[Federal Register Volume 61, Number 218 (Friday, November 8, 1996)]
[Rules and Regulations]
[Pages 57960-57964]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-28716]



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Part III





Department of Housing and Urban Development





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24 CFR Part 245



Tenant Participation in Multifamily Housing Projects; Final Rule

  Federal Register / Vol. 61, No. 218 / Friday, November 8, 1996 / 
Rules and Regulations  

[[Page 57960]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 245

[Docket No. FR-4136-F-01]
RIN 2502-AG83


Tenant Participation in Multifamily Housing Projects

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

ACTION: Final rule.

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SUMMARY: This rule consolidates into one subpart the nearly identical 
provisions concerning tenant participation in certain mortgagor 
initiated actions that require HUD approval. Currently, these 
procedures are found in four subparts. The rule also provides an easier 
to follow statement of applicability.

EFFECTIVE DATE: December 9, 1996.

FOR FURTHER INFORMATION CONTACT: Barbara D. Hunter, Director, Program 
Management Division, Office of Multifamily Housing Development, Room 
6184, Department of Housing and Urban Development, 451 Seventh Street, 
SW., Washington, DC 20410-8000, telephone (202) 708-4162. (This is not 
a toll-free telephone number.) Hearing- or speech-impaired individuals 
may access this number via TTY by calling the Federal Information Relay 
Service at 1-800-877-8339.

SUPPLEMENTARY INFORMATION:

Background

    On March 4, 1995, President Clinton issued a memorandum to all 
Federal departments and agencies regarding regulatory reinvention. In 
response to this memorandum, the Department of Housing and Urban 
Development conducted a page-by-page review of its regulations to 
determine which can be eliminated, consolidated, or otherwise improved.
    As a result of this review the Department determined that 24 CFR 
part 245 could be streamlined to make it more understandable and easier 
to use. Part 245 implements various provisions of section 202 of the 
Housing and Community Development Amendments of 1978 (42 U.S.C. 1715z-
1b). It contains provisions on tenants' right to organize, on 
noninterference with tenants' efforts to obtain assistance, and the 
procedures for tenant participation in several mortgagor initiated 
actions that require HUD approval.
    Part 245 applies to certain types of multifamily housing projects, 
each of which is or has been subsidized by HUD. This includes assisted 
projects that are or were insured by HUD under the National Housing 
Act, projects with direct loans from HUD under section 202 of the 
Housing and Urban Development Act of 1965, and State and local housing 
agency financed projects that receive section 236 or Rent Supplement 
assistance.
    This rule revises Sec. 245.10 to make it easier for the user to 
move from the information known to the user, namely, type of project 
and financing and get the information the user seeks from the section, 
namely, which subparts apply to a specific project.
    Under the current rule there are five subparts containing tenant 
participation procedures. Subparts D through H concern, respectively, 
approvals of: (1) Increase in maximum permissible rents, (2) conversion 
from project-paid utilities to tenant paid utilities, (3) conversion of 
residential units to a nonresidential use, or to cooperative housing or 
condominiums, (4) partial release of mortgage security, and (5) major 
capital additions to the project.
    This rule consolidates into one subpart (subpart E) the procedures 
for the actions described in items (2) through (5), above. It does not 
substantively alter the procedures. Rather, it reflects the fact that 
each of the current separate procedures are substantially the same and 
lend themselves to being consolidated. The Department has retained a 
separate subpart (subpart D) for tenant rent increase procedures. While 
the overall rent increase process is similar to the other tenant 
participation procedures, it is sufficiently different in detail that 
it would not be helpful to the user to consolidate it with the other 
procedures.
    The rule also makes a conforming amendment to Sec. 245.15(a) and 
updates cross-references in Sec. 245.205.

