7 CFR Part 3560 — Direct Multi-Family Housing Loans and Grants

PART 3560—DIRECT MULTI-FAMILY HOUSING LOANS AND GRANTS Authority: 42 U.S.C. 1480. Source: 69 FR 69106, Nov. 26, 2004, unless otherwise noted. Subpart A—General Provisions and Definitions § 3560.1 Applicability and purpose. (a) This part sets forth requirements, policies, and procedures for multi-family housing (MFH) direct loan and grant programs to serve eligible very-low, low- and moderate income households. The programs covered by this part are authorized by title V of the Housing Act of 1949 and are: (1) Section 515 Rural Rental Housing, which includes congregate housing, group homes, and Rural Cooperative Housing. (2) Sections 514 and 516 Farm Labor Housing loans and grants. (3) Section 521 Rental Assistance. (b) The programs covered by this part provide economically designed and constructed rural rental, cooperative, and farm labor housing and related facilities operated and managed in an affordable, decent, safe, and sanitary manner. (c) Internal Agency procedures containing details for Agency processing under these regulations can be found in the program handbooks, available in any Rural Development office, or from the Rural Development Web site. § 3560.2 Civil rights. (a) As per the Fair Housing Act, as amended and section 504 of the Rehabilitation Act of 1973, all actions taken by recipients of loans and grants will be conducted without regard to race, color, religion, sex, familial status, national origin, age, or disability. These actions include any actions in the sale, rental, or advertising of the dwellings, in the provision of brokerage services, or in residential real estate transactions involving Rural Housing Service (RHS) assistance. It is unlawful for a borrower or grantee or an agent of a borrower or grantee: (1) To refuse to make reasonable accommodations in rules, policies, practices, or services that would provide a person with a disability an opportunity to use or continue to use a dwelling unit and all public and common use areas; or (2) To refuse to provide a reasonable accommodation at the borrower's expense that would not cause an undue financial or administrative burden, or to refuse to allow an individual with a disability to make reasonable modifications to the unit at their own expense with the understanding that the owner may require the tenant to return the unit to its original condition when the unit is vacated by the tenant making the modifications (see § 3560.104(c)). (b) Borrowers and grantees must take reasonable steps to ensure that Limited English Proficiency (LEP) persons receive the language assistance necessary to afford them meaningful access to USDA programs and activities, free of charge. Failure to ensure that LEP persons can effectively participate in or benefit from federally-assisted programs and activities may violate the prohibition under Title VI of the Civil Rights Act of 1964, 42 U.S.C. 2000d and Title VI regulations against national origin discrimination. USDA has issued guidance to clarify the responsibilities of recipients and subrecipients who receive financial assistance from USDA and to assist them in fulfilling their responsibilities to LEP persons under Title VI of the Civil Rights Act, as amended, and implementing regulations. (c) Any tenant/member or prospective tenant seeking occupancy in or use of facilities financed by the Agency who believes he or she is being discriminated against because of race, color, religion, sex, familial status, national origin, or disability may file a complaint in person with, or by mail to the U. S. Department of Agriculture's Office of Civil Rights, Room 326-W, Whitten Building, 14th and Independence Avenue, Washington, DC 20410. Complaints received by Agency employees must be directed to the National Office Civil Rights staff through the State Civil Rights Manager/Coordinator. (d) Borrowers or grantees that fail to comply with the requirements of federal civil rights requirements are subject to sanctions authorized by law. The following are the major civil rights laws affecting multifamily housing loan and grant programs: (1) Equal Credit Opportunity Act (ECOA). (2) Title VI of the Civil Rights Act of 1964. (3) Title VIII of the Civil Rights Act of 1968. (4) Section 504 of the Rehabilitation Act of 1973. (5) Age Discrimination Act of 1975. (6) Title IX of the Education Amendments of 1972. § 3560.3 Environmental review requirements. RHS will consider environmental impacts of proposed housing as equal with economic, social, and other factors. By working with applicants, Federal agencies, Indian tribes, state and local governments, interested citizens, and organizations, RHS will formulate actions that advance program goals in a manner that protects, enhances, and restores environmental quality. Actions taken under this part must comply with the environmental review requirements in accordance with 7 CFR part 1970. Servicing actions as defined in § 1970.6 of this title are part of financial assistance already provided and do not require additional NEPA review. However, certain post-financial assistance actions that have the potential to have an effect on the environment, such as lien subordinations, sale or lease of Agency-owned real property, or approval of a substantial change in the scope of a project, as defined in § 1970.8 of this title, are actions for the purposes of this part. [81 FR 11049, Mar. 2, 2016] § 3560.4 Compliance with other Federal requirements. RHS is responsible for ensuring that the application is in compliance with all applicable Federal requirements, including the following specific requirements: (a) Intergovernmental review. (b) National flood insurance. (c) Clean Air Act and Water Pollution Control Act Requirements. (d) Historic preservation requirements. (e) Lead-based paint requirements. [69 FR 69106, Nov. 26, 2004, as amended at 76 FR 80731, Dec. 27, 2011; 91 FR 20867, Apr. 20, 2026] § 3560.5 State, local or tribal laws. Borrowers must comply with all applicable state and local laws, and laws of Federally-recognized Indian tribes to the extent they are not inconsistent with this part. § 3560.6 Borrower responsibility and requirements. (a) Borrower responsibilities and requirements specified in this part may be carried out by an individual or entity designated by the borrower to act on behalf of the borrower such as a resident manager or management agent. Ultimate accountability to the Agency, however, is with the borrower whether or not the borrower designated another person or entity to act on the borrower's behalf. (b) Borrowers who have not executed a loan agreement, and who were not required to execute a loan agreement by the regulations in effect at the time of their loan closing are exempt from the requirements of subparts D through G of this part, as long as the borrower is not in default of any applicable requirement, security instrument, payment, or any other agreement with the Agency. Such borrowers must provide evidence of tenant income eligibility in accordance with § 3560.152(a), except in Farm Labor Housing where the tenant is not paying shelter cost. § 3560.7 Delegation of responsibility. The RHS Administrator may delegate, on an individual or other basis, any decision-making responsibility for Agency programs, unless otherwise noted. § 3560.8 Administrator's exception authority. The RHS Administrator may make an exception to any provision of this part or address any omissions provided that the exception is consistent with the applicable statute, does not adversely affect the interest of the Federal Government, and does not adversely affect the accomplishment of the purposes of the MFH programs or application of the requirement would result in undue hardship on the tenants. Exception requests presented to the RHS Administrator must have the concurrence of a Rural Development Leadership Designee or a Deputy Administrator for MFH. [69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11279, Mar. 1, 2022] § 3560.9 Reviews and appeals. Rural Housing Service decisions may be appealed pursuant to 7 CFR part 11. § 3560.10 Conflict of interest. To reduce the potential for employee conflict of interest, all RHS activities will be conducted in accordance with 7 CFR part 1900, subpart D. § 3560.11 Definitions. Unless otherwise noted, terms listed in this part shall be defined as follows: Administrator. Agency. Amortization. Applicant. Appraisal. Assistance. Association of farmers. Borrower. Capital Needs Assessment. Caretaker. Congregate housing. Consumer cooperative. Conventional rents for comparable units (CRCU). Current appraisal. Current Comprehensive Credit Report. Daily Interest Accrual System (DIAS). Default. Disability. (1) As defined in section 501(b) of the Housing Act of 1949. (i) Is expected to be of long-continued and indefinite duration; (ii) Substantially impedes his or her ability to live independently; and (iii) Is of such a nature that such ability could be improved by more suitable housing conditions, or if such person has a developmental disability as defined in section 102(7) of the Developmental Disability and Bill of Rights Act (42 U.S.C. 6001(7)). (2) As defined in the Fair Housing Act; the Americans with Disabilities Act; and section 504 of the Rehabilitation Act of 1973. (i) Any physiological disorder or condition, cosmetic disfigurement, or anatomical loss affecting one or more of the following body systems: neurological; musculoskeletal; special sense organs; respiratory, including speech organs; cardiovascular; reproductive; digestive; genito-urinary; hemic and lymphatic; skin; and endocrine; (ii) Any mental or psychological disorder, such as mental retardation, organic brain syndrome, emotional or mental illness, and specific learning disabilities. The term “physical or mental impairment” includes, but is not limited to, such diseases and conditions as orthopedic, visual, speech and hearing impairments, cerebral palsy, autism, epilepsy, muscular dystrophy, multiple sclerosis, cancer, heart disease, diabetes, Human Immunodeficiency Virus infection, mental retardation, emotional illness, drug addiction (other than addiction caused by current, illegal use of a controlled substance), and alcoholism; (iii) Major life activities means functions such as caring for one's self, performing manual tasks, walking, seeing, hearing, speaking, breathing, learning, and working; (iv) Has a record of such an impairment means has a history of, or has been misclassified as having, a mental or physical impairment that substantially limits one or more major life activities; (v) Is regarded as having an impairment means: (A) Has a physical or mental impairment that does not substantially limit one or more major life activities but that is treated by the borrower or management agent as constituting such a limitation; (B) Has a physical or mental impairment that substantially limits one or more major life activities only as a result of the attitudes of others toward such impairment; or (C) Has none of the impairments described in this definition but is treated by another person as having such an impairment. Disabled domestic farm laborer. Domestic farm laborer. Due diligence on hazardous substances. Elderly household or individual with a handicapped household. Elderly person. Familial status. Family farm corporation or partnership. (1) Legally organized and authorized to own and operate a farm business within the state; (2) Legally able to carry out the purposes of the loan; and (3) Prohibited from the sale or transfer of 90 percent of the stock or interest to other than family members by either the articles of incorporation, bylaws or by agreement between the stockholders or partners and the corporation or partnership. Farm. Farmer. Farm labor. Farm labor contractor. Farm labor housing. Farm owner. Foreclosure. General overhead. General requirements. Grantee. Group home. Household. Household furnishings. Housing project. Identity-of-Interest (IOI). (1) There is a financial interest between the applicant, borrower, grantee and a management agent or the supplying entity; (2) One or more of the officers, directors, stockholders or partners of the applicant, borrower, or management agent is also an officer, director, stockholder, or partner of the supplying entity; (3) An officer, director, stockholder, or partner of the applicant, borrower, or management agent has a 10 percent or more financial interest in the supplying entity; (4) The supplying entity has or will advance funds to an applicant, borrower, or management agent; (5) The supplying entity provides or pays on behalf of the applicant, borrower, or management agent the cost of any materials or services in connection with obligations under the management plan or management agreement; (6) The supplying entity takes stock or a financial interest in the applicant, borrower, or management agent as part of the consideration to be paid them; or (7) There exists or come into being any side deals, agreements, contracts or understandings entered into thereby altering, amending, or canceling any of the management plan, management agreement documents, organization documents, or other legal documents pertaining to the property, except as approved by the Agency. Indian tribe. Interest credit. Lease. Legal or qualified alien. Letter of Priority Entitlement (LOPE). Life cycle cost. Life cycle cost analysis. Limited Liability Company (LLC). Limited partnership. Loan agreement. Low-income household. Low-Income Housing Tax Credit (LIHTC). Management agent. Management agreement. Management fee. Management plan. Manufactured housing. Market area. i.e. Market rent. Maximum debt limit. Member or co-member. Migrants or migrant agricultural laborer. Minor. Moderate-income household. Mortgage or Deed of Trust. Net recovery value. New construction. Nonprofit organization. (1) Is organized under state or local laws; (2) Has no part of its net earnings inuring to the benefit of any member, founder, contributor, or individual; and (3) Is approved by the Secretary of Agriculture and considered to be financially responsible. Nonprofit organization for section 515 program (Prepayment or Purchase). Nonprofit organization of farm workers. Notice of Funding Availability (NOFA). Occupancy agreement. Occupancy charge. Off-farm labor housing. Office of the General Counsel (OGC). Office of the Inspector General (OIG). On-farm labor housing. Overage. Plan I. Plan II. Predetermined Amortization Schedule System (PASS). Prepayment. Program requirements. Promissory note. Real estate owned (REO) property. Rehabilitation. Related facilities. Rent. (1) Note rent (2) Basic rent (3) HUD contract rent (4) Low-income housing tax credit (LIHTC) rent Rental assistance (RA). Rental assistance units. (1) New construction units are units provided in conjunction with initial loans for construction or substantial rehabilitation of the MFH projects. (2) Replacement units are Agency-funded rental assistance units which replace units with expiring rental assistance agreements or which replace Section 8 units which have expired under the Section 8 contract. (3) Servicing units are units provided to an operational MFH project as a part of the Agency's general loan servicing or preservation activities. Repair and replacement. Resident assistant. (1) Is not obligated for the tenant's financial support; (2) Would not be living in the unit except to provide the needed services; (3) May be a family member, but is not a dependent of the tenant for tax purposes; (4) Is not subject to the eligibility requirements of a tenant; and (5) Is not considered a household member in the determination of household income. Resident or site manager. Retired domestic farm laborer. Return on Investment (ROI). Rural area. Rural Cooperative Housing (RCH). Rural Housing Service (RHS). Rural Rental Housing (RRH). Seasonal housing. Security deposit. Self-employed. Service agreement. Service plan. Service provider. Shelter costs. Sources and Uses Comprehensive Evaluation (SAUCE). Special note rent (SNR). State consolidated plan. Tenant or co-tenant. Tenant contribution. Total development cost (TDC). Utility allowance. Very low-income household. Workout agreement. [69 FR 69106, Nov. 26, 2004, as amended at 80 FR 9912, Feb. 24, 2015; 82 FR 49285, Oct. 25, 2017; 87 FR 11279, Mar. 1, 2022; 89 FR 106980, Dec. 31, 2024] §§ 3560.12-3560.49 [Reserved] § 3560.50 OMB control number. The information collection requirements contained in this regulation have been approved by the Office of Management and Budget (OMB) and have been assigned OMB control number 0575-0189. Public reporting burden for this collection of information is estimated to vary from 15 minutes to 18 hours per response, including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. A person is not required to respond to a collection of information unless it displays a currently valid OMB control number. Subpart B—Direct Loan and Grant Origination § 3560.51 General. This subpart contains the Agency's loan origination requirements for multi-family housing (MFH) direct loans for Rural Rental Housing, Rural Cooperative Housing, and Farm Labor Housing. Additional requirements for farm labor housing loans and grants are contained in subpart L of this part for Off-Farm Labor Housing and subpart M of this part for On-Farm Labor Housing. § 3560.52 Program objectives. The Agency uses appropriated funds to finance the construction, rehabilitation of program properties, or purchase and rehabilitation of MFH and related facilities to serve eligible persons in rural areas. The Agency encourages the use of such financing in conjunction with funding or financing from other sources. § 3560.53 Eligible use of funds. Funds may be used for the following purposes. (a) Construct housing. (b) Purchase and rehabilitate buildings. (1) Rehabilitation must meet the definition of either moderate or substantial rehabilitation as defined in 7 CFR part 1924, subpart A. (2) The building to be rehabilitated must be structurally sound and the improvements to the building must be necessary to meet the requirements of decent, safe, and sanitary living units. (3) The total development cost (TDC) for the purchase and rehabilitation of existing buildings must not be more than the estimated TDC for construction of a similar type and unit size property in the same area. (c) Subsequent loans. (d) Purchase and improve sites. (e) Develop and install necessary systems. (1) The loan applicant will hold title to the facility or have a legal right to use the facility in the form of an easement or other instrument acceptable to the Agency for a period of at least 50 percent longer than the term of the loan or grant and the title or right is transferable to any subsequent owner of the housing. (2) The facilities will either be provided for the exclusive use of the proposed housing project, or Agency funds are limited to the prorated part of the total cost of the facility according to the use and benefit to the MFH project. If entities other than the housing project financed by the Agency use the facilities on a reimbursable fee basis, the loan applicant must agree, in writing, to apply any fees collected in excess of operating expenses to their Agency loan account as an extra loan payment. (f) Landscaping and site development. (g) Tenant-related facilities. (h) Management-related facilities. (i) Purchase and install equipment and appliances. (j) Household furnishings (Section 514/516). (k) Initial operating capital. (l) Builder's profit, overhead and general requirements. (1) Up to 10 percent of the construction contract may be used for builder's profit. (2) Up to 4 percent of the construction contract may be used for general overhead. (3) Up to 7 percent of the construction contract may be used for general requirements. (m) Legal, technical and professional services. (n) Permit and application fees. (o) Reimbursement to nonprofit organizations and public bodies. (1) Development and packaging of a loan application and a MFH proposal; and (2) Legal, technical, and professional fees incurred in the formation of the loan application and MFH proposal; or (3) Technical assistance from another nonprofit organization to assist in the organization's formation and in the development and packaging of a loan application and MFH proposal. (p) Educational programs. (q) Interest and customary charges. (r) Purchase housing from an interim lender. (s) Uniform Relocation Assistance and Real Property Acquisition Act of 1970. (t) Demonstration programs. (u) Conversion of section 502 properties. § 3560.54 Restrictions on the use of funds. (a) Ineligible uses of funds. (1) Housing intended to serve temporary and transient residents, with the exception of housing to serve migrant farm workers in accordance with § 3560.554; (2) Special care facilities or institutional-type homes; (3) Facilities which are not in compliance with the design requirements specified in § 3560.60; (4) Any costs associated with space in a housing project that is leased for commercial use or any commercial facilities except essential service-type facilities when otherwise not conveniently available; (5) Specialized equipment for training and therapy; (6) Operating capital for a central dining facility or any items which do not become affixed to the real estate security with the exception of household furnishings for farm labor housing units financed under sections 514 and 516; (7) Compensation to a loan applicant for value of land contributed in excess of the equity contribution requirements in § 3560.63(c); (8) Refinancing of an applicant's debt except when the debt involves interim financing or when refinancing is necessary to obtain a release of an existing lien on land owned by a nonprofit organization; (9) Payment of any fee, charge, or commission to a broker or anyone else as a developer's fee or for referral of a prospective loan applicant or solicitation of a loan; (10) Payment to any officer, director, trustee, stockholder, member, or agent of an applicant; or (11) Purchasing land for a site in excess of what is needed, except when: (i) The applicant cannot acquire an alternate site or cannot acquire the needed land as a separate parcel; (ii) The applicant agrees to sell the excess land as soon as practical and to apply the proceeds to the loan; and (iii) Program site density requirements are met in accordance with the site requirements established under § 3560.58. (b) Obligations incurred before loan approval. (1) The debts were incurred for eligible purposes; (2) Contracts, materials, construction, and any land purchased meet Agency standards and requirements; (3) Payment of the debts will remove any attached liens and any basis for liens that may attach to the property on account of such debts; and (4) The completion of environmental review requirements in accordance with 7 CFR part 1970. [69 FR 69106, Nov. 26, 2004, as amended at 81 FR 11049, Mar. 2, 2016] § 3560.55 Applicant eligibility requirements. Applicants for off-farm labor housing loans and grants should also refer to § 3560.555, and applicants for on-farm labor housing loans should refer to § 3560.605. (a) General. (1) Be a U. S. citizen or qualified alien(s); a corporation; a state or local public Agency; an Indian tribe as defined in § 3560.11; or a limited liability company (LLC), nonprofit organization, consumer cooperative, trust, partnership, or limited partnership in which the principals are U.S. citizens or qualified aliens; (2) Be unable to obtain similar credit elsewhere at rates that would allow for rents within the payment ability of eligible residents; (3) Possess the legal and financial capacity to carry out the obligations required for the loan or grant; (4) Be able to maintain, manage, and operate the housing for its intended purpose and in accordance with all Agency requirements; (5) With the exception of applicants who are a nonprofit organization, housing cooperative or public body, be able to provide the borrower contribution from their own resources (this contribution must be in the form of cash, or land, or a combination thereof); (6) Have or be able to obtain a minimum of 2 percent of the total development costs for use as initial operating capital (for nonprofit organizations, cooperatives, or public bodies, this amount may be financed through Agency funds); and (7) Not be suspended, debarred, or excluded based on the “List of Parties Excluded from Federal Procurement and Nonprocurement Programs.” The list is available to Federal agencies from the U.S. Government Printing Office. Non-federal parties should contact the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402, (202) 512-1800. (8) Not delinquent on Federal debt or a Federal judgment debtor, with the exception of those debtors described in § 3560.55 (b). (b) Additional requirement for applicants with prior debt. (1) The applicant must be in compliance with any existing loan or grant agreements and with all legal and regulatory requirements or must have an Agency-approved workout agreement and be in compliance with the provisions of the workout agreement. The Agency may require that applicants with monetary or non-monetary deficiencies be in compliance with an Agency-approved workout agreement for a minimum of 6 consecutive months before becoming eligible for further assistance. (2) The applicant must be in compliance with the Title VI of the Civil Rights Act of 1964, section 504 of the Rehabilitation Act of 1973, and all other applicable civil rights laws. (c) Additional requirements for nonprofit organizations. (1) The applicant must have received a tax-exempt ruling from the IRS designating the applicant as a 501(c)(3) or 501(c)(4) organization. (2) The applicant must have in its charter the provision of affordable housing. (3) No part of the applicant's earnings may benefit any of its members, founders, or contributors. (4) The applicant must be legally organized under state and local law. (5) In the case of off-farm labor housing loans and grants, nonprofit organizations must be “broad-based” nonprofit organizations (refer to § 3560.555(a)(1)). (d) Additional requirements for limited partnerships. (1) The general partners must be able to meet the borrower contribution requirements if the partnership is not able to do so at the time of loan request. (2) The general partners must maintain a minimum 5 percent financial interest in the residuals or refinancing proceeds in accordance with the partnership organizational documents. (3) The partnership must agree that new general partners can be brought into the organization only with the prior written consent of the Agency. (e) Additional requirements for Limited Liability Companies (LLCs). (1) One member who holds at least a 5 percent financial interest in the LLC must be designated the authorized agent to act on the LLC's behalf to bind the LLC and carry out the management functions of the LLC. (2) No new members may be brought into the organization without prior consent of the Agency. (3) The members must commit to meet the equity contribution requirements if the LLC is not able to do so at the time of loan request. § 3560.56 Processing section 515 housing proposals. Processing requirements for farm labor housing proposals are found in subpart L of this part for Off-Farm and subpart M of this part for On-Farm. (a) Notice of Funding Availability (NOFA) responses. (2) To be eligible for funding consideration, MFH proposals must be submitted in accordance with the NOFA and must provide information requested in the NOFA for the Agency to score and rank the proposals. (3) MFH proposals needing rental subsidies must include requests for Agency rental assistance or a description of any non-Agency rental subsidy to be used with the proposal and must provide information required by § 3560.260 (c). (4) The Agency will consider housing proposals requesting rental assistance in rank order to the extent rental assistance is available. When there is no rental assistance available, the Agency will consider only those housing