduction made under 
paragraph (b) of this section if:
    (1) HUD determines that the restoration is justified by demand;
    (2) The Borrower otherwise has a record of compliance with the 
Borrower's obligations under the PAC; and
    (3) Contract and budget authority is available.
    (d) Occupancy by families that are not handicapped. HUD may relieve 
the Borrower of the requirement that all units in the project (or 
residential spaces in a group home) must be leased to handicapped 
families if:
    (1) The Borrower has made reasonable efforts to lease to eligible 
families;
    (2) The Borrower has been granted HUD approval under paragraph (a) 
of this section; and
    (3) The Borrower is temporarily unable to achieve or maintain a 
level of occupancy sufficient to prevent financial default and 
foreclosure under the Section 202 loan documents. HUD approval under 
this paragraph will be of limited duration. HUD may impose terms and 
conditions to this approval that are consistent with program objectives 
and necessary to protect its interest in the Section 202 loan.


Sec. 891.725  PAC administration.

    HUD is responsible for the administration of the PAC.


Sec. 891.730  Default by Borrower.

    (a) PAC provisions. The PAC will provide:
    (1) That if HUD determines that the Borrower is in default under 
the PAC, HUD will notify the Borrower of the actions required to be 
taken to cure the default and of the remedies to be applied by HUD, 
including an action for specific performance under the PAC, reduction 
or suspension of project assistance payment and recovery of 
overpayments, as appropriate; and
    (2) That if the Borrower fails to cure the default, HUD has the 
right to terminate the PAC or to take other corrective action.
    (b) Loan provisions. Additional provisions governing default under 
the

[[Page 11981]]
Section 202 loan are included in the regulatory agreement and other 
loan documents.


Sec. 891.735  Notice upon PAC expiration.

    The PAC will provide that the Borrower will, at least 90 days 
before the end of the PAC contract term, notify each family occupying 
an assisted unit (or residential space in a group home) of any increase 
in the amount the family will be required to pay as rent as a result of 
the expiration. The notice of expiration will contain such information 
and will be served in such manner as HUD may prescribe.


Sec. 891.740  Responsibilities of Borrower.

    (a) Marketing. (1) The Borrower must commence and continue diligent 
marketing activities not later than 90 days before the anticipated date 
of availability for occupancy of the group home or the anticipated date 
of availability of the first unit in an independent living complex. 
Market activities shall include the provision of notices of the 
availability of housing under the program to operators of temporary 
housing for the homeless in the same housing market.
    (2) Marketing must be done in accordance with the HUD-approved 
affirmative fair housing marketing plan and all fair housing and equal 
opportunity requirements. The purpose of the plan and requirements is 
to achieve a condition in which eligible families of similar income 
levels in the same housing market have a like range of housing choices 
available to them regardless of their race, color, creed, religion, 
sex, or national origin.
    (3) At the time of PAC execution, the Borrower must submit to HUD a 
list of leased and unleased assisted units (or in the case of a group 
home, leased and unleased residential spaces) with a justification for 
the unleased units or residential spaces, in order to qualify for 
vacancy payments for the unleased units or residential spaces.
    (b) Management and maintenance. The responsibilities of the 
Borrower with regard to management and maintenance are provided in 
Sec. 891.600(b).
    (c) Contracting for services. The responsibilities of the Borrower 
with regard to contracting for services are provided in 
Sec. 891.600(c).
    (d) Submission of financial and operating statements. The 
responsibilities of the Borrower with regard to the submission of 
financial and operating statements are provided in Sec. 891.600(d).
    (e) Use of project funds. The responsibilities of the Borrower with 
regard to the use of project funds are provided in Sec. 891.600(e).
    (f) Reports. The responsibilities of the Borrower with regard to 
reports are provided in Sec. 891.600(f).


Sec. 891.745  Replacement reserve.

    The general requirements for the replacement reserve are provided 
in Sec. 891.605. For projects funded under Secs. 891.655 through 
891.790, the amount of the deposits for the initial year of operation 
shall be an amount equal to 0.6 percent of the cost of the total 
structures (for new construction projects), 0.4 percent of the cost of 
the initial mortgage amount (for all other projects), or such higher 
rate as required by HUD. For the purposes of this section, total 
structures include main buildings, accessory buildings, garages, and 
other buildings. The amount of the deposits will be adjusted each year 
by the amount of the annual adjustment factor as described in part 888 
of this chapter.


Sec. 891.750  Selection and admission of tenants.