Justification for Final Rulemaking

    The Department generally publishes a rule for public comment before 
issuing a rule for effect, in accordance with its regulations on 
rulemaking in 24 CFR part 10. However, part 10 provides for exceptions 
to the general rule if the agency finds good cause to omit advance 
notice and public participation. The good cause requirement is 
satisfied when prior public procedure is ``impracticable, unnecessary, 
or contrary to the public interest'' (24 CFR 10.1). The Department 
finds that good cause exists to publish this rule for effect without 
first soliciting public comment. This rule clarifies and consolidates 
regulatory provisions and does not establish or affect substantive 
policy. Therefore, prior public comment is unnecessary.

Findings and Certifications

Paperwork Reduction Act Statement

    This rule does not alter existing information collection 
requirements. The information collection requirements contained in 
Secs. 245.416, 245.417, 245.418, 245.419, and 245.425 of this rule were 
previously submitted to the Office of Management and Budget for review 
under the Paperwork Reduction Act of 1995 (42 U.S.C. 3501-3520) and 
have been approved under the control number 2502-0310. An agency may 
not conduct or sponsor, and a person is not required to respond to a 
collection of information unless the collection displays a valid 
control number.

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)) has reviewed and approved this final rule, and in so 
doing certifies that this rule will not have a significant economic 
impact on a substantial number of small entities. This rule streamlines 
the 24 CFR part 245 by removing redundant provisions. The rule will 
have no adverse or disproportionate economic impact on small 
businesses.

Environment

    A Finding of No Significant Impact with respect to the environment 
has been 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. The Finding of No Significant Impact is 
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, SW., Room 10276, Washington, DC 20410-0500.

Unfunded Mandates Reform Act

    The Secretary has reviewed this rule before publication and by 
approving it certifies, in accordance with the Unfunded Mandates Reform 
Act of 1995 (2 U.S.C. 1532), that this rule does not impose a Federal 
mandate that will result in the expenditure by State, local, and tribal 
governments, in the aggregate, or by the private sector, of $100 
million or more in any one year.

Executive Order 12612, Federalism

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that the policies 
contained in this rule do not have federalism implications and, thus, 
are not subject

[[Page 57961]]

to review under the Order. No programmatic or policy changes result 
from its promulgation which would affect the existing relationship 
between the Federal government and State and local government.

Executive Order 12606, The Family

    The General Counsel, as the Designated Official under Executive 
Order 12606, The Family, has determined that this rule does not have 
potential for significant impact on family formation, maintenance, and 
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 and programs 
relate to family concerns.

List of Subjects in 24 CFR Part 245

    Condominiums, Cooperatives, Grant programs--housing and community 
development, Loan programs--housing and community development, Low and 
moderate income housing, Rent subsidies, Reporting and recordkeeping 
requirements, Utilities.
    Accordingly, part 245 of title 24 of the Code of Federal 
Regulations is amended as follows:

PART 245--TENANT PARTICIPATION IN MULTIFAMILY HOUSING PROJECTS

    1. The authority citation for part 245 is revised to read as 
follows:

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


    2. Section 245.10 is revised to read as follows:


Sec. 245.10  Applicability of part.