proposals in rank order that do not require rental assistance. (b) Preliminary proposal assessment. (1) The proposal was received by the submission deadline specified in the NOFA, (2) The proposal is complete as specified in the NOFA, (3) The proposal is for an authorized purpose, and (4) The applicant meets Agency eligibility requirements. (c) Scoring and ranking project proposals. (1) The following criteria will be used to score housing proposals as more completely established in the NOFA: (i) The presence and extent of leveraged assistance in the proposal for the units that will serve tenants meeting Agency income limits at basic rents comparable to what the rent would be if the Agency provided full financing. (ii) The proposal will provide rental units in a colonia, tribal land, Rural Economic Area Partnership (REAP) community, Enterprise Zone or Empowerment Community (EZ/EC) or in a place identified in the state Consolidated Plan or a state needs assessment as a high need community for MFH. (iii) The proposal supports Agency initiatives announced in the NOFA. (iv) The proposal uses a donated site which meets the following conditions: (A) The site is donated by a state, unit of local government, public body or a nonprofit organization; (B) The site is suitable for the housing proposals and meets Agency requirements; (C) Site development costs do not exceed what they would be to purchase and develop an alternative site; (D) The overall cost of the MFH is reduced by the donation of the site; and (E) A return on investment is not paid to the borrower for the value of the donated site nor is the value of the site considered as part of the borrower's contribution. (2) The Agency will rank housing proposals based on their scoring. (i) When proposals have an equal score, preference will be given to Indian tribes as defined in § 3560.11 and local nonprofit organizations or public bodies whose principal purposes include low-income housing that meet the conditions of § 3560.55(c) and the following conditions. (A) Is exempt from Federal income taxes under section 501(c)(3) or 501(c)(4) of the Internal Revenue code; (B) Is not wholly or partially owned or controlled by a for-profit or limited-profit type entity; (C) Whose members, or the entity, do not share an identity of interest with a for-profit or limited-profit type entity; (D) Is not co-venturing with another entity; and (E) The entity or its members will not be receiving any direct or indirect benefits pursuant to LIHTC. (ii) A drawing will be held in the event of a tie score, first for proposals from applicants who meet the conditions of paragraph (c)(2)(i) of this section and next for proposals from applicants for which paragraph (c)(2)(i) of this section is not applicable. Each proposal will be numbered in the order in which it is drawn. (3) The Agency will request initial loan applications from parties who submitted the housing proposals with the highest ranking, taking into consideration available funds. The Agency will notify non-selected parties with the reasons for their non-selection, and the process that may be used to seek a review of the non-selection decision. (d) Processing initial loan applications. (1) A review of the preliminary plans and cost estimates, (2) A market feasibility review, (3) An Agency site visit to gather preliminary environmental information and determine that the proposed site meets the site requirements of § 3560.58, (4) A review of the Affirmative Fair Housing Marketing Plan, (5) An analysis of current credit reports in accordance with subpart R of this part; (6) A review of Civil Rights Impact Analysis in accordance with 7 CFR part 2006, subpart P, and (7) Completion of environmental review requirements in accordance with 7 CFR part 1970. (e) Processing order of initial loan applications. (f) Other assistance. (g) Proposal withdrawal or rejection. (h) Final applications. (i) Rural cooperative housing proposals. [69 FR 69106, Nov. 26, 2004, as amended at 81 FR 11049, Mar. 2, 2016; 89 FR 106980, Dec. 31, 2024] § 3560.57 Designated places for section 515 housing. (a) Establish a list of designated places. (1) Qualification as a rural area as defined in § 3560.11, (2) Lack of mortgage credit, and (3) Demonstrated need for MFH based on: (i) The incidence of poverty, (ii) The existence of substandard housing, (iii) The lack of affordable housing, and (iv) The following high need areas: (A) Places identified in the state Consolidated Plan or similar state plan or needs assessment report, (B) Indian reservations or communities located within the boundaries of tribal allotted or trust land, and (C) EZ/EC or REAP communities. (b) Establishing partnership designated place list. (c) Administrator's discretion. (d) Restrictions on loans in certain designated places. (i) The Agency has selected another MFH proposal in the designated place for processing. (ii) A previously funded Agency, the U.S. Department of Housing and Urban Development (HUD), low-income housing tax credit or other similar assisted MFH in the designated place has not been completed or has not reached projected occupancy levels. (iii) Existing assisted MFH in the designated place is experiencing high vacancy levels. (iv) A special note rent or other loan servicing tool is pending or in effect for other assisted housing in the designated place, or (v) The need in the market area is for additional rental assistance and not additional rental units. (2) Exceptions to the provisions in § 3560.57(d)(1) may be made: (i) When a group home is proposed for persons with disabilities in an area where the existing MFH is insufficient or unavailable for their needs; or (ii) There is a compelling need for additional MFH, for example when the units that have been approved or are under development represent only a small portion of the total units needed in the community. [69 FR 69106, Nov. 26, 2004, as amended at 80 FR 9912, Feb. 24, 2015] § 3560.58 Site requirements. (a) Location. (2) Agency-financed MFH must be located in residential areas as part of established rural communities, except as permitted in § 3560.58(b), and for farm labor housing units financed under sections 514 and 516, which may be developed in any area where a need for farm labor housing exists. (3) Communities in which Agency-financed MFH is located must have adequate facilities and services to support the needs of tenants. (4) Housing complexes will not be located in areas where there are undesirable influences such as high activity railroad tracks; adjacent to or near industrial sites; bordering sites or structures which are not decent, safe, or sanitary; or bordering sites which have potential environmental concerns such as processing plants. Sites which are not an integral part of a residential community and do not have reasonable access, either by location or terrain, to essential community facilities such as water, sewerage removal, schools, shopping, employment opportunities, medical facilities, may not be acceptable. Consistent with Federal law and Departmental Regulation, the Agency must conduct an environmental assessment and a civil rights impact analysis before a site can be accepted. Sites may be determined by the Agency to be unacceptable if any of the adverse conditions described in this paragraph exist. (b) Structures located in central business areas. (c) Site development costs and standards. (d) Densities. (1) Compatibility and consistency with the community in which the MFH is located; (2) Impact on the total development costs; and (3) Size sufficient to accommodate necessary site features. (e) Flood or mudslide-prone areas. (2) Sites located within the 100 year floodplain are not eligible for federal financial assistance unless flood insurance is available through the National Flood Insurance Program (NFIP). The Agency will complete Federal Emergency Management Agency (FEMA) Form 81-93, Standard Flood Hazard Determination, to document the site's location in relation to the floodplain and the availability of insurance under NFIP. § 3560.59 Environmental review requirements. Under the National Environmental Policy Act, the Agency is required to assess the potential impact of the proposed action on protected environmental resources. Measures to avoid or mitigate adverse impacts to protected resources may require a change in the site or project design. Therefore, a site cannot be approved until the Agency has completed the environmental review requirements in accordance with 7 CFR part 1970. Likewise, the applicant should be informed that the environmental review must be completed and approved before the Agency can make a commitment of resources to the project. [81 FR 11049, Mar. 2, 2016] § 3560.60 Design requirements. (a) Standards. (b) Residential design. (c) Economical construction, operation and maintenance. (1) Economical construction means construction that results in housing of at least average quality with amenities that are reasonable and customary for the community and necessary to appropriately serve tenants. (2) Economical operating and maintenance means housing with operational and maintenance costs that allow a basic rent structure less than or consistent with conventional rents for comparable units in the community or in a similar community except that when determined necessary by the Agency to allow for decent, safe and sanitary housing to be provided in market areas where conventional rents are not sufficient to cover necessary operating, maintenance, and reserve costs. Basic rents may be allowed to exceed comparable rents for conventional units, but in no case may the rent exceed 150% of the comparable rent for conventional unit rent level. (3) In meeting the Agency objective of economical construction, operation and maintenance, housing proposals must: (i) Contain costs without jeopardizing the quality and marketability of the housing; (ii) Employ life-cycle cost analyses acceptable to the Agency to determine the types of materials which will reduce overall costs by lowering operation and maintenance costs, even though their initial costs may be higher; and (iii) Provide assurances that costs will be reduced when the Agency determines that housing costs are not economical. If assurances cannot be provided, funding may be withdrawn. (4) The housing proposal will give maximum consideration to energy conservation measures and practices. (d) Accessibility. (1) For new construction of MFH, at least 5 percent of the units (but not less than one) must be constructed as fully accessible units to persons with disabilities. The Uniform Federal Accessibility Standards (UFAS) will be followed. Individual copies of these standards are available from the Architectural and Transportation Barriers Compliance Board, 1331 F Street, NW, Suite 1000, Washington, DC 20004-1111, Telephone: (202) 272-0080, TTY: (202) 272-0082, e-mail address: [email protected]. (2) For existing properties that do not have fully accessible units, the 5 percent requirement will apply when making substantial alterations as defined by UFAS. The UFAS defines substantial alteration as “alteration to any building or facility is to be considered substantial if the total cost for a twelve month period amounts to 50 percent or more of the full and fair cash value of the building * * *” UFAS further defines full and fair cash value as “the assessed valuation of a building or facility as recorded in the assessor's office of the municipality and as equalized at one hundred percent (100%) valuation, or the replacement cost, or the fair market value.” The 5 percent rule will also apply to repair or renovation work on a single unit. For instance, if a unit is damaged by fire and extensive repair is necessary, to the extent possible the unit is to be converted to a fully accessible unit. (3) The variety of bedroom quantities of fully accessible units will be comparable to the variety of bedroom quantities of units which are not fully accessible. Borrowers will not, however, be required to exceed the 5 percent requirement simply to have an accessible unit of each bedroom quantity. In addition, accessible units should be distributed throughout the complex so not to concentrate the units in one location. (4) All MFH must meet: (i) The accessibility requirements as contained in section 504 of the Rehabilitation Act of 1973; (ii) The requirements of the Fair Housing Amendments Act of 1988; (iii) The requirements of the Americans with Disabilities Act of 1990, as applicable; and (iv) All other Federal, State, and local requirements. When architectural standards differ, the most stringent standard will be followed. (e) Applicable codes and standards. [69 FR 69106, Nov. 26, 2004, as amended at 89 FR 103630, Dec. 19, 2024] § 3560.61 Loan security. (a) General. (b) Lien position. (2) The Agency will seek a first or parity lien on revenue from rent; Agency, HUD, state or private rental subsidy payments; chattels; assignments; and operating and reserve accounts. The Agency will accept a junior lien position if the Federal Government's interests are adequately secured. (c) Liability. (d) Housing and land ownership. (1) A recorded mortgage on the improvements is given as collateral. (2) The amount of the loan against the collateral does not exceed its estimated security value. (3) The unexpired term of the lease on the date of loan closing is at least 50 percent longer than the term of the loan and rent charged for the lease does not exceed the rate being paid for similar leases in the area. (4) The applicant's leasehold interest is not subject to summary foreclosure or cancellation. (5) The lease permits: (i) The Agency to foreclose the mortgage and to transfer the lease; (ii) The Agency to bid at a foreclosure sale or to accept voluntary conveyance of the security in lieu of foreclosure; (iii) The Agency to occupy the property, sublet the property, or sell the leasehold for cash or credit if the leasehold is acquired through foreclosure, if the Agency accepts voluntary conveyance in lieu of foreclosure, or if the borrower abandons the property; and (iv) The applicant, in the event of default or inability to continue with the lease and the loan, to transfer the leasehold subject to the mortgage to a transferee that will assume the property ownership obligations. § 3560.62 Technical, legal, insurance, and other services. (a) Legal services. (b) Title clearance. (c) Architectural services. (d) Insurance. (1) Applicants must have property and liability coverage at loan closing as well as flood insurance, if required by the Agency. (2) Fidelity coverage must be in force as soon as there are assets within the organization, and it must be obtained before any loan funds or interim financing funds are made available to the borrower. (3) If the property has permanent and/or part-time employees assigned directly to the project, Worker's Compensation, also known as employer's liability coverage, must be obtained before interim financing funds are made available to the borrower, or prior to loan or grant closing, whichever occurs first. (4) Upon completion of construction or rehabilitation of the project, or any portion thereof that allows for occupancy, the Owner shall obtain business income loss insurance. (e) Surety bonding. [69 FR 69106, Nov. 26, 2004, as amended at 91 FR 20867, Apr. 20, 2026] § 3560.63 Loan limits. (a) Determining the security value. (1) Total development cost must be calculated excluding costs not considered allowable under § 3560.54(a), and excluding costs related to compliance with the Uniform Relocation Assistance and Real Property Acquisition Act of 1970. (2) The appraisal, which will determine the market value, subject to restricted rents, will be obtained by the Agency and conducted in accordance with subpart P of this part. (b) Limitations on loan amounts. (1) For all loan applicants who will receive benefits from the low-income housing tax credit program, the amount of Agency financing for the housing will not exceed 95 percent of the security value available for the Agency loan. (2) For all loan applicants who will not receive low-income housing tax credit benefits and who are comprised solely of nonprofit organizations, consumer cooperatives, or state or local public agencies, the amount of the loan will be limited to the security value available for the Agency loan, plus the 2 percent initial operating capital and any necessary relocation costs incurred. (3) For all other loan applicants who will not receive low-income housing tax credit benefits, the loan amount will be limited to no more than 97 percent of the security value available for the Agency loan. (c) Equity contribution. (1) Loan applicants who will receive benefits from the low-income housing tax credit program must make an equity contribution in the amount of 5 percent of the Agency loan. The maximum Agency loan will be determined in accordance with § 3560.63(b). (2) Loan applicants who will not receive benefits from the low-income housing tax credit program and are not nonprofit organizations, consumer cooperatives, or state or local public agencies must make an equity contribution in the amount of 3 percent of the Agency loan. The maximum Agency loan will be determined in accordance with § 3560.63(b). (d) Review of assistance from multiple sources. (1) Determining minimum assistance. (2) Developer's fee. (e) Limits on equity loans. (f) Cost overruns. (2) After loan approval, the Agency will only approve cost increases for housing proposals involving new construction or major rehabilitation when the additional costs will not cause the limits specified in § 3560.53(l) or the maximum debt limit to be exceeded and the cost increases were caused by: (i) Unforeseen factors that are determined by the Agency to be beyond the borrower's control; (ii) Design changes required by the Agency, state, or the local government; or (iii) Financing changes approved by the Agency. § 3560.64 Initial operating capital contribution. Borrowers are required to make an initial operating capital contribution to the general operating account in the amount of at least 2 percent of the total development cost or appraised value, whichever is less. (a) Borrowers that are nonprofit organizations, consumer cooperatives, or state or local public agencies and are not receiving low-income housing tax credits, may use loan funds for their initial operating capital contribution. All other borrowers must fund the initial operating capital contribution from their own resources. (b) Borrowers must provide to the Agency for approval a list of materials and equipment to be funded from the general operating account for initial operating expenses. As specified in § 3560.304(b), initial operating capital may be used only to pay for approved budgeted expenses. If total initial operating expenses exceed 2 percent, the additional amount must be paid by the borrower from its own resources, except that borrowers meeting the provisions of § 3560.64(a) who do not have sufficient resources for this purpose may request Agency assistance. Withdrawals from the reserve account will not be approved for such expenses. (c) Borrowers must provide the Agency with documentation of their initial operating capital contribution deposited into the general operating account prior to the start of construction or loan closing, whichever comes first, and such funds thereafter, may only be used for authorized budgeted purposes. (d) If the conditions specified in § 3560.304(c) are met, funds contributed as initial operating capital may be returned to the borrower. § 3560.65 Reserve account. (a) For new construction, to meet major capital expenses of a housing project, applicants must establish and fund a reserve account that meets the requirements of § 3560.306. The applicant must agree to make monthly contributions to the reserve account pursuant to a reserve account analysis which sets forth how the reserve account funds will meet the capital needs of the property over an acceptable 20-year period. The reserve account analysis is based on either a Capital Needs Assessment or life cycle cost analysis, provided and acceptable to Rural Development by the applicant. Adjustments may be made to the contribution amount at 5 or 10-year intervals, either through an updated Capital Needs Assessment or as part of the original life cycle cost analysis. The cost of conducting either a Capital Needs Assessment or life cycle cost analysis will be paid for by the applicant. The cost of the initial Capital Needs Assessment or life cycle cost analysis may be included in the loan financing. (b) For ownership transfers or sales, the requirements of § 3560.406(d)(5) will be met. (c) For other existing properties, at a minimum the borrower must agree to make monthly contributions to the reserve account at the rate of 1 percent annually of the amount of total development cost until the reserve account equals 10 percent of the total development cost. (d) The agency may establish an escrow account for the collection and disbursement of reserve account funds. [77 FR 40255, July 9, 2012, as amended at 87 FR 11280, Mar. 1, 2022] § 3560.66 Participation with other funding or financing sources. (a) General requirements. (1) The Agency will enter into a participation (or intercreditor) agreement with the other participants that clearly defines each party's relationship and responsibilities to the others. (2) The rental units that will serve tenants eligible for housing under the Agency's income standards must meet Agency standards and the number of units that will serve the Agency's tenants are at least equal to the units financed by the Agency. (3) All rental units must be operated and managed in compliance with the requirements of the Agency and the other sources. To the extent these requirements overlap, the most stringent requirement must be met. The Agency may negotiate the resolution of overlapping requirements on a case-by-case basis; however, at a minimum, Agency requirements must be met. (4) If the number of units subject to the LIHTC rent and income restrictions is greater than the number of units projected to receive Agency rental assistance (RA) or similar tenant subsidy, the market feasibility documentation must clearly reflect a need and demand by LIHTC income-eligible households financially able to afford the projected rents without such a subsidy for the units not receiving RA or similar tenant subsidy. (b) Rental assistance. (1) The Agency's loan equals at least 25 percent of the housing's total development cost. (2) The rental assistance is provided only to those rental units where the basic rents do not exceed what basic rents would have been had the Agency provided full financing. (3) The provisions of subpart F of this part are met. (c) Security requirements. (d) Reserve requirements. (e) Design requirements. (1) The non-Agency-financed common facility's operating and maintenance costs must be paid through collection of a user fee from residents who use the facility, (2) The non-Agency-financed common facility must be designed and operated with appropriate safeguards for the health and safety of tenants, and (3) The facility must be fully available and accessible to all tenants. § 3560.67 Rates and terms for section 515 loans. Rates and terms for farm labor housing loans are found in subpart L of this part for Off-Farm and subpart M of this part for On-Farm. (a) Interest. (b) Interest credit. (c) Amortization period and term. (2) Loans for manufactured housing will be amortized and paid over a term not to exceed 30 years as specified in § 3560.70(c). § 3560.68 Permitted return on investment (ROI). (a) Permitted return. (b) Calculation of permitted return. (1) Proceeds received by the borrower from the syndication of low-income housing tax credit and contributed to the MFH project may be considered funds from the borrower's own resources for the portion of the proceeds which exceeds: (i) The allowable developer's fee determined by the state agency administering the low-income housing tax credit, and (ii) The borrower's expected contribution to the transaction, as determined by the state agency administering the low-income housing tax credit. (2) A building site contributed by the borrower will be appraised by the Agency to determine its market value. A return may not be allowed on the amount above the equity contribution required by § 3560.63(c) if the market value as determined by the Agency, when added to the loan and grant amounts from all sources, exceeds the security value of the MFH project as specified in § 3560.63(a). (c) Return on additional investment. (d) Compensation to nonprofit organizations. § 3560.69 Supplemental requirements for congregate housing and group homes. (a) General. (b) Design criteria. (c) Services. (1) For congregate housing, the resident services plan must address how the following services will be provided or made available: (i) One cooked meal per day, seven days per week; (ii) Transportation to and from the property; (iii) Assistance in housekeeping; (iv) Personal services; (v) Recreational and social activities; and (vi) Access to medical services. (2) For group homes, the resident services plan must address how access to the following services will be provided or made available: (i) A common kitchen in which to prepare meals; (ii) Transportation; (iii) Nearby recreational and social activities which may be coordinated by the resident assistant, if applicable; and (iv) Medical services as necessary. (d) Necessary items. (e) Association with other organizations. (f) Market feasibility documentation. (1) Must address the need for housing with services and include information concerning alternative service providers; (2) Must contain demographic information pertaining to the population that is to be served by the congregate housing or group home project; and (3) May consider an expanded market area that includes nondesignated places, but the facility must be located in a designated place. (g) Rental assistance for group homes. § 3560.70 Supplemental requirements for manufactured housing. (a) Design requirements. (b) Eligible properties. (1) A housing proposal may include the purchase of the real property with existing manufactured housing which will be redeveloped with the placement of new manufactured homes. (2) A housing proposal may include the rehabilitation of existing manufactured housing only if the units to be rehabilitated are currently financed by the Agency. The proposal will include the results of the applicant's consultation with the manufacturer to determine if the proposed rehabilitation work will affect the structural integrity of the unit and, if so, the statement will include an explanation as to how. (c) Terms. (d) Security. (e) Special warranty requirements. (1) The warranty must establish that the manufactured homes, foundations, positioning and anchoring of the units to their permanent foundations, and all contracted improvements, are constructed in conformity with applicable approved plans and specifications. (2) The warranty must include provisions that the manufactured homes sustained no hidden damage during transportation and, for double-wide units, that the sections were properly joined and sealed. (3) The general contractor or dealer contractor must warrant that the manufacturer's warranty is in addition to and does not diminish or limit all other warranties, rights, and remedies that the borrower or lender may have. (4) The seller of the manufactured homes must deliver to the borrower the manufacturer's warranty with an additional copy for RHS. The warranty must identify the units by serial number. § 3560.71 Construction financing. (a) Construction financing plan. (b) Interim financing. (1) The Agency reserves the right to review and approve the interim financing arrangements proposed by the applicant. (2) When interim financing is used, the Agency will obligate the funds and provide an interim financing letter to the lender that will confirm the procedures and conditions for the construction financing. The take-out loan