    (a) Application for admission. The Borrower must accept 
applications for admission to the project in the form prescribed by 
HUD. Applicant families applying for assisted units (or residential 
spaces in a group home) must complete a certification of eligibility as 
part of the application for admission. Applicant families must meet the 
disclosure and verification requirements for Social Security Numbers, 
and sign and submit consent forms for the obtaining of wage and claim 
information from State Wage Information Collection Agencies, as 
provided by 24 CFR part 5, subpart B. Both the Borrower and the 
applicant family must complete and sign the application for admission. 
On request, the Borrower must furnish copies of all applications for 
admission to HUD.
    (b) Determination of eligibility and selection of tenants. The 
Borrower is responsible for determining whether applicants are eligible 
for admission and for the selection of families. To be eligible for 
admission, an applicant family must be a handicapped family (as defined 
in Sec. 891.505); meet any project occupancy requirements approved by 
HUD; meet the disclosure and verification requirements for Social 
Security Numbers, as provided by 24 CFR part 5, subpart B; and be a 
low-income family, as defined in Sec. 813.102 of this chapter (as 
modified by Sec. 891.505). Under certain circumstances, HUD may permit 
the leasing of units (or residential space in a group home) to 
ineligible families under Sec. 891.720.
    (1) Local residency requirements are prohibited. Local residency 
preferences may be applied in selecting tenants only to the extent that 
they are not inconsistent with affirmative fair housing marketing 
objectives and the Borrower's HUD-approved affirmative fair housing 
marketing plan. Preferences may not be based on the length of time the 
applicant has resided in the jurisdiction. With respect to any 
residency preference, persons expected to reside in the community as a 
result of current or planned employment will be treated as residents.
    (2) If the Borrower determines that the family is eligible and is 
otherwise acceptable and units (or residential spaces in a group home) 
are available, the Borrower will assign the family a unit or 
residential space in a group home. If the family will occupy an 
assisted unit the Borrower will assign the family a unit of the 
appropriate size in accordance with HUD standards. If no suitable unit 
(or residential space in a group home) is available, the Borrower will 
place the family on a waiting list for the project and notify the 
family when a suitable unit or residential space may become available. 
If the waiting list is so long that the applicant would not be likely 
to be admitted within the next 12 months, the Borrower may advise the 
applicant that no additional applications for admission are being 
considered for that reason.
    (3) If the Borrower determines that an applicant is ineligible for 
admission or the Borrower is not selecting the applicant for other 
reasons, the Borrower will promptly notify the applicant in writing of 
the determination, the reasons for the determination, and that the 
applicant has a right to request a meeting to review the rejection, in 
accordance with HUD requirements. The review, if requested, may not be 
conducted by the member of the Borrower's staff who made the initial 
decision to reject the applicant. The applicant may also exercise other 
rights if the applicant believes the applicant is being discriminated 
against on the basis of race, color, creed, religion, sex, handicap, or 
national origin.
    (4) Records on applicants and approved eligible families, which 
provide racial, ethnic, gender and place of previous residency data 
required by HUD, must be maintained and retained for three years.
    (c) Reexamination of family income and composition (1) Regular 
reexaminations. If the family occupies an assisted unit (or residential 
space in a group home), the Borrower must reexamine the income and 
composition

[[Page 11982]]
of the family at least every 12 months. Upon verification of the 
information, the Borrower shall make appropriate adjustments in the 
total tenant payment in accordance with part 813 of this chapter, as 
modified by Sec. 891.505, and determine whether the family's unit size 
is still appropriate. The Borrower must adjust tenant rent and the 
project assistance payment and must carry out any unit transfer in 
accordance with HUD standards. At the time of the annual reexamination 
of family income and composition, the Borrower must require the family 
to meet the disclosure and verification requirements for Social 
Security Numbers, as provided by 24 CFR part 5, subpart B.
    (2) Interim reexamination. If the family occupies an assisted unit 
(or residential space in a group home) the family must comply with 
provisions in the lease regarding interim reporting of changes in 
income. If the Borrower receives information concerning a change in the 
family's income or other circumstances between regularly scheduled 
reexaminations, the Borrower must consult with the family and make any 
adjustments determined to be appropriate. Any change in the family's 
income or other circumstances that results in an adjustment in the 
total tenant payment, tenant rent, and project assistance payment must 
be verified.
    (3) Continuation of project assistance payment. (i) A family 
occupying an assisted unit (or residential space in a group home) shall 
remain eligible for project assistance payment until the total tenant 
payment equals or exceeds the gross rent (or a pro rata share of the 
gross rent in a group home). The termination of subsidy eligibility 
will not affect the family's other rights under its lease. Project 
assistance payment may be resumed if, as a result of changes in income, 
rent, or other relevant circumstances during the term of the PAC, the 
family meets the income eligibility requirements of part 813 of this 
chapter (as modified in Sec. 891.505) and project assistance is 
available for the unit or residential space under the terms of the PAC. 
The family will not be required to establish its eligibility for 
admission to the project under the remaining requirements of paragraph 
(b) of this section.
    (ii) A family's eligibility for project assistance payment may also 
be terminated in accordance with HUD requirements for such reasons as 
failure to submit requested verification information, including failure 
to meet the disclosure and verification requirements for Social 
Security Numbers, or failure to sign and submit consent forms for the 
obtaining of wage and claim information from State Wage Information 
Collection Agencies, as provided by 24 CFR part 5, subpart B.