    (a) Except as otherwise expressly limited in this section, this 
part applies in its entirety to a mortgagor of any multifamily housing 
project that meets the following--
    (1) Project subject to HUD insured or held mortgage under the 
National Housing Act. The project has a mortgage that--
    (i) Has received final endorsement on behalf of the Secretary and 
is insured or held by the Secretary under the National Housing Act (12 
U.S.C. 1701--1715z-20); and
    (ii) Is assisted under:
    (A) Section 236 of the National Housing Act (12 U.S.C. 1715z-1);
    (B) The Section 221(d)(3) BMIR Program;
    (C) The Rent Supplement Program;
    (D) The Section 8 Loan Management Set-Aside Program following 
conversion to such assistance from the Rent Supplement Program 
assistance;
    (2) Section 202 project. The project has a direct mortgage loan 
from HUD at a below-market interest rate under the Section 202 Loans 
for the Elderly or Handicapped BMIR Program. This part applies in its 
entirety to the mortgagor if the project is assisted under the Rent 
Supplement Program or under the Section 8 LMSA Program following 
conversion to such assistance from Rent Supplement Program assistance. 
If the project is not so assisted, only subparts A, D, and E of this 
part apply to the mortgagor;
    (3) Formerly HUD-owned project. The project--
    (i) Before being acquired by the Secretary, was assisted under:
    (A) Section 236 of the National Housing Act (12 U.S.C. 1715z-1);
    (B) The Section 221(d)(3) BMIR Program;
    (C) The Rent Supplement Program; or
    (D) The Section 8 LMSA Program following conversion to such 
assistance from assistance under the Rent Supplement Program; and
    (ii) Was sold by the Secretary subject to a mortgage insured or 
held by the Secretary and an agreement to maintain the low- and 
moderate-income character of the project; or
    (4) State or local housing finance agency project. The project 
receives assistance under section 236 of the National Housing Act (12 
U.S.C. 1715z-1) or the Rent Supplement Program administered through a 
State or local housing finance agency, but does not have a mortgage 
insured under the National Housing Act or held by the Secretary. 
Subject to the further limitation in paragraph (b) of this section, 
only the provisions of subparts A and C of this part and of subpart D 
of this part for requests for approval of a conversion of a project 
from project-paid utilities to tenant-paid utilities or of a reduction 
in tenant utility allowances, apply to a mortgagor of such a project.
    (b) Limitation for cooperative mortgagor. Only the provisions of 
subparts A and C of this part apply to a mortgagor of any multifamily 
housing project described in paragraph (a) of this section if the 
mortgagor is a cooperative housing corporation or association.
    (c) Definitions.
    Rent Supplement Program means the assistance program authorized by 
section 101 of the Housing and Urban Development Act of 1965 (12 U.S.C. 
1701s).
    Section 8 LMSA Program means the Section 8 Loan Management Set-
Aside Program implemented under 24 CFR part 886, subpart A.
    Section 202 Loans for the Elderly or Handicapped BMIR Program means 
the below-market interest rate loan program authorized under section 
202 of the Housing Act of 1959, as in effect before August 22, 1974 (12 
U.S.C. 1701q).
    Section 221(d)(3) BMIR Program means the below-market interest rate 
mortgage insurance program under section 221(d)(3) and the proviso of 
section 221(d)(5) of the National Housing Act (12 U.S.C. 1715l(d)(3) 
and 1715l(d)(5)).
    3. In Sec. 245.15, paragraph (a) is revised to read as follows:


Sec. 245.15  Notice to tenants.

    (a) Whenever a mortgagor is required under subparts D or E of this 
part to serve notice on the tenants of a project, the notice must be 
served by delivery, except, for a high-rise project, the notice may be 
served either by delivery or by posting. If service is made by 
delivery, a copy of the notice must be delivered directly to each unit 
in the project or mailed to each tenant. If service is made by posting, 
the notice must be posted in at least three conspicuous places within 
each building in which the affected dwelling units are located and, 
during any prescribed tenant period, in a conspicuous place at the 
address stated in the notice where the materials in support of the 
mortgagor's proposed action are to be made available for inspection and 
copying. Posted notices must be maintained intact and in legible form 
during any prescribed notice period.
* * * * *


Sec. 245.205  [Amended]

    4. In Sec. 245.205:
    a. Paragraph (b) is amended by removing the words ``under part 215 
of this chapter'' and adding, in their place, the words ``under section 
101 of the Housing and Urban Development Act of 1965 (12 U.S.C. 
1701s)''; and
    b. Paragraph (c) is amended by removing the words ``part 882'' and 
adding, in their place, the words ``part 982''.
    5. Subpart E is revised to read as follows:

Subpart E--Procedures for Requesting Approval of a Covered Action

Sec.
245.405  Applicability of subpart.
245.410  Notice to tenants.
245.415  Submission of materials to HUD: Timing of submission.
245.416  Initial submission of materials to HUD: Conversion from 
project-paid utilities to tenant-paid utilities or a reduction in 
tenant utility allowances.