will be closed and the interim lender paid off when the conditions of the interim financing letter have been met. (3) The applicable provisions of 7 CFR part 1924, subpart A will be used to monitor the construction. (4) An environmental review in accordance with 7 CFR part 1970 must be completed prior to issuance of the interim financing letter. (c) Multiple advances. (1) The Agency will review and approve the multiple advances proposed by the borrower. (2) When multiple advances are used, the Agency will close the loan prior to any advancement of funds and the relevant provisions of 7 CFR part 1924, subpart A will be used to monitor the construction. (3) The loan check will be handled in accordance with 7 CFR part 1902, subpart A. [69 FR 69106, Nov. 26, 2004, as amended at 81 FR 11049, Mar. 2, 2016] § 3560.72 Loan closing. (a) Requirements. (1) Provide evidence that an Agency-approved accounting system is in place; (2) Execute a restrictive-use contract acceptable to the Agency that establishes the borrower's obligation to operate the housing for program purposes for the term of the Agency loan; (i) For all section 514 loans, except as provided in § 3560.621, made pursuant to a contract entered into on or after the effective date of this regulation, the following language will be included in the mortgage and deed of trust: “The borrower and any successors in interest agree to use the housing for the purpose of housing people eligible for occupancy as provided in sections 514 and 516 of title V of the Housing Act of 1949, and Rural Housing Service regulations then in effect. The restrictions are applicable for a term of 20 years from the date on which the last loan was closed. No eligible person occupying the housing will be required to vacate nor any eligible person denied occupancy for housing prior to the close of such period because of a prohibited change in the use of the housing. A tenant or person wishing to occupy the housing may seek enforcement of this provision as well as the Government.” (ii) All other loans are subject to restrictive-use provisions as outlined in subpart N of this part. (3) Provide evidence that construction financing arrangements are adequate when interim financing is going to be used; (4) Provide evidence that all the funds from other sources as proposed in the application are available and that there have been no changes in the Sources and Uses Comprehensive Evaluation (SAUCE). (5) Provide evidence of the title to all security required by the Agency; (6) Provide a certification that all construction in the case of interim financing has been or, in the case of multiple advances, will be paid; (7) Provide, in the case of interim financing, a dated and signed statement from the owner's architect certifying to substantial completion of the housing project; (8) Provide a certification that all construction in the case of interim financing has been or, in the case of multiple advances, will be in accordance with the plans and specifications concurred in by the Agency; (9) Provide evidence, if applicable, that the conditions of the interim financing letter have been met; and (10) Attend a pre-occupancy conference with the Agency. (b) Cost certification. (c) Notification of loan cancellation. [69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11280, Mar. 1, 2022] § 3560.73 Subsequent loans. (a) Applicability. (b) Application requirements and processing. (c) Amortization and payment period. (d) Equity contribution. (1) Excess initial investment on an initial loan may be credited toward the required investment on a subsequent loan. (2) An initial operating capital contribution to the general operating account as described in § 3560.64 is required for a subsequent loan approved under the conditions set in § 3560.63(f) to complete housing construction but is not required for a subsequent loan to repair or improve existing housing. (e) Environmental review requirements. (f) Design requirements. (g) Architectural services. (1) Enclosed space is being added, (2) When required by state law, and (3) When the Agency determines that the work being proposed requires architectural services. (h) Restrictive-use requirements. (i) Designation changes from rural to nonrural. (j) Agency's discretion. [69 FR 69106, Nov. 26, 2004, as amended at 81 FR 11049, Mar. 2, 2016] § 3560.74 Loan for final payments. (a) Use. (b) Requirements. (1) It is more cost efficient and serves the tenant base more effectively to maintain existing MFH than to build another property in the same location; or (2) The MFH has been maintained to such an extent that it can be expected to continue providing affordable, decent, safe and sanitary housing for 20 years beyond the date of the loan to finance a final payment; and (3) Funds are available. (c) Term. §§ 3560.75-3560.99 [Reserved] § 3560.100 OMB control number. The information collection requirements contained in this regulation have been approved by the Office of Management and Budget (OMB) and have been assigned OMB control number 0575-0189. Public reporting burden for this collection of information is estimated to vary from 15 minutes to 18 hours per response, including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. A person is not required to respond to a collection of information unless it displays a currently valid OMB control number. Subpart C—Borrower Management and Operations Responsibilities § 3560.101 General. This subpart sets forth borrower obligations regarding management and operations of multi-family housing (MFH) projects financed by the Agency. As noted in § 3560.6, the borrower requirements listed in this subpart must be complied with by the borrower. The borrower may designate in writing a person to act as the borrower's authorized agent. § 3560.102 Housing project management. (a) General. (b) Management plan. (c) Management plan effective period. (1) Borrowers must submit an updated management plan to the Agency if operations change or are no longer consistent with the management plan on file with the Agency. (2) When there are no changes in operations, borrowers must submit a certification to the Agency every 3 years stating that operations are consistent with the management plan and the plan is adequate to assure compliance with the loan and grant documents and Agency requirements or applicable local, state and Federal laws. (3) If the Agency determines that operations are in compliance with Agency requirements, loan or grant agreements, or applicable local, state, and Federal laws, but are not consistent with the management plan, the Agency will require the borrower to: (i) Revise the management plan to accurately reflect housing operations; (ii) Take actions to ensure the management plan is followed; or (iii) Advise the Agency in writing of the action taken. (4) When a housing project is being transferred from one borrower to another, the transferee must submit a management plan that addresses the required items identified in paragraph (b)(1) of this section in sufficient detail to enable the Agency to give final approval of the transfer. (d) Housing projects with compliance violations. (1) Revisions to the management plan establishing the changes in housing operations that will be made to restore compliance; (2) If the borrower determines the compliance violations were due to a failure to follow the management plan, the borrower must certify to the Agency that the management plan is adequate to assure compliance with the applicable requirements of this part and submit a written description of the actions they will take to ensure the management plan is followed; or (3) If the Agency discovers continued discrepancies between a management plan and housing project operations or compliance violations, the Agency may require the borrower to install a different management agent acceptable to the Agency as described in paragraph (e) of this section. (e) Acceptable management agents. (1) Borrowers must submit a written request for Agency approval of the proposed management agent at least 45 days prior to the date the agent is to assume responsibility for operations. This request must include a profile of the proposed management agent that provides sufficient information to allow the Agency to evaluate whether the agent is acceptable. (2) The Agency will deny approval of any proposed management agent that cannot provide evidence of at least two years of experience and satisfactory performance in directing and overseeing the management of similar federally-assisted MFH. (3) The Agency may issue approval of a management agent that does not meet the requirements of § 3560.102(e)(2) if the management agent can provide evidence that indicates the ability to successfully manage a MFH project in accordance with Agency requirements. (4) If a borrower enters into an agreement with a management agent or begins to self-manage prior to receiving Agency approval, the Agency will place the borrower in non-monetary default status and will require the borrower to immediately terminate the contract with the management agent. (f) Self-management. (g) Identity-of-interest disclosure. (1) This disclosure must include any identity-of-interest relationships between: (i) The borrower and the management agent; (ii) The borrower or management agent and the providers of supplies and services to the housing project; (iii) The borrower or the management agent and employees of anyone listed in paragraphs (g)(1)(i) and (ii) of this section; (iv) Any borrower's entity control, or interest held or possessed by a person's spouse, parent, child, grandchild, or sibling or other relation by blood or marriage is attributed to that person for the determination under this paragraph (g)(1). (2) Failure to disclose such relationships may subject the borrower, the management agent, and the other firms or employees found to have an identity of interest relationship to suspension, debarment, or other remedies available to the Agency. (3) After disclosure of an identity-of-interest relationship: (i) The borrower, management agent, and supplier of goods and services must provide documentation proving that use of identity-of-interest firms is in the best interest of the housing project; (ii) Any supplier of goods and services must certify in writing to the Agency that the individual or organization has a viable, on-going trade or business qualified and licensed, if appropriate, to do the work for which a contract is being proposed; (iii) The borrower, management agent, and supplier of goods and services must agree, in writing, that all records related to the housing project will be made available to the Agency, Office of the Inspector General (OIG), General Accountability Office (GAO), or a representative of the Agency, upon request; and (iv) The Agency will deny the use of an identity-of-interest firm when the Agency determines such use is not in the best interest of the Federal Government or the tenants. (h) Management agreement. (1) The management agent's responsibility to comply with Agency requirements and local, state, and Federal laws; (2) That the management fee is payable out of the housing project's general operating account consistent with the requirements of paragraph (i) of this section; and (3) The Agency's authority to terminate the agreement for failure to operate the housing project in accordance with Agency requirements or local, state, or Federal laws. (i) Management fees. (1) The management fee may compensate the management entity for the following costs and services: (i) Supervision by the management agent and its staff (time, knowledge, and expertise) of overall operations and capital improvements of the site. (ii) Hiring, supervision, and termination of on-site staff. (iii) General maintenance of project books and records (general ledger, accounts payable and receivable, payroll, etc.). Preparation and distribution of payroll for all on-site employees, including the costs of preparing and submitting all appropriate tax reports and deposits, unemployment and workers' compensation reports, and other IRS- or state-required reports. (iv) In-house training provided to on-site staff by the management company. (v) Preparation and submission of proposed annual budgets and negotiation of approval with the Agency. (vi) Preparation and distribution of the Agency forms and routine financial reports to borrowers. (vii) Preparation and distribution of required year-end reports to the Agency. (viii) Preparation of requests for reserve withdrawals, rent increases, or other required adjustments. (ix) Arranging for preparation by outside contractors of utility allowance analysis. (x) Preparation and implementation of Affirmative Fair Housing Marketing Plans as well as general marketing plans and efforts. (xi) Review of tenant certifications and submission of monthly rental assistance requests, and overage. Submission of payments where required. (xii) Preparation, approval, and distribution of operating disbursements; oversight of project receipts; and reconciliation of deposits. (xiii) Overhead of management agent, including: (A) Establish, maintain, and control an accounting system sufficient to carry out accounting supervision responsibilities. (B) Maintain agent office arrangements, staff, equipment, furniture, and services necessary to communicate effectively with the properties, to include consultation and support to site-staff, the Agency and with the borrowers. (C) Postage expenses unrelated to site operation. (D) Expense of telephone and facsimile communication, unrelated to site operations. (E) Direct costs of insurance (fidelity bonds covering central office staff, computer and data coverage, general liability, etc.) directly related to protection of the funds and records of the borrower. Insurance coverage for agent's office and operations (Property, Auto, Liability, Errors and Omissions, Casualty, Workers Compensation, etc.). (F) Central office staff training and ongoing certifications. (G) Maintenance of all required profession and business licenses and permits. (This does not include project site office permits or licenses.) (H) Travel of agent staff to the properties for on-site inspection, training, or supervision activities. (I) Agent bookkeeping for their own business. (xiv) Attendance at meetings (including travel) with tenants, owners, and the Agency or other governmental agency. (xv) Development, preparation, and revision of management plans, agreements, and management certifications. (xvi) Directing the investment of project funds into required accounts. (xvii) Maintenance of bank accounts and monthly reconciliations. (xviii) Preparation, request for, and disbursement of borrower's initial operating capital (for new projects) as well as administration of annual owner's return on investment. (xix) Account maintenance, settlement, and disbursement of security deposits. (xx) Working with auditors for initial Agency annual financial reports. (xxi) Storage of records, to include electronic records, and adherence to records retention requirements. (xxii) Assist on-site staff with tenant relations and problems. Provide assistance to on-site staff in severe actions (eviction, death, insurance loss, etc.). (xxiii) Oversight of general and preventive maintenance procedures and policies. (xxiv) Development and oversight of asset replacement plans. (xxv) Oversight of preparation of section 504 reviews, development of plans, and implementation of improvements necessary to comply with plans and section 504 requirements. (2) Management fees may consist of a base per occupied revenue producing unit fee and add-on fees for specific housing project characteristics. Management entities may be eligible to receive the full base per occupied unit fee for any month or part of a month during which the unit is occupied. (i) Periodically, the Agency will develop a range of base per occupied unit fees that will be paid in each state. The Agency will develop the fees based on a review of housing industry data. The final base for occupied unit fees for each state will be made available to all borrowers. (ii) Periodically, the Agency will develop the amount and qualifications to receive add-on fees. The final set of qualifications will be made available to all borrowers. (3) Management plans and agreements must describe if administrative expenses are to be paid from the management fee or paid for as a project cost. (i) A task list should be used to identify which services are included in the management fee, which services are included in project operations, and which are pro-rated along with the methodology used to pro-rating of expenses between management agent fees and project operations. Some property responsibilities are completed at the property and some offsite. Agent responsibilities may be performed at the property, the management office, or at some other location. (ii) Disputes may arise as to who performs certain services. The management plan and job descriptions should normally provide sufficient clarity to avoid or resolve any such disputes; however, sometimes clarifications and supporting materials may be required to resolve disputes. The decision must be made based on the most complete evaluation of the facts presented. (j) Management certification. (i) Borrowers and management agent agree to operate the housing project in accordance with the management plan; (ii) Borrowers and the management agent will comply with Agency requirements, loan or grant agreements, applicable local, State, Tribal, and Federal laws and ordinances, and contract obligations, will certify that no payments have been made to anyone in return for awarding the management contract to the management agent, and will agree that such payments will not be made in the future; (iii) Borrowers and the management agent will comply with Agency notices or other policy directives that relate to the management of the housing project; (iv) Management agreement between the borrower and management agent complies with the requirements of this section; (v) Allowable management fees are assessed and paid out of the housing projects' general operating account. Borrowers and management agents will comply with Agency requirements regarding management fees as specified in paragraph (i) of this section, and allocation of management costs between the management fee and the housing project financial accounts specified in § 3560.302(c)(3); (vi) The borrower and the management agent will not purchase goods and services from entities that have an identity-of-interest (IOI) with the borrower or the management agent until the IOI relationship has been disclosed to the Agency according to paragraph (g) of this section, not denied by the Agency under paragraph (d)(3) of this section, and it has been determined that the costs are as low as or lower than arms-length, open-market purchases; and (vii) The borrower and the management agent agree that all records related to the housing project are the property of the housing project and that the Agency, OIG, or GAO may inspect the housing records and the records of the borrower, management agent, and suppliers of goods and services having an IOI with the borrower or with a management agent acting as an agent of the borrower upon demand. (2) A certification will be executed each time new management is proposed and/or a management agreement is executed or renewed. Any amendment to a management certification must be approved by the Agency and the borrower. (k) Procurement. (l) Electronic Submission of Data to Agency. [69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11280, Mar. 1, 2022] § 3560.103 Maintaining housing projects. (a) Physical maintenance. (i) Provide decent, safe, and sanitary housing; and (ii) Maintain the security of the property. (2) Borrowers are responsible for the long-term, cost-effective preservation of the housing project. (3) At all times, borrowers must maintain housing projects in compliance with local, state and federal laws and regulations and according to the following Agency requirements for affordable, decent, safe, and sanitary housing. Agency design requirements are discussed in § 3560.60. The Agency acknowledges that property maintenance is an ongoing process and will not penalize borrowers for less than 100 percent compliance as long as it is evident that the borrower is striving to achieve the standards listed in this paragraph. In addition, the Agency understands that although its multifamily housing portfolio is relatively homogeneous, no one standard is appropriate for all properties. (i) Utilities. (ii) Drainage and erosion control. (iii) Landscaping and grounds. (iv) Drives, parking services and walks. 1/2 (v) Exterior signage. (vi) Fences and retaining walls. (vii) Debris and graffiti. (viii) Lighting. (ix) Foundation. (x) Exterior walls and siding. (xi) Roofs, flashing, and gutters. (xii) Windows, doors, and exterior structures. (xiii) Common area accessibility. (xiv) Common area signage. (xv) Flooring. (xvi) Walls, floors, and ceilings. (xvii) Doors and windows. (xviii) Electrical, air conditioning and heating. (xix) Water heaters. (xx) Smoke alarms. et seq. (A) Dwelling units built before December 29, 2022, and not substantially rehabilitated after December 29, 2022, smoke alarms must: ( 1 ( 2 ( i ( ii ( iii ( 3 et seq. (B) Dwelling units built or substantially rehabilitated after December 29, 2022; smoke alarms must be hardwired. (xxi) Emergency call system. (xxii) Insect or vermin infestation. (xxiii) Range and range hood. (xxiv) Refrigerator. (xxv) Sinks. (xxvi) Cabinets. (xxvii) Water closets. (xviii) Bathtub and shower stalls. (4) The Agency expects that upon discovery of a condition not in compliance with the standards listed in this section that the borrower will remedy the situation in a timeframe required by the Agency. The Borrower must provide documentation and justification for any failure to meet such timeframe. Properties with deficiencies in the process of being addressed will not be deemed to be out of compliance unless there are so many deficiencies that it would result in a declaration of substantial noncompliance and call into questions the viability of the property and the effectiveness of the borrower's maintenance program. Failure to make such corrections or repairs constitutes a non-monetary default under § 3560.452(e). (b) Maintenance systems. (1) A system for routine maintenance, including: (i) Regular maintenance tasks that can be prescheduled or planned; and (ii) Tasks performed on a regular basis to maintain compliance with the standards established in paragraph (a)(3) of this section. (2) A system for responsive maintenance including: (i) A process for responding to requests for maintenance from tenants; (ii) A process for responding to unexpected malfunctions of equipment or damages to building systems such as a furnace breakdown or a water leak; and (iii) A “work order” process for managing and tracking responses to maintenance requests and the performance of maintenance tasks. (3) A system for preventive maintenance including: (i) Maintenance of mechanical systems, building exteriors, elevators, and heating and cooling systems which require specially trained personnel; and (ii) Maintenance that supports energy-efficient operation of the housing project. (4) A system for correcting deficiencies identified by periodic inspections, which must include: (i) A move-in inspection; (ii) A move-out inspection; and (iii) An annual inspection of occupied units. (c) Capital budgeting and planning. (2) If the borrower requests an increase in the project's reserve for replacement account, the borrower must have a capital needs assessment prepared and submitted to the Agency to reflect anticipated needs of the housing project for replacement of capital equipment and systems. The cost for preparation of a capital needs assessment will be approved by the Agency as an eligible housing project expense provided the capital needs assessment is reasonable in cost and meets Agency requirements. (3) [Reserved] (4) As a part of the annual budget process, borrowers may request an increase in the amount to be contributed and held in the housing project reserve account to fund the needs identified in an Agency-approved capital needs assessment. (5) At any time, borrowers may request and the Agency may approve amendments to loan or grant documents to increase the amount of funds to be contributed and held in a reserve account to cover the cost of capital improvements based on the needs identified in an Agency approved capital needs assessment. Borrowers must assure improvements are performed as specified in the capital needs assessment. [69 FR 69106, Nov. 26, 2004, as amended at 89 FR 103630, Dec. 19, 2024] § 3560.104 Fair housing. (a) General. (b) Affirmative Fair Housing Marketing Plan. (2) Loan or grant applicants must submit an AFHMP for Agency approval prior to loan closing or grant approval. Plans must be updated by the borrower whenever components of the plan change. (3) Borrowers must post the approved AFHMP for public inspection at the housing project site, rental office, or at any other location where tenant applications for the project are received. (4) When developing the plan, the following items must be considered by the borrower: (i) Direction of marketing activities. (ii) Marketing program. (A) Advertising. 