(Approved by the Office of Management and Budget under control 
number 2502-0204 and 2505-0267.)


Sec. 891.755  Obligations of the family.

    The obligations of the family are provided in Sec. 891.415.


Sec. 891.760  Overcrowded and underoccupied units.

    The requirements for overcrowded and underoccupied units are 
provided in Sec. 891.620.


Sec. 891.765  Lease requirements.

    The lease requirements are provided in Sec. 891.425.


Sec. 891.770  Termination of tenancy and modification of lease.

    The provisions of part 247 of this title apply to all decisions by 
a Borrower to terminate the tenancy or modify the lease of a family 
residing in a unit (or residential space in a group home).


Sec. 891.775  Security deposits.

    The general requirements for security deposits on assisted units 
are provided in Sec. 891.435. For purposes of subpart E of this part, 
the additional requirements in Sec. 891.635 apply.


Sec. 891.780  Adjustment of rents.

    (a) Contract rents. HUD will calculate contract rent adjustments 
based on the sum of the project's operating costs and debt service (as 
calculated by HUD), with adjustments for vacancies, the project's 
nonrental income, and other factors that HUD deems appropriate. The 
calculation will be made on the basis of information provided by the 
Borrower on a form prescribed by HUD.
    (b) Rent for unassisted units. The rent payable by families 
occupying units or residential spaces that are not assisted under the 
PAC shall be equal to the contract rent computed under paragraph (a) of 
this section.


Sec. 891.785  Adjustment of utility allowances.

    In connection with adjustments of contract rents as provided in 
Sec. 891.780(a), the requirements for the adjustment of utility 
allowances provided in Sec. 891.440 apply.


Sec. 891.790  Conditions for receipt of vacancy payments for assisted 
units.

    (a) General. Vacancy payments under the PAC will not be made unless 
the conditions for receipt of these project assistance payments set 
forth in this section are fulfilled.
    (b) Vacancies during rent-up. For each unit (or residential space 
in a group home) that is not leased as of the effective date of the 
PAC, the Borrower is entitled to vacancy payments in the amount of 80 
percent of the contract rent (or pro rata share of the contract rent 
for a group home) for the first 60 days of vacancy, if the Borrower:
    (1) Complied with Sec. 891.740;
    (2) Has taken and continues to take all feasible actions to fill 
the vacancy; and
    (3) Has not rejected any eligible applicant except for good cause 
acceptable to HUD.
    (c) Vacancies after rent-up. If an eligible family vacates an 
assisted unit (or residential space in a group home) the Borrower is 
entitled to vacancy payments in the amount of 80 percent of the 
contract rent (or pro rata share of the contract rent in a group home) 
for the first 60 days of vacancy if the Borrower:
    (1) Certifies that it did not cause the vacancy by violating the 
lease, the PAC, or any applicable law;
    (2) Notified HUD of the vacancy or prospective vacancy and the 
reasons for the vacancy immediately upon learning of the vacancy or 
prospective vacancy;
    (3) Has fulfilled and continues to fulfill the requirements 
specified in Sec. 891.740(a)(2) and (3), and in paragraphs (b)(2) and 
(3) of this section; and
    (4) For any vacancy resulting from the Borrower's eviction of an 
eligible family, certifies that it has complied with Sec. 891.770.
    (d) Vacancies for longer than 60 days. If an assisted unit (or 
residential space in a group home) continues to be vacant after the 60-
day period specified in paragraph (b) or (c) of this section, HUD may 
approve additional vacancy payments for 60-day periods up to a total of 
12 months in an amount equal to the principal and interest payments 
required to amortize that portion of the debt service attributable to 
the vacant unit (or, in the case of group homes, the residential 
space). Such payments may be approved if:
    (1) The unit was in decent, safe, and sanitary condition during the 
vacancy period for which payment is claimed;
    (2) The Borrower has fulfilled and continues to fulfill the 
requirements specified in paragraph (b) or (c) of this section, as 
appropriate; and
    (3) The Borrower has demonstrated to the satisfaction of HUD that:
    (i) For the period of vacancy, the project is not providing the 
Borrower with revenues at least equal to project expenses (exclusive of 
depreciation) and the amount of payments requested is not more than the 
portion of the deficiency attributable to the vacant unit (or 
residential space in a group home); and

[[Page 11983]]

    (ii) The project can achieve financial soundness within a 
reasonable time.
    (e) Prohibition of double compensation for vacancies. If the 
Borrower collects payments for vacancies from other sources (tenant 
rent, security deposits, payments under Sec. 891.435(c), or 
governmental payments under other programs), the Borrower shall not be 
entitled to collect vacancy payments to the extent these collections 
from other sources plus the vacancy payment exceed contract rent.

    Dated: March 7, 1996.
Nicolas P. Retsinas,
Assistant Secretary for Housing Federal Housing Commissioner.
[FR Doc. 96-6312 Filed 3-21-96; 8:45 am]
BILLING CODE 4210-27-P