[[Page 57962]]

245.417  Initial submission of materials to HUD: Conversion of 
residential units to a nonresidential use, or to cooperative housing 
or condominiums.
245.418  Initial submission of materials to HUD: Partial release of 
mortgage security.
245.419  Initial submission of materials to HUD: Major capital 
additions.
245.420  Rights of tenants to participate.
245.425  Submission of request for approval to HUD.
245.430  Decision on request for approval.
245.435  Non-insured projects: Conversion from project-paid 
utilities to tenant-paid utilities or a reduction in tenant utility 
allowances.

Subpart E--Procedures for Requesting Approval of a Covered Action


Sec. 245.405  Applicability of subpart.

    The requirements of this subpart apply to any request by a 
mortgagor, as provided by Sec. 245.10, for HUD approval of one or more 
of the following covered actions:
    (a) Conversion of a project from project-paid utilities to tenant-
paid utilities, or a reduction in tenant utility allowances.
    (b) Conversion of residential units in a multifamily housing 
project to a nonresidential use or to condominiums, or the transfer of 
the project to a cooperative housing mortgagor corporation or 
association. Conversion of a project to a cooperative or of a portion 
of a project to nonresidential use does not constitute a change of use 
requiring mortgagee approval.
    (c) A partial release of mortgage security. The requirements of 
this subpart, however, do not apply to any release of property from a 
mortgage lien with respect to a utility easement or a public taking of 
such property by condemnation or eminent domain.
    (d) Making major capital additions to the project. For the purposes 
of this subpart, the term ``major capital additions'' includes only 
those capital improvements that represent a substantial addition to the 
project. Upgrading or replacing existing capital components of the 
project does not constitute a major capital addition to the project.


Sec. 245.410  Notice to tenants.

    At least 30 days before submitting a request to HUD for approval of 
an action described in Sec. 245.405, the mortgagor must serve notice of 
the proposed covered action on the project tenants, as provided in 
Sec. 245.15. The notice shall state that--
    (a) The mortgagor intends to submit a request to HUD for approval 
of the covered action or actions specified in the notice;
    (b) The tenants have the right to participate as provided in 
Sec. 245.420, and what those rights are, including the address at which 
the materials required to be made available for inspection and copying 
under that section are to be kept;
    (c) Tenant comments on the proposed covered action may be sent to 
the mortgagor at a specified address or directly to the local HUD 
office, and comments sent to the mortgagor will be transmitted to HUD, 
along with the mortgagor's evaluation of them, when the request for 
HUD's approval is submitted;
    (d) HUD will approve or disapprove the proposed action, based upon 
its review of the information submitted and all tenant comments 
received. In the case of a proposed reduction in tenant-paid utilities, 
the notice must also state that HUD may adjust the proposed reduction 
upward or downward;
    (e) In the case of a proposed conversion of residential units, 
partial release of mortgage security, or major capital additions to the 
project, the proposed action may require the owner to request HUD 
approval of a rent increase; and
    (f) The mortgagor will notify the tenants of HUD's decision and it 
will not begin to effect any approved action (in accordance with the 
terms of existing leases) until at least 30 days from the date of 
service of the notification.


Sec. 245.415  Submission of materials to HUD: Timing of submission.

    (a) Initial submission. The mortgagor must submit the materials 
applicable to the covered action, as specified in Secs. 245.416 through 
245.419, to the local HUD office when the notice required under 
Sec. 245.410 is served on the tenants.
    (b) Subsequent submission. If additional notice under 
Sec. 245.420(c) is required, the mortgagor must submit to HUD any 
changes to the materials required under Secs. 245.416 through 245.419 
when the notice required under Sec. 245.420(c) is served on the 
tenants.


Sec. 245.416  Initial submission of materials to HUD: Conversion from 
project-paid utilities to tenant-paid utilities or a reduction in 
tenant utility allowances.