1 Frequency. ( 2 Posters, brochures, etc. (B) Community contacts. (C) Rental staff. (iii) Marketing records. (c) Accommodations and communication. (1) Furnish appropriate auxiliary aids (electronic, mechanical, or personal assistance) where necessary, to afford an individual with disabilities an equal opportunity to participate in and enjoy the benefits of Agency financed housing. (i) In determining what auxiliary aids are necessary, the borrower must give primary consideration to the requests of individuals with disabilities. (ii) The borrower is not required to provide individually prescribed devices, readers for personal use or study, or other devices of a personal nature. (2) Where a borrower communicates with applicants and tenants by telephone, telecommunication devices for deaf persons or equally effective communication systems must be available for use. (3) The borrower must implement procedures to ensure that interested persons, including persons with impaired vision or hearing, can obtain information concerning the existence and location of accessible services, activities, and facilities in the housing project and community. (4) The borrower is required to provide reasonable accommodations at the project's expense unless doing so would result in undue financial or administrative burden on the project. Examples of reasonable accommodations may include such items as the installation of grab bars, ramps, and roll-in showers. Reasonable accommodations may also include the modification of rules or policies such as permitting a disabled tenant to have a two-bedroom unit to accommodate a resident assistant or to permit a disabled tenant to have a companion animal. The decision whether the requested accommodation is reasonable or unreasonable or whether to provide the accommodation would cause an undue financial or administrative burden lies with the borrower and would be for the borrower to defend should a complaint subsequently be filed. Borrowers may wish to consult with their legal counsel prior to denying a request. If the borrower takes the position that providing an accommodation would cause an undue financial or administrative burden, the borrower must permit the tenant to make reasonable modifications at the tenant's expense. Requests for reasonable accommodations must be handled in accordance with the management plan. (d) Housing sign requirements. (i) Must be located at the primary site entrance and be readable and recognizable from the roadside; (ii) Must be located near the site manager's office when the housing project has multiple sites and portable signs must be placed where vacancies exist at other site locations of a “scattered site” housing project; (iii) May be of any shape; (iv) Must be not less than 16 square feet of area for housing projects with 8 or more rental units (smaller housing projects may have smaller signs); (v) Must be made of durable material including its supports; (vi) Must include the housing project name; (vii) Must show rental contact information including but not limited to the office location of the housing project and a telephone number where applicant inquiries may be made; (viii) Must show either the equal housing opportunity logotype (the house and equal sign, with the words equal housing opportunity underneath the house); the equal housing opportunity slogan “equal housing opportunity”; or the equal housing opportunity statement, “We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the nation. We encourage and support an affirmative advertising and marketing program in which there are no barriers to obtaining housing because of race, color, religion, sex, handicap, familial status, or national origin.” If the logotype is used, the size of the logo must be no less than 5 percent of the total size of the project sign. (ix) May display the Agency or Department logotype; and (x) Must comply with state and local codes. (2) Accessible parking spaces must be reserved for individuals with disabilities by a sign showing the international symbol of accessibility. The sign must be mounted on a post at a height that is readily visible from an occupied vehicle. In snow areas, the sign must be visible above piled snow. If there is an office, the designated parking space must be van accessible. (3) When the continuous unobstructed ingress or egress disabled accessibility route to a primary building entrance is other than the usual or obvious route, the alternate route for disabled accessibility must be clearly marked with international accessibility symbols and directional signs to aid a disabled person's ingress or egress to the building, through an accessible entrance, and to the accessible common use and public and living areas. [69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11281, Mar. 1, 2022] § 3560.105 Insurance and taxes. (a) General. (b) General insurance requirements. (1) On or prior to the date of loan or grant closing, applicants must provide documentary evidence that insurance requirements have been met. The borrower must maintain insurance in accordance with the requirements of their loan or grant documents and this section until the loan is repaid or the terms of the grant expire. If interim financing is obtained or the Agency provides for multiple advances for construction or rehabilitation, evidence of builder's risk insurance is required prior to the start of construction or rehabilitation. (2) Insurance companies must meet the requirements of paragraph (e) of this section. (3) Insurance coverage amount, terms, and conditions must meet the requirements of paragraph (f) of this section. (4) The Agency must be named as loss co-payee or mortgagee as it appears on all property insurance policies. (c) Borrower failure or inability to meet insurance requirements. (1) The Agency will obtain insurance for Agency financed property if the borrower fails to do so. If borrowers refuse to pay the insurance premium, the Agency will pay the insurance premium and charge the premium payment amount to the borrower's Agency account and will place the borrower in default as described in § 3560.452(c). (2) If borrowers habitually fail to pay premiums in a timely manner, the Agency will require borrowers to escrow amounts appropriate to pay insurance premiums. (3) If insurance that meets the Agency's specified requirements is not available (e.g., flood or hurricane insurance), the Agency may accept the insurance policy that most nearly conforms to established requirements. (4) If the best insurance policy a borrower can obtain at the time the borrower receives the loan or grant contains a loss deductible clause greater than that allowed by paragraph (f)(9) of this section, the insurance policy and an explanation of the reasons why more adequate insurance is not available must be submitted to the Agency for approval prior to the date of loan or grant closing. (d) Credits, refunds, or rebates. (e) Insurance company requirements. (1) Be licensed or authorized to do business in the state or jurisdiction where the housing project is located; and (2) Be deemed reputable and financially sound as determined by the Agency. (f) Property insurance. (1) At a minimum, borrowers must obtain the following types of property insurance: (i) Hazard insurance. (ii) Flood insurance. (iii) Builder's risk insurance. (iv) Elevators, boiler, and machinery coverage. (v) Business income loss. (2) Other types of insurance that the Agency may require: (i) Windstorm Coverage if specifically excluded from the All-Risk policy. (ii) Earthquake Coverage. (iii) Sinkhole Insurance or Mine Subsidence Insurance. (3) For property insurance, the minimum coverage amount must equal the “Total Estimated Reproduction Cost of New Improvements,” as reflected in the housing project's most recent appraisal. At a minimum, property insurance coverage must not be less than 80 percent of the insurable replacement cost value, unless such coverage is financially unfeasible for the housing project, as determined by the Agency. (i) If the cost of the minimum level of property insurance coverage exceeds what the housing project can reasonably afford, the borrower, with Agency concurrence, must obtain the maximum amount of property insurance coverage that the housing project can afford. (ii) When required by paragraph (f)(1) of this section, the coverage amount for flood insurance must not be less than 80 percent of the insurable replacement value, or the maximum amount of insurance available with respect to the project under the National Flood Insurance Act, whichever is less. The policy shall show the Owner as insured and shall show loss, if any, payable to the United States of America acting through the Rural Housing Service or its successor agency. (4) Except for flood insurance, property insurance is not required if the housing project is in a condition which the Agency determines makes insurance coverage not economical. (5) Policies for several buildings or properties located on noncontiguous sites are acceptable if the insurer provides proof that each secured building or property related to the housing project is as fully protected as if a separate policy were issued. (6) Borrowers must notify the Agency and their insurance company agents of any loss or damage to insured property and collect the amount of the loss. (7) When the Agency is in the first lien position and an insurance settlement represents a satisfactory adjustment of a loss, the insurance settlement will be deposited in the housing project's general operating account unless the settlement exceeds $5,000. If the settlement exceeds $5,000, the funds will be placed in the reserve account or other supervised account for the housing project. (i) Insurance settlement funds which remain after all repairs, replacements, and other authorized disbursements have been made retain their status as housing project funds. (ii) If the indebtedness secured by the insured property has been paid in full or the insurance settlement is in payment for loss of property on which the Agency has no claim; a loss draft which includes the Agency as co-payee may be endorsed by the Agency without recourse and delivered to the borrower. (iii) The Agency will apply the insurance proceeds to the Agency debt when the following occurs: (A) The Agency is in the first lien position; (B) The multifamily housing property has been deemed a total loss by the insurance company, such as a catastrophic event beyond the Borrower's control; (C) All units are vacant and non-habitable; and (D) The tenants who occupied the property at the time of the catastrophic event have been relocated to other housing units under the Agency's disaster procedure process. (8) When the Agency is not in the first lien position and the insurance settlement represents satisfactory adjustment of the loss, the Agency will release the settlement funds to the primary mortgagee upon agreement of all parties to the provisions contained in agreements between the Agency and the primary lienholder. (9) Allowable deductible amounts are as follows: (i) Hazard/property insurance. (B) For a project with more than $1,000,000 but less than or equal to $2,000,000 of coverage, no deductible greater than $25,000 per occurrence. (C) For a project with more than $2,000,000 of coverage, no deductible greater than $50,000 per occurrence. (ii) Flood Insurance. (iii) Windstorm Coverage. (iv) Earthquake coverage. (v) Sinkhole Insurance or Mine Subsidence Insurance. (10) Deductible amounts (excluding flood, windstorm, earthquake and sinkhole insurance, or mine subsidence insurance) must be accounted for in the replacement reserve account, unless the deductible does not exceed the maximum deductible allowable as indicated in paragraph (f)(9)(i) of this section. Borrowers who wish to increase the deductible amount must deposit an additional amount to the reserve account equal to the difference between the Agency's maximum deductible and the requested new deductible. The Borrower will be required to maintain this additional amount so long as the higher deductible is in force. (11) Each policy shall meet the following requirements: (i) Policy may not be cancelled or modified without at least thirty (30) days prior written notice to the Agency (the clause shall not state that the insurer will “endeavor” to send such notice or that no liability attaches to the insurer for failure to send such notice). (ii) Policy shall provide that any loss otherwise payable thereunder shall be payable notwithstanding any act or negligence of Borrower which might, absent such agreement, result in a forfeiture of all or part of such insurance payment. (iii) Such insurance policies shall name the Owner as the Insured and shall carry a standard form of Non-Contribution Mortgage Clause showing loss or damage, if any, payable to the Owner and the “United States of America acting through the Rural Housing Service or its successor agency,” as its interest may appear. (g) Liability insurance. (h) Fidelity coverage. (1) Fidelity insurance coverage must be documented on a bond form acceptable to the Agency. (2) Fidelity coverage policies must declare in the insuring agreements that the insurance company will provide protection to the insured against the loss of money, securities, and property other than money and securities, through any criminal or dishonest act or acts committed by any employee, whether acting alone or in collusion with others, not to exceed the amount of indemnity stated in the declaration of coverage. (i) The fidelity insurance policy, at a minimum, must include an insuring agreement that covers employee dishonesty. (ii) Fidelity coverage amount and deductible as follows: (A) Coverage amount. (B) Deductible. (3) Blanket crime insurance coverage or fidelity bonds are acceptable types of fidelity coverage. (4) At a minimum, borrowers must provide an endorsement, listing all of the borrower's Agency financed properties and their locations covered under the policy or bond as evidence of required fidelity insurance. The policy or bond may also include properties or operations other than Agency financed properties on separate endorsement listings. (5) Individual or organizational borrowers must have fidelity coverage when they have employees with access to the MFH complex assets. Borrowers who use a management agent with exclusive access to housing assets must require the agent to have fidelity coverage on all principals and employees with access to the housing assets. If active management reverts to the borrower, the borrower must obtain fidelity coverage, as a first course of business. (6) Fidelity coverage is not required under the following circumstances: (i) The borrower is an individual or a general partnership and the individual or general partner will be responsible for the financial activities of the housing project. (ii) In the case of a land trust where the beneficiary is responsible for management, the beneficiary will be treated as an individual. (iii) A limited partnership (or its general partners) unless one or more of its general partners perform financial acts within the scope of the usual duties of an “employee.” (7) The premium for fidelity coverage of employees and general partners at a housing project is an eligible operating account expense. (i) The premium of a management agent's fidelity coverage for the agent's principals and employees will be the management agent's business expense ( i.e. (ii) When a housing project employee is covered under the “umbrella” of the management agent's fidelity coverage, the premium may be prorated among the housing projects covered. (8) Borrowers must review fidelity coverage annually and adjust it as necessary to comply with the requirements of this section. (i) Workers' compensation insurance. (j) Taxes. (1) An exception to the above may be made if the borrower has formally contested the amount of the property assessment and escrowed the amount of taxes in question in a manner approved by the Agency. (2) Failure to pay taxes and assessments when due will be considered a default. If a borrower fails to pay outstanding taxes and assessments, the Agency will pay the outstanding balance and charge the tax or assessment amount, assessed penalties, and any additional incurred costs to the borrower's Agency account. (3) The Agency will require borrowers who have demonstrated an inability to pay taxes in a timely manner to escrow amounts sufficient to pay taxes. [69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11281, Mar. 1, 2022; 91 FR 20867, Apr. 20, 2026] §§ 3560.106-3560.149 [Reserved] § 3560.150 OMB control number. The information collection requirements contained in this regulation have been approved by the Office of Management and Budget (OMB) and have been assigned OMB control number 0575-0189. Public reporting burden for this collection of information is estimated to vary from 15 minutes to 18 hours per response, including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. A person is not required to respond to a collection of information unless it displays a currently valid OMB control number. Subpart D—Multi-Family Housing Occupancy § 3560.151 General. (a) Applicability. (1) Family housing projects, including farm labor housing; (2) Elderly housing projects; and (3) Congregate housing or group homes for persons with special needs. (b) Civil rights requirements. § 3560.152 Tenant eligibility. (a) General requirements. (1) Be a United States citizen or qualified alien, and (2) Qualify as a very low-, low-, or moderate-income household; or (3) Be eligible under the requirements established to qualify for housing benefits provided by sources other than the Agency, such as U.S. Department of Housing and Urban Development (HUD) Section 8 assistance or Low Income Housing Tax Credit (LIHTC), when a tenant receives such housing benefits. (b) Exception. (c) Requirements for elderly housing, congregate housing, and group homes. (1) For elderly housing and congregate housing, the following provisions apply: (i) Households must meet the definition of an elderly household in § 3560.11 to be eligible for occupancy in elderly or congregate housing. (ii) If non-elderly persons are members of a household where the tenant or co-tenant is an elderly person, the non-elderly persons are eligible for occupancy in the tenant's or co-tenant's rental unit. (iii) Applicants who will agree to participate in the services provided by a congregate housing project may be given occupancy priority. (2) For group homes, the following provisions apply: (i) Occupancy may be limited to a specific group of tenants, such as elderly persons or persons with developmental disabilities, or mental impairments, if such an occupancy limitation is contained in the borrower's management plan. (ii) Tenants must be able to demonstrate a need for the special services provided by the group home. (iii) Tenants cannot be required to participate in an ongoing training or rehabilitation program. (iv) Tenants must be selected from the market area prior to considering applicants from other areas. (d) Ineligible tenant waiver. (1) There are no eligible persons on a waiting list. (2) The borrower provided documentation that a diligent but unsuccessful effort to rent any vacant units to an eligible tenant household has been made. Such documentation may consist of advertisements in appropriate publications, posting notices in several public places, including places where persons seeking rental housing would likely make contacts, holding open houses, making appropriate contacts with public housing agencies and organizations, Chambers of Commerce, and real estate agencies. (3) The borrower agrees to continue with aggressive efforts to locate eligible tenants and retain documentation of all marketing. (4) The borrower is temporarily unable to achieve or maintain a level of occupancy sufficient to prevent financial default and foreclosure. The Agency's approval of the waiver would then be for a limited duration. (5) The lease agreement will not be more than 12 months and at its expiration will convert to a month-to-month lease. The monthly lease will require that the unit be vacated upon 30 days notice when an eligible applicant is available. (6) Tenants residing in Rural Rental Housing (RRH) units who are ineligible because their adjusted annual income exceeds the maximum for the RRH project will be charged the Rural Housing Service (RHS) approved note rent for the size of unit occupied in a Plan II RRH project. In projects operated under Plan I, ineligible tenants will be charged a rental surcharge of 25 percent of the approved note rent. (e) Tenant certification and verification. (1) Tenant requirements. (ii) Tenants must authorize borrowers to verify information provided to establish their eligibility or determination of tenant contribution. (iii) Tenants must report all changes in household status that may affect their eligibility to borrowers. (iv) Tenants who fail to comply with tenant certification and recertification requirements will be considered ineligible for occupancy and will be subject to unauthorized assistance claims, if applicable, as specified in subpart O of this part. (2) Borrower requirements. (ii) Borrowers must review all reported changes in household status and assess the impact of these changes on the tenant's eligibility or tenant contribution. (iii) Borrowers must submit initial or updated tenant certification forms to the Agency within 10 days of the effective date of an initial certification or any changes in a tenant's status. The effective date of an initial or updated tenant certification form will always be a first day of the month. (iv) Since tenant certifications are used to document interest credit and rental assistance eligibility and are a basic responsibility of the borrower under the loan documents, borrowers who fail to submit annual or updated tenant certification forms within the time period specified in paragraph (e)(2)(iii) of this section will be charged overage, as specified in § 3560.203(c) and lost rental assistance. Unauthorized assistance, if any, will be handled in accordance with subpart O of this part. (v) Borrowers must submit tenant certification forms to the Agency using a format approved by the Agency. (vi) Borrowers must retain executed tenant certification forms and any supporting documentation in the tenant file for at least 3 years or until the next Agency monitoring visit or compliance review, whichever is longer. (3) The Agency maintains the right to independently verify tenant eligibility information. [69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11281, Mar. 1, 2022] Effective Date Note: At 70 FR 8503, Feb. 22, 2005, in § 3560.152(a)(1), implementation of the words “Be a United States citizen or qualified alien, and” was delayed indefinitely. § 3560.153 Calculation of household income and assets. (a) Annual income will be calculated in accordance with 24 CFR 5.609(a) and (b). (b) Adjusted income will be calculated in accordance with 24 CFR 5.611. (c) Net family assets will be calculated in accordance with 24 CFR 5.603(b). [69 FR 69106, Nov. 26, 2004, as amended at 91 FR 18772, Apr. 13, 2026] § 3560.154 Tenant selection. (a) Application for occupancy. (1) Name of the applicant and present address; (2) Number of household members and their birthdates; (3) Annual income information calculated in accordance with § 3560.153(a); (4) Adjustments to income calculated in accordance with § 3560.153(b); (5) Net assets calculated in accordance with § 3560.153(c); (6) Indication of a need for a unit accessible to individuals with disabilities and any disability adjustments to income; (7) Certification by the applicant that the unit will serve as the household's primary residence, and a certification that the applicant is a U.S. citizen or a qualified alien as defined in § 3560.11; (8) Signature of the applicant and date; (9) Race, ethnicity, and gender designation. The following disclosure notice shall be used: “The information regarding race, ethnicity, and sex designation solicited on this application is requested in order to assure the Federal Government, acting through the Rural Housing Service, that the Federal laws prohibiting discrimination against tenant applications on the basis of race, color, national origin, religion, sex, familial status, age, and disability are complied with. You are not required to furnish this information, but are encouraged to do so. This information will not be used in evaluating your application or to discriminate against you in any way. However, if you choose not to furnish it, the owner is required to note the race, ethnicity, and sex of individual applicants on the basis of visual observation or surname,” and (10) Social security number. (b) Additional information. (c) Application submission. (d) Selection of eligible applicants. (2) Borrowers with projects receiving low-income housing tax credits (LIHTCs), may leave a housing unit vacant if they are required to rent the available unit to an LIHTC-eligible applicant, and none of the applicants on the waiting list meet the applicable LIHTC eligibility requirements. (e) Recordkeeping. (f) Waiting lists. (2) The date and time a complete application was submitted will be recorded on the waiting list and will establish priority for selection from the list. If an applicant submits an incomplete application (see paragraph (a) of this section), they must be notified in writing within 10 days of the items that are needed for the application to be considered complete and that priority will not be established until the additional items are received. (3) The race and the ethnicity of each applicant shall be recorded on the waiting list. This information shall be collected for statistical purposes only and must not be used when making eligibility determinations or in any other discriminatory manner. The information shall be recorded using the race and ethnicity codes that are utilized on the Agency tenant certification form available in the servicing office. (4) Within 10 days of receipt of a complete application, the Borrower must notify the applicant in writing that he has been selected for immediate occupancy, placed on a waiting list, or rejected. (5) Selections from the completed applications on the waiting list shall be made in the following priority order: (i) Very low-income applicants; (ii) Low-income applicants; and (iii) Moderate-income applicants. (g) Priorities and preferences for admission. (i) Persons who require the special design features of a unit accessible to individuals with disabilities will have priority only for units with these features. (ii) In congregate housing facilities, persons who agree to use the services provided by the facility will have priority over other applicants. (2) Eligible applicants that meet any of the following conditions must be given priority over other applicants in their same income category. (i) The applicant has a Letter of Priority Entitlement (LOPE) issued in accordance with § 3560.660(c). (ii) The applicant was displaced from Agency-financed housing but was not issued a LOPE. (iii) The applicant was displaced in a Federally declared disaster area. (3) Borrowers receiving Section 8 project-based assistance may establish preferences in accordance with U.S. Department of Housing and Urban Development (HUD) regulations. The use of such preferences must be documented in the project's management plan. (h) Notices of ineligibility or rejection. (i) Purging waiting list. (j) Criminal activity. [69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11281, Mar. 1, 2022] Effective Date Note: At 70 FR 8503, Feb. 22, 2005, in § 3560.154(a)(7), implementation of the words “* * * and a certification that the applicant is a U.S. citizen or a qualified alien as defined in § 3560.11 * * *” was delayed indefinitely. § 3560.155 Assignment of rental units and occupancy policies. (a) General. (b) Rental units accessible to individuals with disabilities. (c) Transfer of existing tenants within a housing project. (d) Applicant placement. (e) Occupancy policies. (1) Reasonable standards for determining when a tenant household is considered under housed. The standards will describe the maximum number of persons that may occupy units of a given size based on occupancy guidelines provided by the Agency or another governmental source; (2) The order in which eligible applicants and existing tenants will be housed or re-housed; and (3) How fair housing requirements will be met, including how reasonable accommodations will be made for applicants and tenants with disabilities. (f) Agency concurrence. § 3560.156 Lease requirements. (a) Agency approval. (b) Lease requirements. (2) Initial leases must be for a 1-year period. (3) If the tenant is not subject to occupancy termination according to § 3560.158 and § 3560.159, a renewal lease or lease extension must be for a 1-year period. (4) In areas with a concentration of non-English speaking populations, leases (including the occupancy rules) must be available in both English and the non-English language. (5) Leases must give the address of the management agent to which tenants may direct complaints. (6) Leases must include a statement of the terms and conditions for modifying the lease. (c) Required items and provisions. (2) Leases must contain a clause permitting escalation in the tenant contribution when there is an Agency-approved change in basic or note rate rents prior to the expiration of the lease. The escalation clause also must specify that the tenant contribution may be changed prior to expiration of the lease if the change is due to changes in tenant status, as documented on the tenant certification form, or the tenant's failure to properly recertify. (3) Leases must specify that no change in the tenant contribution will occur due to monetary or non-monetary default or when rental assistance or interest credit, is suspended, canceled, or terminated due to the borrower's fault. For information on tenant contributions when a borrower prepays the Agency loan, refer to subpart N of this part. (4) Leases must contain a requirement that tenants make restitution when unauthorized assistance is received due to applicant or tenant fraud or misrepresentation and a statement advising tenants that submission of false information could result in legal action. (5) Leases must include a statement that the housing project is financed by the Agency and that the Agency has the right to further verify information provided by the applicant. (6) Leases must state that the housing project is subject to: (i) Title VI of the Civil Rights Act of 1964; (ii) Title VIII of the Fair Housing Act; (iii) Section 504 of the Rehabilitation Act of 1973; (iv) The Age Discrimination Act of 1975; and (v) The Violence Against Women Reauthorization Act of 2013 and any amendments thereto. (7) Leases must establish the tenant's responsibility according to the housing project's occupancy rules to move to the next available appropriately sized rental unit if the household becomes over housed or under housed in the unit they occupy. (8) Leases must include provisions that establish when a guest will be considered a member of the household and be required to be added to the tenant certification. (9) Leases must include a provision stating that tenancy continues until the tenant's possessions are removed from the housing either voluntarily or by legal means, subject to state and local law. (10) Leases must include a requirement that tenants who are no longer eligible for occupancy under the housing project's occupancy rules or do not meet the criteria set forth in § 3560.155(c) and (e) must vacate the property within 30 days of being notified by the borrower that they are no longer eligible for occupancy or at the expiration of their lease, or whichever is greater, unless the conditions cited in § 3560.158(c) exist; (11) Leases for rental units receiving rental assistance must include clauses that specify that the tenant's monthly tenant contribution and a description of the circumstances under which the tenant's contribution may change. (12) Leases must include a requirement that tenants notify borrowers when changes occur in their income or assets, their qualifications for adjustments to income, their citizenship status, or the number of persons living in the unit. (13) A requirement that tenants agree to fulfill the tenant income verification and certification requirements established under § 3560.152. (14) Leases for tenants living in Plan II interest credit rental units must include provisions establishing the net monthly tenant contribution. (15) Leases, including renewals, must include the following language: “It is understood that the use, or possession, manufacture, sale, or distribution of an illegal controlled substance (as defined by local, State, Tribal or Federal law) while in or on any part of this apartment complex premises or cooperative is an illegal act. It is further understood that such action is a material lease violation. Such violations (hereafter called a “drug violation”) may be evidenced upon the admission to or conviction of the use, possession, manufacture, sale, or distribution of a controlled substance (as defined by local, State, Tribal, or Federal law) in any local, State, Tribal or Federal court. The landlord may require any lessee or other adult member of the tenant household occupying the unit (or other adult or non-adult person outside the tenant household who is using the unit) who commits a drug violation to vacate the leased unit permanently, within timeframes set by the landlord, and not thereafter to enter upon the landlord's premises or the lessee's unit without the landlord's prior consent as a condition for continued occupancy by the remaining members of the tenant's household. The landlord may deny consent for entry unless the person agrees to not commit a drug violation in the future and is either actively participating in a counseling or recovery program, complying with court orders related to a drug violation, or has successfully completed a counseling or recovery program. The landlord may require any lessee to show evidence that any non-adult member of the tenant household occupying the unit, who committed a drug violation, agrees not to commit a drug violation in the future, and to show evidence that the person is either actively seeking or receiving assistance through a counseling or recovery program, complying with court orders related to a drug violation, or has successfully completed a counseling or recovery program within timeframes specified by the landlord as a condition for continued occupancy in the unit. Should a further drug violation be committed by any non-adult person occupying the unit the landlord may require the person to be severed from tenancy as a condition for continued occupancy by the lessee. If a person vacating the unit, as a result of the above policies, is one of the lessees, the person shall be severed from the tenancy and the lease shall continue among any other remaining lessees and the landlord. The landlord may also, at the option of the landlord, permit another adult member of the household to be a lessee. Should any of the above provisions governing a drug violation be found to violate any of the laws of the land the remaining enforceable provisions shall remain in effect. The provisions set out above do not supplant any rights of tenants afforded by law.” (16) Leases for rental units accessible to individuals with disabilities occupied by those not needing the accessibility features must establish the tenant's responsibility to move to another unit within 30-days of written notification that the unit is needed by an eligible qualified person with disabilities who requires the accessibility features of the unit. Additionally, the lease clause must ensure that the household may remain in the rental unit with accessibility features until an appropriately sized vacant unit within the project becomes available and then must move or vacate within 30 days of notification from borrower. (17) If loan prepayment occurs and the housing project is subject to restrictive use provisions, leases and renewals must be amended to include a clause specifying the tenant protections required under subpart N of this part. (18) All leases must contain the following information and provisions: (i) The name of the tenant, any co-tenants, and all members of the household residing in the rental unit; (ii) The identification of the rental unit; (iii) The amount and due date of monthly tenant contributions, any late payment penalties, and security deposit amounts; (iv) The utilities, services, and equipment to be provided for the tenant; (v) The tenant's utility payment responsibility; (vi) The certification process for determining tenant occupancy eligibility and contribution; (vii) The limitations of the tenant's right to use or occupancy of the dwelling; (viii) The tenant's responsibilities regarding maintenance and consequences if the tenant fails to fulfill these responsibilities; (ix) The agreement of the borrower to accept the tenant contribution toward rent charges prior to payment of other charges that the tenant owes and a statement that borrowers may seek legal remedy for collecting other charges accrued by the tenant; (x) The maintenance responsibilities of the borrower in buildings and common areas, according to state and local codes, Agency regulations, and Federal fair housing requirements; (xi) The responsibility of the borrowers at move-in and move-out to provide the tenant with a written statement of rental unit's condition and provisions for tenant participation in inspection; (xii) The provision for periodic inspections by the borrower and other circumstances under which the borrower may enter the premises while a tenant is renting; (xiii) The tenant's responsibility to notify the borrower of an extended absence; (xiv) A provision that tenants may not assign the lease or sublet the property; (xv) A provision regarding transfer of the lease if the housing project is sold to an Agency-approved buyer; (xvi) The procedures that must be followed by the borrower and the tenant in giving notices required under terms of the lease, including lease violation notices; (xvii) The good-cause circumstances under which the borrower may terminate the lease and the length of notice required; (xviii) The disposition of the lease if the housing project becomes uninhabitable due to fire or other disaster, including rights of the borrower to repair building or terminate the lease; (xix) The procedures for resolution of tenant grievances consistent with the requirements of § 3560.160; (xx) The terms under which a tenant may, for good cause, terminate their lease, with 30 days notice, prior to lease expiration; and (xxi) The signature and date clause indicating that the lease has been executed by the borrower and the tenant. (d) Prohibited provisions. (1) Clauses prohibiting families with children under 18; (2) Clauses requiring prior consent by tenant to any lawsuit that borrowers may bring against the tenant in connection with the lease; (3) Clauses authorizing borrowers to hold any of a tenant's property until the tenant fulfills an obligation; (4) Clauses in which tenants agree not to hold borrowers liable for anything they may do or fail to do; (5) Clauses in which tenants agree that borrowers may institute suit without any notice to the tenant that the suit has been filed; (6) Clauses in which tenants agree that borrowers may evict the tenant or sell their possessions whenever borrowers determine that a breach or default has occurred; (7) Clauses authorizing the borrower's attorneys to appear in court on behalf of the tenant, and to waive the tenant's right to a trial by jury; (8) Clauses authorizing the borrower's attorneys to waive the tenant's right to appeal or to file suit; and (9) Clauses requiring the tenant to agree to pay legal fees and court costs whenever the borrower takes action against the tenant, even if the court finds in favor of the tenant. (e) Housing projects and units receiving HUD assistance. (2) For units occupied by Section 8 certificate and voucher holders, borrowers may use: (i) A standard HUD-approved lease; (ii) A HUD-approved lease that includes a number of modifications from the standard HUD-approved lease; or (iii) An Agency-approved lease may be used if acceptable by HUD or the local housing authority. (f) State and local requirements. (1) If any lease provision is in violation of state or local law, the lease may be modified to the extent needed to comply with the law, but any changes must be consistent with the provisions established in paragraph (c) of this section. (2) Leases must include a procedure for handling tenant's abandoned property, as provided by state or local law. [69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11282, Mar. 1, 2022; 89 FR 20543, Mar. 25, 2024; 91 FR 9137, Feb. 25, 2026] Effective Date Note: At 70 FR 8503, Feb. 22, 2005, in § 3560.156(c)(12), implementation of the words “* * * their citizenship status, * * *” was delayed indefinitely. § 3560.157 Occupancy rules. (a) General. (b) Requirements. (1) The tenant's rights and responsibilities under the lease or occupancy agreement; (2) The rent payment or occupancy charge policies; (3) The policies regarding periodic inspection of units; (4) The system for responding to tenant complaints; (5) The maintenance request and work order procedures; (6) The housing services and facilities available to tenants or members; (7) The office locations, hours, and emergency telephone numbers; (8) The restrictions on storage and prohibitions on non-functional vehicles in the housing project area; (9) Other requirements related to a subsidy provided to a tenant from non-Agency sources; (10) When a guest becomes a member of the tenant household; and (11) The procedures tenants must follow to request reasonable accommodations. (c) Modification of occupancy rules. (d) Federal, state and local requirements. (e) Pets/Assistance Animals. (f) Tenant organizations. (g) Community rooms. § 3560.158 Changes in tenant eligibility. (a) General requirements. (b) Tenants no longer eligible. (c) Temporary continuation of tenancy. (1) The waiting list for the specific rental unit type has no eligible applicants; or (2) The required time period for vacating the rental unit would create a hardship on the tenant household. (d) Surviving and remaining household members. (i) They are eligible with respect to adjusted income; (ii) They occupied a rental unit in the housing project at the time of the departure or death of the tenant or co-tenant; (iii) They execute a tenant certification form establishing their own tenancy; and (iv) They have the legal ability to sign a lease for the rental unit, except where a legal guardian may sign when the tenant or member is otherwise eligible. (2) Surviving or remaining members of the household may remain in the housing project, taking into consideration the conditions of paragraph (d)(1) of this section, but must move to a suitably sized rental unit within 30 days of its availability. (3) After the death of a tenant or co-tenant in elderly housing, the surviving members of the household, regardless of age but taking into consideration the conditions of paragraph (d)(1) of this section, may remain in the rental unit in which they were residing at the time of the tenant's or co-tenant's death, even if the household is over housed according to the housing project's occupancy rules except as follows: (i) Continued occupancy of the rental unit will not be allowed when in either situation of paragraph (d)(1) or (d)(3) of this section, the rental unit has accessibility features for individuals with disabilities, the household no longer has a need for such accessibility features, and the housing project has a tenant application from an individual with a need for the accessibility features; (ii) If the housing project does not have a tenant application from an individual with a need for the accessibility features, the household may remain in the rental unit with such features until the housing project receives an application from an individual with a need for accessibility features. The household in the unit with accessibility features will be required to move within 30 days of the housing project's receipt of a tenant application requiring accessibility features if another suitably sized unit without accessibility features is available in the project. If a suitably sized unit is not available in the project within 30 days, the tenant may remain in the unit with accessibility features until the first available unit in the project becomes available and then must move within 30 days. [69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11282, Mar. 1, 2022] § 3560.159 Termination of occupancy. (a) Tenants in violation of lease. (1) Material non-compliance with lease provisions or occupancy rules, for purposes of occupancy termination by a borrower, includes actions such as: (i) Violations of lease provisions or occupancy rules that are substantial and/or repeated; (ii) Non-payment or repeated late payment of rent or other financial obligations due under the lease or occupancy rules; or (iii) Admission to or conviction for use, attempted use, possession, manufacture, selling, or distribution of an illegal controlled substance when such activity occurred on the housing project's premises by the tenant, a member of the tenant's household, a guest of the tenant, or any other person under the tenant's control at the time of the activity. (2) Good causes, for purposes of occupancy terminations by a borrower, include actions such as: (i) Actions by the tenant or a member of the tenant's household which disrupt the livability of the housing by threatening the health and safety of other persons or the right of other persons to enjoyment of the premises and related facilities; (ii) Actions by the tenant or a member of the tenant's household which result in substantial physical damage causing an adverse financial effect on the housing or the property of other persons; or (iii) Actions prohibited by state and local laws. (b) Lease expiration or tenant eligibility. (1) A specific date by which lease termination will occur; (2) A statement of the basis for lease termination with specific reference to the provisions of the lease or occupancy rules that, in the borrower's judgment, have been violated by the tenant in a manner constituting material non-compliance or good cause; and (3) A statement explaining the conditions under which the borrower may initiate judicial action to enforce the lease termination notice. (c) Other terminations. (d) Criminal activity. [69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11282, Mar. 1, 2022; 89 FR 20543, Mar. 25, 2024; 91 FR 9137, Feb. 25, 2026] § 3560.160 Tenant grievances. (a) General. (2) Any tenant/member or prospective tenant/member seeking occupancy in or use of Agency facilities who believes he or she is being discriminated against because of age, race, color, religion, sex, familial status, disability, or national origin may file a complaint in person with, or by mail to the U.S. Department of Agriculture's Office of Civil Rights, Room 326-W, Whitten Building, 14th and Independence Avenue, SW., Washington DC 20250-9410 or to the Office of Fair Housing and Equal Opportunity, U.S. Department of Housing and Urban Development (HUD), Washington, DC 20410. Complaints received by Agency employees must be directed to the National Office Civil Rights Staff through the State Civil Rights Manager/Coordinator. (b) Applicability. (2) This section does not apply to the following situations: (i) Rent changes authorized by the Agency in accordance with the requirements of § 3560.203(a); (ii) Complaints involving discrimination which must be handled in accordance with § 3560.2(b) and paragraph (a)(2) of this section; (iii) Housing projects where an association of all tenants has been duly formed and the association and the borrower have agreed to an alternative method of settling grievances; (iv) Changes required by the Agency in occupancy rules or other operational or management practices in which proper notice and opportunity have been given according to law and the provisions of the lease; (v) Lease violations by the tenant that would result in the termination of tenancy and eviction; (vi) Disputes between tenants not involving the borrower; and (vii) Displacement or other adverse actions against tenant as a result of loan prepayment handled according to subpart N of this part. (c) Borrower responsibilities. (1) Borrowers must permanently post tenant grievance procedures that meet the requirements of this section in a conspicuous place at the housing project. Borrowers also must maintain copies of the tenant grievance procedures at the housing project's management office for inspection by the tenants and the Agency upon request. (2) Each tenant must receive an Agency summary of tenant's rights when a lease agreement is signed. (3) If a tenant has limited English proficiency (LEP), the borrower must provide grievance procedures in both English and the primary language of the person with LEP(s). The notice must include the telephone number and address of USDA's Office of Civil Rights and the appropriate Regional Fair Housing and Enforcement Agency. (d) Reasons for grievance. (1) Failure to maintain the premises in such a manner that provides decent, safe, sanitary, and affordable housing in accordance with § 3560.103 and applicable state and local laws; (2) Borrower violation of lease provisions or occupancy rules; (3) Modification of the lease; (4) Occupancy rule changes; (5) Rent changes not authorized by the Agency according to § 3560.205; or (6) Denial of approval for occupancy. (e) Notice of adverse action. (f) Grievances and responses to notice of adverse action. (1) The tenant or prospective tenant must communicate to the borrower in writing any grievance or response to a notice within 10 calendar days after occurrence of the adverse action or receipt of a notice of intent to take an adverse action. (2) Borrowers must offer to meet with tenants to discuss the grievance within 10 calendar days of receiving the grievance. The Agency encourages borrowers and tenants or prospective tenants to make an effort to reach a mutually satisfactory resolution to the grievance at the meeting. (3) If the grievance is not resolved during an informal meeting to the tenant or prospective tenant's satisfaction, the borrower must prepare a summary of the problem and submit the summary to the tenant or prospective tenant and the Agency within 10 calendar days The summary should include: The borrower's position; the applicant/tenant's position; and the result of the meeting. The tenant also may submit a summary of the problem to the Agency. (g) Hearing process. (1) Request for hearing. (2) Selection of hearing officer or hearing panel. (3) Standing hearing panel. (4) Examination of records. (5) Scheduling of hearing. (6) Escrow deposits. (i) The escrow account deposits must continue until the complaint is resolved through informal discussion or by the hearing officer or panel. (ii) The escrow account must be in a Federally-insured institution or with a bonded independent agent. (iii) Failure to make timely rent payments into the escrow account will result in a termination of the tenant grievance and appeals procedure and all sums will immediately become due and payable under the lease. (iv) Receipts of escrow account deposits must be available for examination by the borrower. (7) Failure to request a hearing. (h) Requirements governing the hearing. (1) Subject to paragraph (f)(2) of this section, the hearing will proceed before a hearing officer or hearing panel at which evidence may be received without regard to whether that evidence could be used in judicial proceedings. (2) The hearing must be structured so as to provide basic due process safeguards for both the borrower and the tenants or prospective tenants, which must protect: (i) The right of both parties to be represented by counsel or another person chosen as their representative; (ii) The right of the tenant or prospective tenant to a private hearing unless a public hearing is requested; (iii) The right of the tenant or prospective tenant to present oral or written evidence and arguments in support of their grievance or appeal and to cross-examine and refute the evidence of all witnesses on whose testimony or information the borrower relies; and (iv) The right of the borrower to present oral and written evidence and arguments in support of the decision, to refute evidence relied upon by the tenant or prospective tenant, and to confront and cross-examine all witnesses in whose testimony or information the tenant or prospective tenant relies. (3) At the hearing, the tenant or prospective tenant must present evidence that they are entitled to the relief sought, and the borrower must present evidence showing the basis for action or failure to act against that which the grievance or appeal is directed. (4) The hearing officer or hearing panel must require that the borrower, the tenant or prospective tenant, counsel, and other participants or spectators conduct themselves in an orderly manner. Failure to comply may result in exclusion from the proceedings or in a decision adverse to the interests of the disorderly party and granting or denial of the relief sought, as appropriate. (5) If either party or their representative fails to appear at a scheduled hearing, the hearing officer or hearing panel may make a determination to postpone the hearing for no more than five days or may make a determination that the absent party has waived their right to a hearing under this subpart. If the determination is made that the absent party has waived their rights, the hearing officer or hearing panel will make a decision on the grievance. Both the tenant or prospective tenant and the borrower must be notified in writing of the determination of the hearing officer or hearing panel. (i) Decision. (1) The hearing officer or hearing panel has the authority to affirm or reverse a borrower's decision. (2) The hearing officer or hearing panel must prepare a written decision, together with the reasons thereof based solely and exclusively upon the facts presented at the hearing within 10 calendar days after the hearing. The notice must state that the decision is not effective for 10 calendar days to allow time for an Agency review as specified in paragraphs (i)(3) and (i)(4) of this section. (3) The hearing officer or hearing panel must send a copy of the decision to the tenant, or prospective tenant, borrower, and the Agency. (4) The decision of the hearing officer or hearing panel shall be binding upon the parties to the hearing unless the parties to the hearing are notified within 10 calendar days by the Agency that the decision is not in compliance with Agency regulations. (5) Upon receipt of written notification from the hearing officer or hearing panel, the borrower and tenant must take the necessary action, or refrain from any actions, specified in the decision. [69 FR 69106, Nov. 26, 2004, as amended at 89 FR 20543, Mar. 25, 2024; 91 FR 9137, Feb. 25, 2026] §§ 3560.161-3560.199 [Reserved] § 3560.200 OMB control number. The information collection requirements contained in this regulation have been approved by the Office of Management and Budget (OMB) and have been assigned OMB control number 0575-0189. Public reporting burden for this collection of information is estimated to vary from 15 minutes to 18 hours per response, including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. A person is not required to respond to a collection of information unless it displays a currently valid OMB control number. Subpart E—Rents § 3560.201 General. This subpart sets forth the requirements for establishing and collecting rents charged to occupants of multi-family housing (MFH) projects financed by the Agency. § 3560.202 Establishing rents and utility allowances. (a) General. (b) Agency approval. (c) Rents. (1) Note rent; (2) Basic rent; (3) U.S. Department of Housing and Urban Development (HUD) contract rents; and (4) Low-income housing tax credit (LIHTC) rents. (d) Utility allowances. (e) Funds contributed to reduce rents. (f) Rents for resident manager, caretaker, or owner-occupied unit. (2) If the rental unit being occupied by a borrower or resident manager is designated as a revenue-producing unit, borrowers must calculate the rental charge to the borrower or resident manager in the same manner as tenant contributions. (3) If the rental unit being occupied by a borrower or resident manager is designated as a non-revenue producing unit, borrowers must treat the cost of providing the unit the same as other non-revenue producing portions of the housing project. (g) LIHTC. § 3560.203 Tenant contributions. (a) Tenant contributions. (1) Tenant contributions. (i) Thirty percent of monthly adjusted income; (ii) Ten percent of gross monthly income; (iii) An amount equal to the portion of an assistance payment specifically designated to meet the household's shelter costs if the household is receiving assistance payments from a public agency; or (iv) The basic rent, unless RHS rental assistance is provided to the household. (2) Tenant contribution surcharge. (b) Adjustment of tenant contribution. (c) Overage. § 3560.204 Security deposits and membership fees. (a) General. (b) Allowable amounts. (1) As noted in § 3560.102(b)(1)(viii) and § 3560.156(c)(18)(iii), borrowers must specify in the housing project's management plan how the amount to be charged as a security deposit will be established and must specify the amount to be charged to individual tenants in the lease to be signed by the tenant. (2) Borrowers may charge security deposits to households receiving HUD assistance in accordance with HUD requirements. (3) Members of a cooperative shall be required to pay a membership fee no greater than one month's occupancy charge. (4) Additional security deposits for pets may be charged as long as the additional deposit is not greater than basic rent for 1 month. No additional security deposit for assistance animals is allowed where an assistance animal is necessary for the normal functioning of a household member with a disability. (5) Borrowers must not charge additional security deposits based on disabilities of tenants or other personal characteristics. (c) Payment plans. (d) Charges for damage or loss. (1) Borrowers must consider expenses due for addressing normal wear and tear as normal operating expenses and must not charge tenants a fee or withhold security deposits to pay for such costs. (2) Borrowers may withhold