    In the case of a conversion from project-paid utilities to tenant-
paid utilities or a reduction in tenant utility allowances, the 
mortgagor must submit the following materials to the local HUD office:
    (a) A copy of the notice to tenants;
    (b) In the case of a proposed conversion from project-paid 
utilities to tenant-paid utilities--
    (1) A statement indicating:
    (i) The type of utility or utilities involved;
    (ii) The number of units in the project by type and size;
    (iii) The average utility consumption data by unit type and size 
for comparable projects, and utility rate information, as obtained from 
the utility supplier;
    (iv) The estimated monthly cost of the utilities to be paid by the 
tenants by unit type and size, based upon the consumption data and rate 
information described in paragraph (b)(1)(iii) of this section;
    (v) The monthly cost for the past year of paying for the utility or 
utilities involved on a project basis (actual cost) and by unit type 
and size (estimated breakdown);
    (vi) An estimate of the cost of conversion, as obtained from the 
utility supplier or from bids from contractors;
    (vii) The source and terms of financing for the conversion (to the 
extent known); and
    (viii) The estimated effect of the conversion on the total housing 
costs of the tenants by unit type and size, taking into account the 
estimated cost of conversion (including the cost of its financing), the 
estimated monthly cost of utilities to be paid by the tenants by unit 
type and size, the proposed utility allowances, and the estimated 
change in the rents paid to the mortgagor resulting from the 
conversion; and
    (2) A copy of the portion of the project's Energy Conservation Plan 
which addresses the cost-effectiveness determination associated with 
converting the project to tenant-paid utilities; and
    (c) In the case of a proposed reduction in tenant utility 
allowances, a statement indicating the information described in 
paragraphs (b)(1)(i), (b)(1)(ii), (b)(1)(iii) and (b)(1)(iv) of this 
section, the utility allowances proposed for reduction, and a 
justification of the proposed reduction.

(Approved by the Office of Management and Budget under control 
number 2502-0310)


Sec. 245.417  Initial submission of materials to HUD: Conversion of 
residential units to a nonresidential use, or to cooperative housing or 
condominiums.

    In the case of a conversion of residential units to a 
nonresidential use, or to cooperative housing or condominiums, the 
mortgagor must submit the following materials to the local HUD office 
in accordance with Secs. 245.415 and 245.419:
    (a) In the case of a proposed conversion of residential rental 
units to nonresidential use:

[[Page 57963]]

    (1) A statement describing the proposed conversion;
    (2) A statement describing the estimated effect of the proposed 
conversion on the value of the project, the project rent schedule, the 
number of dwelling units in the project, a list of the units to be 
converted and their occupancy, the amount of subsidy available to the 
project, and the project income and expenses (including property 
taxes);
    (3) A statement assessing the compatibility of the proposed 
nonresidential use with the residential character of the project;
    (4) Written approval of the mortgagee if required;
    (5) An undertaking by the mortgagor to pay all relocation costs 
that may be required by HUD for tenants required to vacate the project 
because of the conversion; and
    (6) A copy of the notice to tenants.
    (b) In the case of a proposed transfer of the project to a 
cooperative housing mortgagor corporation or association (conversion of 
residential rental units to residential cooperative housing), the 
materials specified in paragraphs (a)(1), (a)(2) and (a)(3) of this 
section and the following additional materials:
    (1) An estimate of the demand for cooperative housing, including an 
estimate of the number of present tenants interested in purchasing 
cooperative housing;
    (2) Estimates of downpayments and monthly carrying charges that 
will be required; and
    (3) Copies of proposed organizational documents, including By-Laws, 
Articles of Incorporation, Subscription Agreement, Occupancy Agreement, 
and Sale Document.
    (c) In the case of a proposed conversion of residential rental 
units to condominium units, the materials specified in paragraphs 
(a)(1), (a)(4), and (a)(6) of this section and the following additional 
materials:
    (1) An estimate of the demand for condominium housing, including an 
estimate of the number of present tenants interested in purchasing 
units;
    (2) Estimates of downpayments, monthly mortgage payments and 
condominium association fees that will be required; and
    (3) A list of the units to be converted and their occupancy.