security deposits and may charge tenants for damage or loss costs above security deposit amounts. (e) State and local security deposit requirements. (1) Resolution of any security deposit disputes must be handled in accordance with state and local law. (2) Any interest earned on security deposits will accrue in accordance with state law. (f) Unclaimed security deposits. § 3560.205 Rent and utility allowance changes. (a) General. (b) Agency approval. (1) Borrowers must obtain written consent or approval from the Agency as specified in paragraph (e) of this section before implementing any changes in the rents or utility allowances. (2) If a borrower implements an unauthorized rent or utility allowance charge, the Agency will require the borrower to roll back rents to the last authorized rent charge, and the borrower must reimburse tenants for any unauthorized rents collected. (c) Timing of request for changes. (d) Tenant notification. (1) Tenants will be given 20 calendar days to provide their comments to the Agency. (2) Borrowers must deliver the proposed rent or utility allowance change request notice to each tenant and post at least one copy of the notice at the housing project site in a visible location frequented by tenants. (e) Approval. (f) Denial of change request. (1) The Agency determines that the borrower did not provide sufficient information to justify operating costs. (2) The borrower is out of compliance with Agency requirements including any corrective action requirements agreed to in a workout agreement developed according to subpart J of this part. (3) Sufficient funds are being collected under existing rents to meet approved expenses. (g) Notice of denial. [69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11282, Mar. 1, 2022] § 3560.206 Conversion to Plan II (Interest Credit). The Agency encourages any borrower not on Plan II to convert to Plan II to provide more favorable rent costs to very-low, low, and moderate-income households. § 3560.207 Annual adjustment factors for Section 8 units. (a) General. (b) Establishing rents in housing with HUD rent assistance. (c) Excess HUD rents. [69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11282, Mar. 1, 2022] § 3560.208 Rents during eviction or failure to recertify. (a) Rents during eviction. (b) Rents when tenants fail to recertify. (1) Termination proceedings are being initiated, in accordance with § 3560.159; and (2) The tenant will be charged note rent until the tenant's lease is terminated. (c) Unauthorized assistance due to tenant recertification failure. (d) Rents when borrowers fail to recertify tenants. (e) Unauthorized assistance due to borrower recertification failure. § 3560.209 Rent collection. (a) General. (b) Fees for late rent payments. (1) A grace period of 10 days from the rental payment due date must be allowed for all tenants. (2) The late fee must not exceed the higher of $10 or an amount equal to 5 percent of the tenant's gross tenant contribution. (3) Tenants receiving housing benefits from sources other than the Agency may be subject to the late rent fee requirements of the other funding sources. (c) Improperly advanced rents. § 3560.210 Special note rents (SNRs). When a Plan II housing project is experiencing severe vacancies due to market conditions, the Agency may allow the borrower to charge an SNR, which is less than note rent but higher than basic rent, to attract or retain tenants whose income level would require them to pay special note rent. The requirements for requesting and receiving an SNR are established under § 3560.454. §§ 3560.211-3560.249 [Reserved] § 3560.250 OMB control number. The information collection requirements contained in this regulation have been approved by the Office of Management and Budget (OMB) and have been assigned OMB control number 0575-0189. Public reporting burden for this collection of information is estimated to vary from 15 minutes to 18 hours per response, including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. A person is not required to respond to a collection of information unless it displays a currently valid OMB control number. Subpart F—Rental Subsidies § 3560.251 General. This subpart contains policies for borrower administration and tenant use of rental subsidies in Agency financed multi-family housing (MFH) projects. § 3560.252 Authorized rental subsidies. (a) General. (b) Forms of rental subsidies. (1) Agency rental assistance; (2) Agency housing vouchers; (3) HUD section 8 assistance, including project-based and vouchers; (4) Private rental subsidies; or (5) State or local government rental subsidies. (c) Multiple rent subsidies. (2) Tenants with subsidies from sources other than the Agency may be eligible for Agency rental assistance if all the following conditions are met. (i) The tenant qualifies for Agency rental assistance. (ii) The rental subsidy the tenant is receiving is not a HUD voucher. (iii) The rental subsidy being received by the tenant is less than the full amount of Agency rental assistance for which the tenant would qualify. In such cases, the Agency may provide the difference between the subsidy received by the tenant and the amount of Agency rental assistance for which the tenant qualifies. (d) Agency rental assistance (RA). (1) Renewal units. (2) New construction units. (3) Servicing units. [69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11283, Mar. 1, 2022] § 3560.253 [Reserved] § 3560.254 Eligibility for rental assistance. (a) Eligible housing. (1) Housing projects that operate under an Interest Credit Plan II RA agreement. (2) Housing projects financed with an Agency off-farm labor housing loan or grant. On-farm labor housing is not eligible for rental assistance. (3) Housing projects financed with a direct or insured Rural Rental Housing loan approved prior to August 1, 1968, and operated under an interest credit agreement that identifies the housing project as a Plan RA project. (4) Housing projects financed from Agency and other sources if the conditions of § 3560.66 are met. (b) Eligible units. (c) Eligible households. (1) With very low- or low-incomes who are eligible to live in MFH; (2) Whose net tenant contribution to rent determined in accordance with § 3560.203(a)(1) is less than the basic rent for the unit; (3) Whose head of the household is a U.S. citizen or a legal alien as defined in § 3560.11; (4) Who meet the occupancy rules/policies established by the borrower in accordance with § 3560.155(e); (5) Who have a signed, unexpired tenant certification form on file with the borrower; and (6) Who is not delinquent on any Agency unauthorized assistance repayment agreements. [69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11283, Mar. 1, 2022] Effective Date Note: At 70 FR 8503, Feb. 22, 2005, in § 3560.254(c)(3), implementation of the words “Whose head of the household is a U.S. citizen or a legal alien as defined in § 3560.11.” was delayed indefinitely. § 3560.255 Requesting rental assistance. (a) Submitting requests. (1) Renewal rental assistance. (2) New construction units. (3) Servicing units. (b) Denial of requests. (2) If a rental assistance request to renew expiring rental assistance agreements is denied because funding is not available, the Agency will notify the borrower and the borrower must notify the tenants of rent increases in accordance with their lease and state and local law. Tenants losing rental assistance due to a lack of Agency funding may quit the lease and vacate the housing without penalty in accordance with the terms of their lease. (3) Loan applicants or borrowers determined to be eligible for RA as a result of an appeal or funding review will receive RA, if RA funding is available, beginning with the month following the date of the appeal or funding review decision or beginning in the first month that RA funding becomes available. § 3560.256 Rental assistance payments. (a) Borrower submission requirements. (b) Basis of RA requests. (c) Payments to borrower. (d) Utility payments to tenants. (e) Administrative errors. § 3560.257 Assigning rental assistance. (a) Priorities for rental assistance. (i) First priority is to eligible very low-income tenants paying the highest percentage of their adjusted annual income for Agency approved shelter costs. (ii) Second priority, if the housing project has vacant rental units, is to eligible very low-income applicants on the waiting list. (iii) Third priority is to eligible low-income tenants paying the highest percentage of their adjusted annual income for Agency approved shelter costs. (iv) Fourth priority, if the housing project has vacant rental units, is to eligible low-income applicants on the waiting list. (v) Fifth priority is to households which are residing in a rental unit for which they do not qualify on the basis of an occupancy waiver or other special approval situations. (2) In order to provide rental assistance to the third, fourth, and fifth priority categories, a borrower must fully document either that there are no very low-income households on the housing project's waiting list or that occupancy by low-income households is limited as follows: (i) For housing occupied on or after November 30, 1983, no more than 5 percent of the units in the housing are occupied by low-income households; or (ii) For housing occupied before November 30, 1983, no more than 25 percent of the units in the housing are occupied by low-income households. (b) Continued eligibility. (c) Assignment of rental assistance. (1) When a rental assistance unit is assigned to an eligible existing tenant on a day other than the first day of a month, the Agency will not provide the borrower rental assistance for the newly assigned existing tenant and the tenant will not pay reduced rental charges until the first of the month following the assignment of the rental assistance. (2) When an eligible applicant moves into a rental assistance unit on a day other than the first day of a month, they will pay a prorated rent based on the number of days they occupy the rental assistance unit and the amount of rental assistance they will be receiving. (d) Incorrectly assigned rental assistance. § 3560.258 Terms of agreement. (a) Term of agreement. (b) Replacing expiring obligations. [87 FR 11283, Mar. 1, 2022] § 3560.259 Transferring rental assistance. (a) Agency authority. (1) To accompany the transfer of a housing project to a different borrower; (2) After a voluntary conveyance or a foreclosure sale; (3) After a liquidation, prepayment, or natural maturity; (4) To the extent permitted by law, when any rental assistance units have not been used for a 6-month period (Section 515) or a 12-month period (Section 514 or 516); or (5) When the loan cannot be closed. (b) Agency review before transferring rental assistance. (c) Transferring rental assistance for displaced tenants. (d) Agency use of obligation balances. [69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11283, Mar. 1, 2022] § 3560.260 Rental subsidies from non-Agency sources. (a) General. (b) HUD vouchers. (c) Loan proposals using non-Agency rental subsidy. (1) Documentation demonstrating that a market exists for households eligible for the subsidy and the households are at income levels that would benefit from the amount of rental subsidy that will be provided; (2) A plan describing actions to be taken when the rental subsidy expires to minimize the impact on tenants losing the rental assistance and to avoid displacement; and (3) A copy of the project-based rental assistance agreement to be signed by the borrower and the provider of the rental assistance. (d) Rental subsidy agreement. (1) A description of how the subsidy will be paid. The rental subsidy payments may be paid directly to the tenants, to the borrower on behalf of the tenants, or deposited to a separate account established for the subsidy. The tenants must be advised of the amount and source of the subsidy through the lease or a supplement to the lease. (2) The life of a project-based rental subsidy agreement with a non-Agency source must be similar to existing or current Agency rental assistance funding levels and sufficient funds must be set aside to assure availability of the rental subsidy for this term. The method of supplying the funds must be clearly established. § 3560.261 Improperly advanced rental assistance. Improperly advanced RHS rental assistance resulting from tenant or borrower error or fraud constitutes unauthorized assistance and the provisions of subpart O of this part apply. §§ 3560.262-3560.299 [Reserved] § 3560.300 OMB control number. The information collection requirements contained in this regulation have been approved by the Office of Management and Budget (OMB) and have been assigned OMB control number 0575-0189. Public reporting burden for this collection of information is estimated to vary from 15 minutes to 18 hours per response, including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. A person is not required to respond to a collection of information unless it displays a currently valid OMB control number. Subpart G—Financial Management § 3560.301 General. This subpart contains requirements for the financial management of Agency-financed multi-family housing (MFH) projects, including accounts, budgets, and reports. Financial management systems and procedures must cover all housing operations and provide adequate documentation to ensure that program objectives are met. [82 FR 49285, Oct. 25, 2017] § 3560.302 Accounting, bookkeeping, budgeting, and financial management systems. (a) General. (b) Acceptable methods of accounting. (2) Borrowers must describe their accounting, bookkeeping, budget preparation, and financial reporting procedures in their management plan. (3) Borrowers must notify the Agency of any changes in their accounting, bookkeeping, budget preparation, and financial management reporting systems through a revision of their management plan. (c) Account requirements. (2) At a minimum, borrowers must maintain the accounts required by their loan agreement or resolution. (3) The following list identifies the financial accounts that are required for each housing project. Additional accounts may be required by third-party lenders. Accounts are to be funded in the following priority order, except that paragraphs (c)(3)(iv), (v), and (vi) of this section are funded directly by tenant security deposits or patron capital receipts respectively: (i) General operating account; (ii) Real estate tax and insurance account (if not part of the general operating account or unless escrowed by the Agency); (iii) Reserve account (unless escrowed by the Agency in accordance with § 3560.65); (iv) Tenant security deposit account; (v) Membership fee account for cooperative housing; and (vi) For cooperative housing only, a patron capital account. (4) Amounts escrowed for taxes and insurance may be kept in the general operating account as long as the accounting system reflects the amount escrowed. (5) Regardless of the number or types of accounts established, the borrower must meet the following requirements: (i) All housing project funds must be held only in financial institution accounts insured by an agency of the Federal Government or held in securities meeting the conditions in this subpart. (ii) Funds maintained in an institution may not exceed the limit established for Federal deposit insurance. Funds exceeding the Federally insured limit under a Tax ID Number must be moved to a different qualified banking institution that will ensure the funds unless the current financial institution provides additional surety such as a collateral pledge that may already be in place. (iii) All funds and proceeds in any account must be used only for authorized purposes as described in Agency's regulations, loan or grant documents. Use of funds for non-program purposes constitutes non-monetary default as described in § 3560.452(c). (iv) All funds received and held in any account, except the tenant security deposit, membership fee, and patron capital accounts, are considered assets of the property and must be held in trust by the borrower for the loan obligations until used and serve as security, through transfers or assumptions for the Agency loan or grant until all outstanding balances are satisfied. (v) Borrowers must be able to account for housing project funds with accounting methods or practices that maintain the proprietary identity of the funds for each project. A borrower may operate one account for multiple projects as long as the funds for each project themselves are accounted for separately. (vi) Each borrower must have access to at least one demand deposit or checking account. (vii) Housing project funds may not be pledged as collateral for debts without Agency approval. If such a need arises for an eligible program purpose, the borrower must obtain prior Agency approval. (6) Tenant security deposit accounts or membership fee accounts and patron capital accounts must be maintained in a separate account in trust for the tenants or members and handled in a manner consistent with state and local laws. (d) Documentation of separate accountability. (1) When borrowers request Agency approval of an accounting system that combines funds from two or more housing projects, they must demonstrate to the Agency that the accounting systems are structured to segregate and maintain separate accountability for each housing project. Such demonstration must include a statement issued by a Certified Public Accountant (CPA) stating that the accounting system is structured to meet this principle of separate accountability. (2) The accounting system and management plan must document the method for prorating revenue and expenses that are not clearly identifiable as being associated with a particular housing project. (3) Funds for housing projects managed by the same management company must not be co-mingled. (e) Records. (2) Borrower accounts and records will be kept or made available in a location with reasonable access for inspection, review, and copying by the Agency, other authorized representatives of the USDA, OIG, or GAO. (3) Automated records may be used if they meet the conditions of paragraph (f) of this section. (f) Forms generated by automated systems. (2) Forms may be automated if they meet the following requirements: (i) The identical wording and nomenclature of an official form must be included in the automated version of the form, including the Office of Management and Budget (OMB) approval number. (ii) The logic or mathematical calculation of an official form must be the same in an automated version of the form. (iii) The name or logo of the source of the automated form must be visible on each output of the automated form. (iv) Output size must be 8 1/2 (v) Nominal spacing adjustment and colored paper are allowed. (g) Farm Labor Housing. [69 FR 69106, Nov. 26, 2004, as amended at 82 FR 49285, Oct. 25, 2017; 87 FR 11283, Mar. 1, 2022] § 3560.303 Housing project budgets. (a) General requirements. (2) Budget projections regarding income, expenses, vacancies, and contingencies must be realistic given the housing project's history, current circumstances, and market conditions. (3) Borrowers must document that the operating expenses included in the budget accurately reflect reasonable and necessary costs to operate the housing project in a manner consistent with the objectives of the loan and in accordance with the applicable Agency requirements in this part. (4) Borrower must submit supporting documentation to justify housing project utility allowances. (5) Upon Agency request, borrowers must submit any additional documentation necessary to establish that applicable Agency requirements in this part have been met. (b) Allowable and unallowable project expenses. (1) Allowable expenses. (i) Housing project expenses must not duplicate expenses included in the management fee as defined in § 3560.102(i). (ii) Actual costs for direct personnel costs of permanent and part-time staff assigned directly to the project site. This includes managers, maintenance staff, and temporary help including their: (A) Gross salary; (B) Employer Federal Insurance Contributions Act (FICA) contribution; (C) Federal unemployment tax; (D) State unemployment tax; (E) Workers compensation insurance; (F) Health insurance premiums; (G) Cost of fidelity or comparable insurance; (H) Leasing, performance incentive, or annual bonuses that are clearly provided for by the site manager salary contract; (I) Direct costs of travel to off-site locations by on-site staff for property business or training; and/or (J) Retirement benefits. (iii) Legal fees directly related to the operation and management of the property including tenant lease enforcement actions, property tax appeals and suits, and the preparation of all legal documents. (iv) All outside account and auditing fees, if required by the Agency, directly related to the preparation of the annual audit, partnership tax returns, and 401-K's, as well as other outside reports and year-end reports to the Agency, or other governmental agency. (v) All repair and maintenance costs for the project including: (A) Maintenance staffing costs and related expenses. (B) Maintenance supplies. (C) Contract repairs to the projects ( e.g., (D) Make ready expenses including painting and repairs, flooring replacement, and appliance replacement as well as drapery or mini-blind replacement. (Turnover maintenance.) (E) Preventive maintenance expenses including occupied unit repairs and maintenance as well as common area systems repairs and maintenance. (F) Snow removal. (G) Elevator repairs and maintenance contracts. (H) Section 504 and other Fair Housing compliance modifications and maintenance. (I) Landscaping maintenance, replacements, and seasonal plantings. (J) Pest control services. (K) Other related maintenance expenses. (vi) All operational costs related to the project including: (A) The costs of obtaining and receiving credit reports, police reports, and other checks related to tenant selection criteria for prospective residents. (B) Photocopying or printing expense related to actual production of project brochures, marketing pieces, forms, reports, notices, and newsletters are allowable project expenses no matter what location or point of origin the work is performed including outsourcing the work to a professional printer. (C) All bank charges related to the property including purchases of supplies ( e.g., (D) Costs of site-based telephone including initial installation, basic services, directory listings, and long-distances charges. (E) All advertising costs related specifically to the operations of that project. This can include advertising for applicants or employees in newspapers, newsletters, social media, radio, cable TV, and telephone books. (F) Postage expense to mail out rental applications, third-party (asset income and adjustments to income) verifications, application processing correspondence (acceptance or denial letters), mailing project invoice payments, required correspondence, report submittals to various regulatory authorities for the managed property are allowable project expenses no matter what location or point of origin the mail is generated. (G) State taxes and other mandated Tribal, State, or local fees as well as other relevant expenses required for operation of the property by a third-party governmental unit. Costs of continuation financing statements and site license and permit costs. (H) Expenses related to site utilities. (I) Site office furniture and equipment including site-based computer and copiers. Service agreements and warranties for copiers, telephone systems and computers are also included (if approved by the Agency). (J) Real estate taxes (personal tangible property and real property taxes) and expenses related to controlling or reducing taxes. (K) All costs of insurance including property liability and casualty as well as fidelity or crime and dishonesty coverage for on-site employees and the owners. (L) All bookkeeping supplies and recordkeeping items related to costs of collecting rents on-site. (M) All office supplies and copies related to costs of preparing and maintaining tenant files and processing tenant certifications to include electronic storage. (N) Public relations expense relative to maintaining positive relationships between the local community and the tenants with the management staff and the borrowers. Chamber of Commerce dues, contributions to local charity events, and sponsorship of tenant activities, are examples. (O) Tax credit compliance monitoring fees imposed by Housing Finance Authorities (HFAs). (P) All insurance deductibles as well as adjuster expenses. (Q) Professional service contracts (audits, owner-certified submissions in accordance with § 3560.308(a)(2), tax returns, energy audits, utility allowances, architectural, construction, rehabilitation and inspection contracts, capital needs assessments (CNA), etc.). (R) Association dues to be paid by the project should be related to training for site managers or management agents. To the extent that association dues can document training for site managers or management agents related to project activities by actual cost or pro-ration, a reasonable expense may be billed to the project. (S) Legal fees if found not guilty of civil lawsuits, commercially reasonable legal expenses and costs for defending or settling lawsuits. (vii) With prior Agency approval, cooperatives and nonprofit organizations may use housing project funds to reimburse actual and typical asset management expenses directly attributable to ownership responsibilities. Such expenses may include: (A) Errors and omissions insurance policy for the Board of Directors. The cost must be prorated if the policy covers multiple Agency housing properties. (B) Board of Directors review and approval of proposed Agency's annual operating budgets, including proposed repair and replacement outlays and accruals. The cost must be prorated if the policy covers multiple Agency housing properties. (C) Board of Directors review and approval of capital expenditures, financial statements, and consideration of any management comments noted. The cost must be prorated if the policy covers multiple Agency housing properties. (D) The cost must be prorated if the policy covers multiple Agency housing properties. (viii) Agency approved third party debt service for the project. (2) Unallowable expenses. (i) Equity skimming as defined in 42 U.S.C. 543(a); (ii) Purposes unrelated to the housing project; (iii) Reimbursement of inaccurate or false claims; (iv) Court ordered settlement agreements, court ordered decrees, legal fees, or other costs that result from the filing of civil rights complaints or legal action alleging the borrower, or a representative of the borrower, has committed a civil rights violation. It is inappropriate to charge for legal services to represent any interest other than the borrower's interest ( i.e., (v) Fines, penalties, and legal fees where the borrower or a borrower's representative has been found guilty of violating laws, including, but not limited to, civil rights, and building codes. Charging for payment of penalties including opposition legal fees resulting from an award finding improper actions on the part of the owner or management agent is generally an inappropriate project expense. The party responsible generally pays such expenses for violating the standards or by their insurance carriers; (vi) Association dues unless related to training for site managers or management agents. To the extent that association dues can document training for site managers or management agents related to project activities by actual cost or pro-ration, a reasonable expense may be billed to the project; (vii) Pay for bonuses or monetary performance awards to site managers or management agents that are not clearly provided for by the site manager salary contract; (viii) Billing for parties or gifts to management agent staff; (ix) Billing for practices that are inefficient such as routine use of collect calls from a site manager to a management agent office; (x) Billing the project for computer hardware, some software, and internal connections that are beyond the scope and size reasonably needed for the services supplied ( i.e., (xi) Costs of tenant services. (c) Priorities. (1) Senior position lienholder, if any; (2) Operating and maintenance expenses, including taxes and insurance; (3) Agency debt payments; (4) Reserve account requirements; (5) All accounts payable; (6) Other authorized expenditures; and (7) Return on owner investment. (d) Determining if expenses are reasonable. (1) Administrative expenses for project operations exceeding 23 percent, or those typical for the area, of gross potential basic rents and revenues ( i.e., (2) Excessive administrative expenses can result in inadequate funds to meet other essential project needs, including expenditures for repair and maintenance needed to keep the project in sound physical condition. Actions that are improper or not fiscally prudent may warrant budget denial and/or a demand for recovery action. (e) Agency review and approval. (2) If no rent change is requested, borrowers must submit budget documents for Agency approval 60 calendar days prior to the start of the housing project's fiscal year. The Agency will notify borrowers if the budget submission does not meet the requirements of paragraphs (a) through (d) of this section. The borrower will have 10 days to submit the additional material. (3) If a rent change is requested, the borrower must submit budget documents to the Agency and notify tenants of the requested rent change at least 90 calendar days prior to the start of the housing project's fiscal year. (i) The Agency will notify borrowers if the budget submission does not meet the requirements of paragraphs (a) through (d) of this section, or if the rent and utility allowance request has been denied in accordance with § 3560.205(f). The borrower will have 10 days to submit the additional material to address any issues raised by the Agency. (ii) The rent change is not approved until the Agency issues a written approval. If there is no response from the Agency within the 30-day period, the rent change is considered automatic. The following budgets are not eligible for automatic approval: (A) Budgets with rent increases above $25 per unit; and (B) Budgets that are submitted late or that miss other deadlines set by the Agency. (4) If the Agency denies the budget approval, the Agency will notify the borrower in writing. (5) If budget approval is denied, the borrower shall continue to operate the housing project based on the most recently approved budget. [87 FR 11283, Mar. 1, 2022] § 3560.304 Initial operating capital. (a) Purpose. (b) Authorized uses of initial operating capital. (c) Withdrawal of initial operating capital. (1) The initial operating capital was provided from the borrower's own funds; (2) The borrower requests the withdrawal after the second year of housing project operations and prior to the 7th year of operations; (3) The housing project has had a 90 percent occupancy rate for a period of 12 months prior to the withdrawal request; (4) The withdrawal will not affect the financial viability of the housing project; (5) Contributions to the reserve account are at authorized levels; (6) The withdrawal request will not result in rent increases; and (7) There are no outstanding deficiencies in management's physical maintenance of the housing project. § 3560.305 Return on investment. (a) Borrower's return on investment. (1) If there is a positive net cash flow in housing project operations, the ROI may be taken by the borrower after the housing project's fiscal year, provided that the balance of the reserve account is equal to or greater than required deposits minus authorized withdrawals. If the annual financial reports indicate that an ROI should not have been taken, borrowers will be required to return any unauthorized ROI. (2) If there is negative cash flow in housing project operations, the Agency may authorize the borrower to take the ROI only after the Agency has reviewed the housing project's annual financial reports and determines: (i) Surplus cash exists in either the general operating account as defined in § 3560.306(d)(1) or the reserve account, if the balance is greater than the required deposits minus authorized withdrawals. (ii) The housing project has sufficient funds to address identified capital or operational needs. (b) Unpaid return on investment. § 3560.306 Reserve account. (a) Purpose. (b) Financial management of the reserve account. (c) Funding of the reserve account. (d) Transfer of surplus general operating account funds. (2) If a housing project's general operating account has surplus funds at the end of the housing project's fiscal year per paragraph (d)(1) of this section, the borrower will be required to use such surplus for one of the following (not in priority order): use the surplus funds to address capital needs, make a deposit in the reserve account or reduce the debt service on the borrower's loans, including Agency-approved third-party debt. The prior written consent of the Agency must be obtained before surplus funds may be used to pay debt service on third-party debt. At the end of the borrower's fiscal year, if the borrower is required to transfer surplus funds from the general operating account to the reserve account, the transfer does not change the future required contributions to the reserve account. (e) Account requirements. (1) Reserve accounts must be deposited in interest-bearing accounts or securities; and (2) Reserve accounts must be supervised accounts that require the Agency to approve all withdrawals; except, this requirement is not applicable when loan funds guaranteed by the Section 538 GRRH program are used for the construction and/or rehabilitation of a direct MFH loan project. Direct MFH loan borrowers, who are exempted from the supervised account requirement, as described in this section, must follow Section 538 GRRH program regulatory requirements pertaining to reserve accounts. In all cases, Section 538 lenders must get prior written approval from the Agency before reserve account funds involving a direct MFH loan project can be disbursed to the borrower. (f) Funds invested in securities. (1) The reserve account must be held either at a Federally insured domestic institution such as a bank, savings and loan association, credit union, or at a domestic institution authorized to sell securities. (2) The borrower must record the price actually paid for the securities. When designated as a reserve deposit, the price paid must equal the required contribution to reserves. (3) Borrowers must be knowledgeable about industry practices and consider the impact of typical fees and charges for purchases and sales and maintenance of an account when making investment decisions. Such fees may be paid for out of reserves, only with the consent of the Agency. Housing project funds may not be used to pay for a financial advisor. (g) Use of the reserve account. (2) Borrowers should include any needed capital improvements based on the needs identified in an Agency approved Capital Needs Assessment (if obtained) are completed within a reasonable timeframe. (3) The Agency will indicate any conditions governing withdrawals from a reserve account at the time it approves the withdrawal. (4) In emergency situations, the Agency may specify special procedures to provide an expedited approval process for the use of the reserve account. (5) The Agency may approve the use of reserve funds for operating costs when circumstances that are determined by the Agency to be beyond the borrower's control have resulted in a shortfall in the housing project's general operating account. (6) Funds from the replacement reserve account cannot be used to pay any fees associated with the Section 538 GRRH loan guarantee, as determined by the Agency. (h) Allowable uses. (1) Major capital improvements and replacements. (2) Housing project operating expenses provided the requirement of paragraph (g)(4) of this section has been met, including: (i) Payments due on the loan, or (ii) Payment of a return on investment at the end of the borrower's fiscal year if such payment comes from surplus operating funds in the reserve account. (3) With Agency approval, borrowers operating on a for-profit or a limited profit basis may make an annual withdrawal from the reserve account, equal to no more than 25 percent of the interest earned on a reserve account during the prior year. (4) For other purposes, which in the judgment of the Agency will promote the loan purposes, strengthen the security or facilitate, improve, or maintain the housing and the orderly collection of the loan without jeopardizing the loan or impairing the adequacy of the security. (i) Records. (j) Changes to reserve requirements. (2) The Agency will allow for an annual adjustment to increase reserve account funding levels by Operating Cost Adjustment Factor (OCAF) as published by HUD annually. This will require a modification to the Loan agreement and the increase documented with budget submission as outlined in § 3560.303. (3) The Agency may approve a change in the reserve account funding level based on the findings of an approved capital needs assessment. The approval to increase reserve account funding levels will take into consideration the housing project's approved budget and the housing project's ability to support increased reserve account deposits without causing basic rents to exceed conventional rents for comparable units in the area. (k) Excess reserves. (1) Pay for expenses specified in a long-term capital plan; (2) Make payments and reamortize the Agency loan; (3) Reduce rents by a transfer to the general operating account; (4) Fund preservation incentives authorized in subpart N of this part; or (5) Cover other expenditures determined to be related to the purpose of the housing project and in the best interest of the Federal Government. (l) Procurement. [69 FR 69106, Nov. 26, 2004, as amended at 80 FR 34532, June 17, 2015; 87 FR 11285, Mar. 1, 2022; 89 FR 19228, Mar. 18, 2024] § 3560.307 Reports. (a) Required reports. (b) Quarterly and monthly reports. § 3560.308 Annual financial reports. (a) General. (2) Non-profit borrowers that receive $1 million or more in combined Federal financial assistance must meet the audit requirements set forth by OMB, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, found at 2 CFR parts 200 and 400. Borrowers must provide a copy of this audit to RHS in compliance with these financial reporting requirements. (3) Non-profit borrowers that receive less than $1 million, and for-profit borrowers that receive less than $500,000 in combined Federal financial assistance will submit annual owner certified prescribed forms on the accrual method of accounting in accordance with the Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the American Institute of Certified Public Accountants (AICPA). Borrowers may use a CPA to prepare this compilation report of the prescribed forms. (b) Performance standards. (1) Required accounts are properly maintained and tracked separately; (2) Payments from operating accounts are disclosed and accurately represented on financial reports; (3) The reserve amount is at the authorized level and there are no encumbrances; (4) Tenant security deposit accounts are fully-funded and are maintained in separate accounts and meet state and local requirements; (5) Amount of payment of owner return was consistent with the terms of the applicable loan agreement; (6) The borrower has maintained proper insurance in accordance with the requirements of § 3560.105(b); and (7) All financial records are adequate and suitable for examination. (8) There have been no changes in project ownership other than those approved by the Agency and identified in the certification. (9) Real estate taxes are paid in accordance with state and/or local requirements and are current. (10) Replacement Reserve accounts have been used for only authorized purposes. (c) Other financial reports. (2) The Agency may require additional opinions of financial condition and compliance, such as audits, to assure the security of the asset, determine whether the housing project is being operated at a reasonable cost, or to detect fraud, waste, or abuse. (3) Any audits independently obtained by the borrower also must be submitted to the Agency. [69 FR 69106, Nov. 26, 2004, as amended at 82 FR 49286, Oct. 25, 2017; 89 FR 96859, Dec. 6, 2024] § 3560.309 Advancement (loan) of funds to a RRH project by the owner, member of the organization, or agent of the owner. (a) Prior written approval by the Servicing Office is required. Such advances may be authorized when justified by unusual short-term conditions. When conditions are not short-term in nature, a servicing plan may be developed and advances may be approved in accordance with the provisions set out in § 3560.453 of this part. Justification will be based on the following: (1) A review of the documented circumstances and the project operating budget before any funds are advanced (loaned). The financial position of the project must not be jeopardized. (2) Funds are not immediately available from any of the following sources: (i) Reserve funds; (ii) Initial operating capital; and (iii) An imminent rent increase. (b) The funds will be applied to ordinary project operating and maintenance expenses. (c) Interest may be charged or paid on the loan from project income; however, interest must be reasonable. The proposal may be denied if Rural Development financing can be provided to resolve the problem in a more cost-effective manner. (d) No lien in connection with the loan will be filed against the property securing the Rural Development loan or against project income. The advance may show as an unsecured project liability on financial statements prepared for year-end reports until such time as it is authorized to be repaid. (e) The payback of the advance (loan) may be permitted by the Servicing Official provided the terms and conditions were mutually agreed to by the borrower and Rural Development at the time of the advance and the financial position of the project will not be jeopardized. Payback should only be permitted on the advance when the Rural Development debt is current and the reserve requirements are being maintained at the authorized levels. §§ 3560.310-3560.349 [Reserved] § 3560.350 OMB control number. The information collection requirements contained in this regulation have been approved by the Office of Management and Budget (OMB) and have been assigned OMB control number 0575-0189. Public reporting burden for this collection of information is estimated to vary from 15 minutes to 18 hours per response, including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. A person is not required to respond to a collection of information unless it displays a currently valid OMB control number. Subpart H—Agency Monitoring § 3560.351 General. This subpart contains policies for Agency monitoring of operations and management at multi-family housing (MFH) projects. § 3560.352 Agency monitoring scope, purpose, and borrower responsibilities. (a) Scope of Agency monitoring activities. (b) Purpose of Agency monitoring activities. (1) Ensure housing projects are managed in accordance with the goals and objectives of the Agency's MFH programs and are maintained in accordance with Agency requirements for affordable, decent, safe, and sanitary housing; (2) Preserve the value of the Agency-financed housing projects; (3) Detect waste, fraud, and abuse in housing project operations or management and to ensure the cost of operations and management are necessary and reasonable; (4) Verify compliance with Affirmative Fair Housing Marketing requirements, Title VI of the Civil Rights Act of 1964, Title VIII of the Civil Rights Act of 1968, as amended, section 504 of the Rehabilitation Act of 1973, the Age Discrimination Act of 1975, Americans with Disabilities Act of 1990, other applicable Federal laws, and Agency requirements related to occupancy and tenant eligibility. (c) Borrower responsibilities. (1) The terms of all agreements with the Agency, including the loan or grant agreement, assurance agreement, loan resolution, promissory note, mortgage, interest credit agreement, rental assistance agreement, mitigation measures contained in the environmental review document, and workout agreement; (2) The requirements contained in this part; (3) The requirements of Title VI of the Civil Rights Act of 1964, Title VIII of the Civil Rights Act of 1968, as amended; section 504 of the Rehabilitation Act of 1973, the Age Discrimination Act of 1975, Americans with Disabilities Act of 1990; and (4) Applicable Federal, state, and local laws. § 3560.353 Scheduling of on-site monitoring reviews. Generally, the Agency will provide the borrower prior notice of an on-site monitoring review and will conduct the on-site monitoring review in the presence of the borrower. However, the Agency may visit a housing project, without prior notice, to observe physical conditions, operations and management activities, or other borrower or tenant activities. In addition, the Agency may conduct on-site reviews without the presence of the borrower, the management agent, or other designated representative of the borrower. § 3560.354 Borrower response to monitoring review notifications. The Agency will notify borrowers, in writing, whenever Agency monitoring activities result in deficiency findings or compliance violations. The monitoring review notification will describe the deficiencies findings or compliance violations and will specify a time period by which corrective action must be taken by the borrower. The notification will offer borrowers an opportunity to discuss the reported deficiency findings or compliance violations with the Agency and will explain enforcement actions that the Agency may take if corrective action is not taken within the time period specified in the monitoring review notification. When civil rights non-compliance is found, the State Civil Rights Coordinator or Manager (SCRC/M) will be notified. If voluntary compliance cannot be obtained, appropriate enforcement or remedial action will be taken. §§ 3560.355-3560.399 [Reserved] § 3560.400 OMB control number. The information collection requirements contained in this regulation have been approved by the Office of Management and Budget (OMB) and have been assigned OMB control number 0575-0189. Public reporting burden for this collection of information is estimated to vary from 15 minutes to 18 hours per response, including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. A person is not required to respond to a collection of information unless it displays a currently valid OMB control number. Subpart I—Servicing § 3560.401 General. (a) Purpose. (b) General servicing policies. (c) Special servicing actions. § 3560.402 Loan payment processing. (a) Predetermined Amortization Schedule System (PASS) requirements. (b) Required conversion to PASS. (c) Exceptions. [69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11286, Mar. 1, 2022] § 3560.403 Account servicing. (a) Payment due dates. (b) Payment application order. (1) Amortized audit receivables. ( i.e. (2) Unamortized audit receivables. ( i.e. (3) Late fees. ( i.e. (4) Amortized recoverable costs. ( i.e. (5) Unamortized recoverable costs. ( i.e. (6) Overage. ( i.e. (7) Interest. ( i.e. (8) Principal. ( i.e. (9) Advance payments. (Any funds remaining after disbursement of a payment to all other payment priorities will be applied to the borrower's account as an advance regular payment unless a borrower specifically designates, in writing, another application.) (c) Late fees. (1) Late fees charged to a borrower's account will equal 6 percent of the total regular payments due as specified in any promissory notes, assumption agreements, or reamortization agreements related to the borrower's account. (2) Late fees are a borrower expense and must not be paid from housing project funds. (3) The Agency may waive late fees for circumstances beyond a borrower's control and when a waiver is determined by the Agency to be in the best financial interest of the Federal Government. (d) Interest on unpaid overdue principal. i.e. § 3560.404 Final loan payments. (a) Payoff statements. (b) Final payments. (1) Any supervised funds being held by the Agency will be applied to the borrower's account or, at the borrower's option, will be returned to the borrower following acceptance of final payment on all outstanding obligations. (2) If a balance due remains on a borrower's account after Agency acceptance of a final payment, due to borrower error or fraud or Agency error, the Agency will initiate collection action in accordance with the unauthorized assistance collection procedures described in subpart O of this part. (c) Final payment loans. (d) Loan prepayment requests. (e) Payment forms. (1) If borrowers use forms of payment requiring special handling, the borrower is responsible for the cost of the special handling. (2) When payment is provided in a form that is not the equivalent of cash, the Agency will consider the payment to be received at the time the payment has been converted to cash and funds have been transferred to the Agency. (f) Release of security instruments. (1) If the Agency and the borrower agree to settle an account for less than the full amount owed, the Agency will release security instruments when the borrower has paid in full all agreed upon obligations. (2) Recording costs for the release of the security instruments will be the responsibility of the borrower, except where state law requires the mortgagee to record or file the satisfaction. (g) Special circumstances—Refund of entire principal. § 3560.405 Borrower organizational structure or ownership interest changes. (a) General. (b) Agency requirements. (1) Borrowers must submit written requests for Agency consent to the Agency at least 45 days prior to the anticipated effective date of the proposed organizational change. The request must document that the proposed changes will not adversely affect the program purposes or security interest of the Agency and will not adversely affect tenants. (2) If the controlling interest change involves a transfer of interest to an entity not previously holding an ownership interest in the borrower entity, the request for consent must include a written certification, executed by the party receiving the ownership interest, certifying that the recipient of the ownership interest agrees to assume responsibilities and obligations required of a borrower as established in Agency program requirements including requirements in the promissory note, loan agreement, or other document related to Agency loans held by the borrower entity. (3) The Agency will not take a consent request for a controlling interest change under consideration if the borrower's request fails to meet the requirements specified in paragraph (b)(2) of this section. (4) Borrowers must submit a credit report in accordance with subpart R of this part. (c) Documentation of organizational structures and ownership interest. (1) Documentation must be submitted with the annual financial reports required by § 3560.308 and must reflect any changes made during the 12-month period preceding the submission of the annual financial reports. (2) If no changes in a borrower entity's organizational structure or ownership were made during the 12-month period prior to submission of the annual financial reports, borrowers are not required to submit documentation, but must submit a statement certifying that no changes have been made in the documents on file with the Agency. (3) Organizational structure and ownership documentation must include the following items: (i) A current organization description reflecting all approved changes in the organizational structure of the borrower entity and listing the names, addresses, and tax identification numbers of all parties with an ownership interest in the borrower entity; and (ii) A written statement by the borrower certifying that the changes in the borrower entity's organizational structure or ownership interests were completed in compliance with state and local laws and in accordance with organizational requirements of the borrower entity. [69 FR 69106, Nov. 26, 2004, as amended at 89 FR 106980, Dec. 31, 2024] § 3560.406 MFH ownership transfers or sales. (a) General. (b) Agency consent requirements. (1) Priority consideration will be given to ownership transfers or sales needed to remove a hardship to the borrower that was caused by circumstances beyond the borrower's control. (2) Ownership transfers or sales with an assumption of debt at an amount less than the borrower's debt amount will only be approved by the Agency when all persons in the borrower entity who are transferring their ownership interest or are involved in the selling of the property are not part of the transferee organization. (c) Consent request requirements. (1) A statement disclosing any identity-of-interest between the borrower and the party to which the housing project ownership is being transferred or sold. (2) A statement certifying that the housing project's financial accounts are funded at required levels, less authorized withdrawals, and that payments due for operation and maintenance expenses, tax assessments, insurance premiums, any required tenant security deposit accounts, and other obligations incurred as a part of the housing project operations are paid in full with no overdue balances or a statement explaining the housing project's financial situation and the reasons for overdue payments or under funded accounts. (3) A proposed housing project budget covering the partial year, if applicable, and first full year operation following the ownership transfer or housing project sale. (4) A written statement, signed by the proposed transferee or buyer, certifying that the transferee or buyer will assume the borrower responsibilities and obligations specified in Agency program requirements including requirements in a promissory note, loan agreement or other documents related to Agency loans held by the borrower entity. (5) A certification from the borrower and the proposed transferee or buyer that the borrower does not and will not have a reversionary interest in the housing project. (6) A credit report in accordance with subpart R of this part. (d) Requirements for ownership transfers or sales. (1) The transferee or buyer must be an eligible borrower under the requirements established by subpart B of this part; (2) The transferee or buyer must agree to set basic rents at the housing project covered by the assumed loans at levels that do no exceed conventional rents for comparable units in the area, except that when determined necessary by the Agency to allow for decent, safe and sanitary housing to be provided in market areas where conventional rents are not sufficient to cover necessary operating, maintenance, and reserve costs. Basic rents may be allowed to exceed comparable rents for conventional units, but in no case by more than 150% of the comparable rent for conventional unit rent level; and (3) The value of the housing project covered by the loans to be assumed, at the time of an ownership transfer or sale, must be sufficient to ensure that all Agency loans being assumed and all subsequent loans being offered as a part of the transfer or sale can be secured to a level that fully protects the Agency's interest. Loans from third-party sources that are not dependent on project revenue for payment will not be included in this determination. (i) If the total value of the loans being offered as a part of an ownership transfer or sale is $100,000 or less, the security value of the housing project may be determined through either: An Agency review of monitoring reports conducted in accordance with the requirements in subpart H of this part or an appraisal paid for by the borrower and conducted in accordance with