(Approved by the Office of Management and Budget under control 
number 2502-0310)


Sec. 245.418  Initial submission of materials to HUD: Partial release 
of mortgage security.

    In the case of a partial release of mortgage security, the 
mortgagor must submit the following materials to the local HUD office:
    (a) A statement describing the portion of the property that is 
proposed to be released and the transaction requiring the release;
    (b) A statement describing the estimated effect of the proposed 
release on the value of the project, the number of dwelling units in 
the project, the project income and expenses (including property 
taxes), the amount of subsidy available to the project, and the project 
rent schedule;
    (c) A statement describing the proposed use of the property to be 
released and the persons who will have responsibility for the operation 
and maintenance of that property, and assessing the compatibility of 
that use with the residential character of the project;
    (d) A statement describing the proposed use of any proceeds to be 
received by the mortgagor as a result of the release; and
    (e) A copy of the notice to tenants.

(Approved by the Office of Management and Budget under control 
number 2502-0310)


Sec. 245.419  Initial submission of materials to HUD: Major capital 
additions.

    In the case of major capital additions, the mortgagor must submit 
the following materials to the local HUD office:
    (a) The general plans and sketches of the proposed capital 
additions;
    (b) A statement describing the estimated effect of the proposed 
capital additions on the value of the project, the project income and 
expenses (including property taxes), and the project rent schedule;
    (c) A statement describing how the proposed capital additions will 
be financed and the effect, if any, of that financing on the tenants;
    (d) A statement assessing the compatibility of the proposed capital 
additions with the residential character of the project; and
    (e) A copy of the notice to tenants.

(Approved by the Office of Management and Budget under control 
number 2502-0310)


Sec. 245.420  Rights of tenants to participate.

    (a) The tenants (including any legal or other representatives 
acting for tenants individually or as a group) must have the right to 
inspect and copy the materials that the mortgagor is required to submit 
to HUD pursuant to Sec. 245.415, for a period of 30 days from the date 
on which the notice required under Sec. 245.410 is served on the 
tenants. During this period, the mortgagor must provide a place (as 
specified in the notice) reasonably convenient to tenants in the 
project where tenants and their representatives can inspect and copy 
these materials during normal business hours.
    (b) The tenants have the right during this period to submit written 
comments on the proposed conversion to the mortgagor and to the local 
HUD office. Tenant representatives may assist tenants in preparing 
these comments.
    (c) If the mortgagor, whether at HUD's request or otherwise, makes 
any material change during a tenant comment period in the materials 
submitted to HUD pursuant to Sec. 245.415, the mortgagor must notify 
the tenants of the change, in the manner provided in Sec. 245.15, and 
make the materials as changed available for inspection and copying at 
the address specified in the notice for this purpose. The tenants have 
a period of 15 days from the date of service of this additional notice 
(or the remainder of any applicable comment period, if longer) in which 
to inspect and copy the materials as changed and to submit comments on 
the proposed covered action, before the mortgagor may submit its 
request to HUD for approval of the covered action.


Sec. 245.425  Submission of request for approval to HUD.

    Upon completion of the tenant comment period, the mortgagor must 
review the comments submitted by tenants and their representatives and 
prepare a written evaluation of the comments. The mortgagor must then 
submit the following materials to the local HUD office:
    (a) The mortgagor's written request for HUD approval of the covered 
action;
    (b) Copies of all written tenant comments;
    (c) The mortgagor's evaluation of the tenant comments on the 
proposed conversion or reduction;
    (d) A certification by the mortgagor that it has complied with all 
of the requirements of Sec. 245.410, Sec. 245.415, Secs. 245.416 
through 245.419, as applicable, Sec. 245.420, and this section; and
    (e) Such additional materials as HUD may have specified in writing.

(Approved by the Office of Management and Budget under control 
number 2502-0310)


Sec. 245.430  Decision on request for approval.

    (a) After considering the mortgagor's request for approval and the 
materials submitted in connection with the request, HUD must notify the 
mortgagor in writing of its approval or disapproval of the proposed 
covered action, including, if applicable, its adjustment

[[Page 57964]]

upward or downward of the proposed reduction in tenant-paid utilities. 
HUD must provide its reasons for its determination.
    (b) The mortgagor must notify the tenants of HUD's decision in the 
manner provided in Sec. 245.15. If HUD has approved the proposed 
covered action, the notice must state:
    (1) The effective date of the covered action (which must be at 
least 30 days from the date of service of the notice and in accordance 
with the terms of existing leases);
    (2) In the case of HUD's approval of a conversion from project-paid 
utilities to tenant-paid utilities or a reduction in tenant utility 
allowances, the amount of the rent to be paid to the mortgagor and the 
utility allowance for each unit; and
    (3) In the case of HUD's approval of a conversion of residential 
units in a multifamily housing project to a nonresidential use or the 
transfer of the project to a cooperative housing mortgagor corporation 
or association, which residential rental units are to be converted and 
whether the conversion is to nonresidential use or to cooperative or 
condominium units.


Sec. 245.435  Non-insured projects: Conversion from project-paid 
utilities to tenant-paid utilities or a reduction in tenant utility 
allowances.

    (a) In the case of a proposed conversion from project-paid 
utilities to tenant-paid utilities or a reduction in tenant utility 
allowances involving a project that is assisted under section 236 of 
the National Housing Act (12 U.S.C. 1715z-1) or section 101 of the 
Housing and Urban Development Act of 1965 (12 U.S.C. 1701s) but that 
does not have a mortgage insured by HUD or held by the Secretary, the 
provisions of this section and of Secs. 245.405 through 245.425 apply 
to the mortgagor (project owner), except that--
    (1) The notice to tenants required under Sec. 245.410 must be 
modified to reflect the procedural changes made by this section;
    (2) The materials (including tenant comments) required to be 
submitted to HUD under Secs. 245.415 and 245.425 must be submitted to 
the State or local agency administering the Section 236 assistance or 
rent supplement assistance contracts, rather than to HUD; and
    (3) The State or local agency must certify that the mortgagor has 
complied with the requirements of Secs. 245.410, 245.415, 245.416, 
245.420, and 245.425.
    (b) After the State or local agency has considered the request for 
approval of a conversion or reduction that meets the requirements of 
Sec. 245.425, it must make a determination to approve or disapprove the 
conversion, or to approve, adjust upward or downward, or disapprove the 
reduction. If the agency determines to approve the conversion or 
reduction (as originally proposed or as adjusted), it must submit to 
the appropriate local HUD office the mortgagor's request for approval 
of the conversion or reduction, along with the comments of the tenants 
and the mortgagor's evaluation of the comments, and must certify to HUD 
that the mortgagor is in compliance with the requirements of this 
subpart. HUD must review the agency's determination and certification 
and notify the agency of its approval or disapproval of the proposed 
conversion or of its approval, adjustment upward or downward, or 
disapproval of the proposed reduction. HUD will not unreasonably 
withhold approval of a conversion or reduction approved by the State or 
local agency.
    (c) If the agency determines to disapprove the conversion or 
reduction, there is no HUD review of the agency's determination.
    (d) The agency must notify the mortgagor of the final disposition 
of the request, and it must furnish the mortgagor with a written 
statement of the reasons for its approval or disapproval. The mortgagor 
must make the reasons for approval or disapproval known to the tenants, 
by service of notice on them as provided in Sec. 245.15. If the agency 
has approved the proposed conversion or a reduction, the notice must 
set forth the information prescribed in Sec. 245.430(b) (1) and (2).


Subparts F, G, and H  [Removed]

    6. Subpart F (Secs. 245.505 through 245.530), subpart G 
(Secs. 245.605 through 245.630), and subpart H (Secs. 245.705 through 
245.730) are removed.

    Dated: October 31, 1996.
Nicolas P. Retsinas,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 96-28716 Filed 11-7-96; 8:45 am]
BILLING CODE 4210-27-P