subpart P of this part. (ii) If the total value of the loans being offered as a part of an ownership transfer or sale exceeds $100,000, the security value of the housing project must be determined through an appraisal obtained by the Agency and conducted in accordance with subpart P of this part. (iii) The Agency may approve a loan write-down, in accordance with § 3560.455, prior to an ownership transfer or sale to reduce the amount of debt being assumed by the transferee or buyer. (4) Prior to Agency approval of an ownership transfer or sale, the appropriate level of environmental review in accordance with 7 CFR part 1970 must be completed by the Agency on all property related to the ownership transfer or sale. If releases of or contamination from hazardous substances or petroleum products is found on the property, the finding must be disclosed to the Agency and the transferee or buyer and must be taken into consideration in the determination of the housing project's value. (5) All immediate and long-term repair and rehabilitation needs must be identified by a capital needs assessment. The reserve requirements for the housing project will be reviewed by the Agency and adjusted, if necessary, to adequately cover the cost of addressing the property's capital needs. The Agency may approve the release of the current reserve amount to the transferor provided the transferee agrees to deposit the amount to cover the project's immediate needs into the reserve account at closing. (6) The borrower and transferee must disclose to the Agency all terms, conditions, or other considerations related to the ownership transfer or sale. All side or other agreements must be disclosed and all sources and uses of funds related to the ownership transfer or sale must be disclosed. (7) An agreement must be signed between the borrower and the transferee listing all repairs known by the borrower to be necessary to bring the housing project into compliance with Agency requirements for decent, safe, and sanitary housing as listed in subpart C of this part. (i) The agreement must include repairs required to correct compliance violations cited in a compliance violation notice issued by the Agency. (ii) The agreement must specify whether each repair listed will be completed by the borrower prior to the ownership transfer or by the transferee in accordance with a workout agreement developed in accordance with the requirements of § 3560.453 and executed between the transferee or buyer and the Agency. (8) A civil rights compliance review, as required by 7 CFR part 1901, subpart E, will be conducted by the Agency prior to the ownership transfer or sale. (9) During or immediately after the transfer, a review of the property must be conducted to ensure that it complies with or will comply with section 504(c) of the Americans with Disabilities Act (ADA), which covers accessibility requirements, and the Title VI of the Fair Housing Act of 1968. (10) A transferee must ensure that tenant certifications in compliance with subpart D of this part for all occupied rental units are on file with the Agency. (11) A transferee must comply with insurance and bonding requirements established in subpart C of this part at the time of the transfer. (12) A transferee must agree to submit financial reports to the Agency according to subpart G of this part. (13) A transferee must establish that there are no liens, judgments, or other claims against the housing project other than those by the Agency and those to which the Agency has previously agreed. (14) A limited profit Rural Rental Housing transferee's initial investment and return on investment will remain the same as that originally provided to the transferor unless: (i) The property is transferred to a non-profit entity and the return on investment is eliminated; or (ii) The transferee contributes additional funds for repair or rehabilitation and the Agency agrees to recognize a higher initial investment. (e) Equity payments. (1) The borrower's indebtedness to the Agency has not been paid in full or is not being assumed by the transferee. The Agency will require that all or part of an equity payment be applied against other Agency loans owed by the borrower if payments on the other loans are not current. (2) Any non-Agency prior liens against a housing project are not paid in full. (3) Any housing project financial accounts are not funded at required levels, less authorized withdrawals, or any payments due for operation and maintenance expenses, tax assessments, insurance premiums, tenant security deposits or other obligations incurred as a part of housing project operations are not paid in full. (4) Any management deficiencies cited in a compliance violation notice issued by the Agency to the borrower have not been corrected or the housing project is not operating under an approved management plan or, if applicable, an approved management agreement. (5) Any operation and maintenance deficiencies cited in compliance violation notices issued by the Agency have not been corrected or are not scheduled for correction in a workout agreement developed in accordance with the requirements of § 3560.453. (6) The borrower entity is, at the time of the ownership transfer or sale, cited by the Agency or other Federal, state, or local agencies for violations of Fair Housing or Equal Opportunity requirements. (7) The borrower entity is, at the time of the ownership transfer or sale, cited by the Agency or any other entity involved in the financing of the housing project for misappropriation of funds. (f) Equity payment funding sources. (g) Restrictive-use requirement. (h) Subsequent loans. (1) Subsequent loans on a housing project proposed in conjunction with an ownership transfer or sale must be requested and processed in accordance with the Agency loan origination requirements in subpart B of this part. (2) The Agency may amortize the subsequent loan over a period not to exceed the remaining economic life of the housing or 50 years, whichever is less. (3) The Agency may extend the term of the existing loan to a period not to exceed 30 years or the remaining economic life of the housing, whichever is less. (i) Loan assumption interest rates. (1) The interest rate for all loans, except farm labor housing loans, will be set at the lower of: (i) The note rate of the existing Agency loan; (ii) The Agency note rate on the day the transfer is approved; (iii) The Agency note rate on the day the transfer is closed; or (iv) If the rents are increased due to a transfer, the transfer will be done under new rates and terms when the Agency determines that it is in the best interest of the government. Subsequent loan may be in the form of a senior, junior or parity lien or soft second. (2) The interest rate on farm labor housing loans will be the rate specified in the note, except that loans transferred to public bodies, nonprofit organizations of farm workers, and broadly-based nonprofit corporations for farm labor housing purposes may be at a one percent interest rate regardless of the rate specified in the note if the Agency determines that such a reduction is necessary to maintain affordable rental rates for tenants. (j) Loan assumption terms. (1) The Agency may reamortize a loan assumed through an ownership transfer or sale over a period not to exceed the remaining economic life of the housing or 50 years, whichever is less. (2) The Agency may extend the term of the loan to a period not to exceed 30 years or the remaining economic life of the housing, whichever is less. (3) When loans assumed through an ownership transfer or sale are amortized on an annual payment basis, the loans will be converted, at the time of the transfer or sale, to a monthly payment amortization and will be made subject to PASS. When on- or off-farm labor housing projects are involved in an ownership transfer or sale, the related loans may be transferred on a DIAS basis or converted to PASS if the Agency determines that such a conversion will not be detrimental to the operation of the farm labor housing. (k) Processing ownership transfers or sales. (i) Any funds remaining in a rental assistance contract not dispersed by the transferor will be assigned to the transferee unless the rental assistance is not needed for tenants or another form of rental subsidy is to be used. (ii) Any rental assistance determined to be unnecessary will be reassigned to other housing projects in accordance with the provisions of subpart F of this part. (2) The Agency will require that appropriate loan documents are executed by the transferee. The Agency may require such documents to be referenced in security instruments (e.g., mortgage or deed of trust). (3) If all of a borrower's outstanding Agency debt is not assumed or paid off at the time of the transfer or sale, the Agency will not release a borrower from liability unless the Agency determines that the borrower is unable to pay the remaining debt from assets taken as security through the debt settlement procedure in accordance with § 3560.457. (l) Ownership transfers or sales under special rates, terms, and conditions. (1) The transferee makes a down payment of at least 10 percent of the remaining loan balance to be assumed. (2) The transferee has the ability to pay the Agency debt. (3) Monthly or annual installments will be amortized over the term of the loan and the interest rate will be at a rate of interest at least one percent higher than the interest rate offered to eligible borrowers as specified in paragraphs (i)(1) or (2) of this section. [69 FR 69106, Nov. 26, 2004, as amended at 81 FR 11049, Mar. 2, 2016; 89 FR 106980, Dec. 31, 2024] § 3560.407 Sales or other disposition of security property. (a) General. (b) Request requirements. (1) The borrower's ability to repay the Agency debt will not be impaired; (2) The transaction will not interfere with the successful operation of the housing project or prevent the borrower from carrying out the purpose for which the loan was made. (3) The monetary or other consideration offered in the transaction is equal to or greater than the market value of the security property being disposed of or the rights being granted, except that right-of-way easements may be granted or conveyed with minimal or no consideration being offered if: (i) The value of the security property will not be reduced; (ii) The suitability of the security property for the intended purpose will not be impaired; and (iii) The easement is granted to allow the borrower to develop additional lots or units that will be integrated into the housing project or for enhancement of streets, utilities or other services provided by a public body. (4) The property that will remain as security for Agency loans, after any transaction related to security property, will fully secure the borrower's debt to the Agency. (5) Borrowers must report to the Agency the total of all proceeds derived from the sale or other disposition of property serving as security for Agency loans. The proceeds from the disposition of the security property will be used for purposes approved by the Agency. [69 FR 69106, Nov. 26, 2004, as amended at 81 FR 11049, Mar. 2, 2016] § 3560.408 Lease of security property. (a) General. (b) Leases to public housing authorities. (c) Lease of a portion of the security property. (1) The lease is in the best interest of the borrower, the tenants, and the Federal Government. (2) The amount of the consideration agreed to in the lease is adequate to pay all prorated operating and maintenance expenses, a prorated share of the annual reserve deposit, and the prorated part of the loan amortization at the note rate of interest. (3) All compensation and considerations, whether payments, a share of proceeds, or improvements to the property paid for by the lessee, must be disclosed to the Agency. No payments or compensation for entering into a lease shall flow to the borrower or any identity-of-interest related to the borrower. (4) The lease provides at its termination for the restoration of the leased space to its original condition or a condition acceptable to the owner and the Federal Government. (5) Consent to the lease will not exceed 3 years at a time unless the Agency determines that a longer lease is advantageous to the borrower, the tenants, and the Federal Government. (6) When another lienholder's mortgage requires that lienholder's consent to a lease, the borrower must obtain written consent from the lienholder before the Agency will consider approving the lease. (d) Mineral leases. [69 FR 69106, Nov. 26, 2004, as amended at 81 FR 11049, Mar. 2, 2016] § 3560.409 Subordinations or junior liens against security property. (a) General. i.e., (1) If a lien is placed against property serving as security for an Agency loan without prior Agency consent, the Agency will declare the borrower to be in default and will pursue liquidation of the borrower's loans in accordance with the procedures specified in § 3560.457, unless an agreement can be reached between the borrower and the Agency to work out removal of the lien or post approve the lien. (2) Subordinations or junior liens need not encompass the entire site, (e.g., a subordination or junior lien requested to permit an interim lender to advance construction funds may only cover the portion of the site proposed for construction.) (3) The subordination or junior lien must be for a specific amount. (4) The subordination or junior lien must not adversely impact the Agency's ability to service the loan according to the requirements of this part. (b) Consent request requirements. (1) The action will enable the borrower to obtain financial resources for improvements or repairs on the security property that are consistent with the purposes of the Agency loan secured by the property. (2) The action will not adversely impact the borrower's financial condition and the borrower's ability to repay the Agency loan being secured by the property. (3) The action will not result in basic rents at the security property that exceed conventional rents for comparable units in the area. (4) The terms and conditions of the credit to be secured by the subordination or junior lien are not expected to adversely affect the borrowers ability to meet the terms and conditions of the Agency loan secured by the property. (5) The proposed use of the funds obtained through the granting of a subordination or junior lien will not adversely affect the borrower's ability to meet Agency program requirements or to operate and manage the housing project in a manner consistent with program objectives. (6) The creditor receiving the “subordination” of interest in the property or the junior lien will agree that a foreclosure or acceptance of a deed-in-lieu of foreclosure will not be initiated without at least 30 days prior notice to the Agency. (7) The subordination or junior lien is not being secured with any funding from housing project financial accounts. (8) The “subordination” of interest or junior lien will not cause the debt from all sources to exceed the value of the security property. (9) The transaction related to the placement of a “subordination” of interest or junior lien against the property serving as security for an Agency loan is in the best interest of the Federal Government. (c) Required conditions for subordinations and junior liens. (1) Farm Labor Housing loans on farm tracts may be subordinated for essential farm improvements and operations. (2) Any proposed development must be planned and performed according to 7 CFR part 1924, subpart A, or in a manner directed by the other lienholder that meets the objectives of 7 CFR part 1924, subpart A. (d) Other liens against a property or other assets. (i) The transaction will not adversely affect the Agency's security position; (ii) The lien is not related to a non-program eligible action; (iii) The items to be acquired by the funding related to the lien is needed for the operation of the property; and (iv) The financing arrangements are otherwise sound. (2) In cases where the above criteria are met, borrowers must complete and provide the Agency a copy of the financing statement, loan document, or contract, as applicable, as well as a security agreement acceptable to the Agency. [69 FR 69106, Nov. 26, 2004, as amended at 81 FR 11049, Mar. 2, 2016] § 3560.410 Consolidations. (a) General. i.e. (b) Loan consolidations. (1) Multiple loans to the one borrower entity are being transferred to a different borrower entity in accordance with § 3560.406, or (2) One borrower entity has an initial loan and one or more subsequent loans for the same housing project and all the loans were closed on the same date and with the same rates and terms. (c) Loan agreement or loan resolution consolidations. (1) The loan agreements or loan resolutions may only be consolidated when they are related to loans made for the same purposes, to the same borrower, and operating under the same type of interest credit, if applicable. (2) All of a borrower's loan accounts must be current after the loan agreement or loan resolution consolidation is processed, unless otherwise approved by the Agency. §§ 3560.411-3560.449 [Reserved] § 3560.450 OMB control number. The information collection requirements contained in this regulation have been approved by the Office of Management and Budget (OMB) and have been assigned OMB control number 0575-0189. Public reporting burden for this collection of information is estimated to vary from 15 minutes to 18 hours per response, including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. A person is not required to respond to a collection of information unless it displays a currently valid OMB control number. Subpart J—Special Servicing, Enforcement, Liquidation, and Other Actions § 3560.451 General. This subpart contains special servicing, enforcement, liquidation, and other actions that the borrower may request or the Agency may implement when compliance violations, monetary defaults, or non-monetary defaults cannot be resolved through regular servicing. (a) Agency obligations. (b) Relationship to workout agreements. § 3560.452 Monetary and non-monetary defaults. (a) General. (b) Monetary defaults. (c) Nonmonetary defaults. (1) Operate and manage a housing project in accordance with the Agency approved management plan or Agency requirements; (2) Maintain the physical condition of a housing project in a decent, safe, and sanitary manner and in accordance with Agency requirements; (3) Keep general operating expense, reserve, and other financial accounts related to a housing project at required funding levels; (4) Occupy rental units with eligible tenants, unless granted an exception by the Agency; (5) Charge correct rents or to correctly calculate net tenant contributions, utility allowances, or rental assistance payments or to properly administer the Agency rental assistance assigned to the housing project; (6) Submit required annual financial reports to the Agency within time periods specified in § 3560.308; (7) Submit management plans, leases, occupancy rules, and other required materials to the Agency in accordance with Agency requirements; and, (8) Comply with applicable Federal laws including laws related to civil rights, fair housing, disabilities, and environmental conditions. (d) Default notice. (e) Agency action. § 3560.453 Workout agreements. (a) General. (2) A borrower may develop and submit to the Agency for approval a workout agreement that proposes actions to be taken over a period of time to prevent or correct a compliance violation or to cure a monetary or non-monetary default. (3) A borrower developed workout agreement may propose, but is not limited to, the following actions: (i) A combination of one or more of the special servicing actions outlined in §§ 3560.454 and 3560.455; (ii) A change in operations and management at a housing project; or (iii) A commitment of additional financial resources to the housing project with the amount and source of the additional resources to be committed to the housing project specifically identified. (b) Workout agreement approval. (2) Borrower developed workout agreements may not be implemented until the borrower receives written approval from the Agency. (3) The Agency will only approve a workout agreement if the Agency determines that the actions proposed are likely to prevent or correct compliance violations or cure a default and approval is in the best interest of the Federal Government and tenants. (4) The Agency will only approve a workout agreement if the proposed actions are consistent with the borrower's management plan. If proposed actions are not consistent with the borrower's management plan, applicable revisions to the borrower's management plan must be made before approval of the workout agreement is given. (c) Workout agreement required content. (2) At a minimum, workout agreements must include the following. (i) The name and address of the housing project, project number, borrower's tax identification number, and other information necessary to identify the housing project. (ii) A description of the potential or actual compliance violation or default situation, including an explanation of related causes, such as cash flow concerns, budget revisions, deferred maintenance, vacancies, or violations of statutes. (iii) A definition and description of the housing project's market area, including information on housing availability, rents, and vacancy rates in the market area. (iv) A description of the proposed actions to prevent or correct compliance violations or to cure defaults along with a date specific schedule indicating when interim and final actions will be taken to correct the compliance violation or cure the default. (v) A description of financial and other resources necessary to prevent or correct the compliance violation or cure the default including an identification of the sources for such resources. (d) Workout agreement budgets. (1) Prior lienholder, if any; (2) Critical operating and maintenance expenses, including taxes and insurance; (3) Agency debt payments; (4) Reserve account requirements; and (5) Other authorized expenditures. (e) Workout agreement terms and cancellation. (2) The Agency may cancel a workout agreement at any time if the borrower fails to comply with the terms of the agreement. The Agency will provide notice to the borrower upon cancellation of the workout agreement. § 3560.454 Special servicing actions related to housing operations. (a) Changing rents or revising budgets. (b) Occupancy waivers. (c) Additional rental assistance (RA). (d) Special note rents. (1) An SNR rent may only be requested as a part of a proposed workout agreement and must include documentation of market conditions, the housing project's vacancy rates, evidence of marketing efforts, and other concerns necessitating the request for an SNR. (2) Borrowers must forego the annual return to owner for each housing project's fiscal year that an SNR is in effect for all or part of a fiscal year at a housing project. (3) SNR's may be increased, decreased, or terminated any time during a housing project's fiscal year when market conditions, vacancy rates, or other concerns that necessitated the SNR warrant a change. (4) In addition to any state lease law requirements that might be related to the implementation of an SNR, the borrower must notify each tenant of any change in rents or utility allowances that result from approval of an SNR, in accordance with § 3560.205(c) and must submit the appropriate budget changes to the Agency for approval. (e) Termination of management agreement. § 3560.455 Special servicing actions related to loan accounts. (a) General. (b) Loan reamortizations. (1) Loan reamortizations will only be approved when they are in the best interest of the Federal Government and tenants and when the following conditions are met. (i) The Agency determines that the borrower will be unable to meet their obligations without a reduction in monthly payment installments; and (ii) The Agency is satisfied that the security, including the potential income for debt service, will be adequate to protect the Agency's interest over the term of the reamortization and that the reamortization will not adversely affect the Federal Government's lien priority. (2) If the Agency approves a reamortization of a loan under this section, it will be at the existing note rate, or the current interest rate at the time of reamortization closing or approval, whichever is less. (3) Loan reamortization may be used to: (i) Restructure loan repayments to prevent or correct a compliance violation or cure a default caused by circumstances beyond the borrower's control in situations where the borrower is otherwise in compliance with Agency requirements; (ii) Repay principal, outstanding interest, overage, and advances made by the Agency for recoverable cost items when less than full payments were authorized under the provisions of an Agency approved workout agreement; (iii) Restructure a borrower's loan payments in conjunction with an incentive package developed in accordance with § 3560.656 to prevent prepayment of the loan; (iv) Restructure an existing loan in conjunction with a subsequent loan for rehabilitation; or (v) Restructure remaining debt when a portion of the property serving as loan security is sold and there is a need to reestablish the financial stability of the housing project. (c) Loan writedowns. (1) Loan writedowns will only be approved when they are in the best interest of the Federal Government and when the following conditions exist: (i) Sound management of the housing project is evident or sound management practices are proposed for correction in accordance with an Agency approved workout agreement; and (ii) The housing project's financial stability is being affected by conditions beyond the borrower's control, such as market weaknesses, unforeseen site problems, or natural disasters. (2) Prior to Agency approval for a loan writedown, the borrower must obtain an appraisal of the housing project that concludes the “ ‘as-is’ market value,” subject to restricted rents, conducted in accordance with subpart P of this part. The Agency will not approve a loan write-down unless the appraisal indicates the Federal Government's interests are secured at the proposed writedown level. (3) Any writedown will be conditioned on a finding that the borrower does not have the ability to pay a higher loan payment, even if the loan is reamortized. (4) Loan writedowns may be used to allow for a loan transfer and assumption for less than the total amount of outstanding debt. § 3560.456 Liquidation. Prior to any servicing action which might lead to the acquisition of real property by the Agency, the Agency must complete a due diligence report to assess any potential contamination of the property from hazardous substances, hazardous wastes, or petroleum products. The borrower must cooperate with the Agency in the development of this report. (a) Before acceleration. (b) Acceleration. (1) If the borrower does not pay the full account balance and meet the other terms of the acceleration notice within the time period set forth in the acceleration notice, the Agency will foreclose or acquire the security property through deed in lieu of foreclosure. (2) The Agency will suspend interest credit and rental assistance. (3) The Agency will not accept partial payment of an accelerated loan unless required by state law. (c) Voluntary liquidation. (1) Deed in lieu of foreclosure. RHS may accept a deed in lieu of foreclosure to convey title to the security property only after the debt has been accelerated and when it is in the Government's best interest. (2) Offer by third party. If a junior lienholder or cosigner makes an offer in the amount of at least the net recovery value, RHS may assign the note and mortgage after all appeal rights have expired. (d) Foreclosure. (2) When a junior lienholder foreclosure does not result in payment in full of the Agency debt but the property is sold subject to the Agency lien, the Agency will liquidate the account. (e) Acquisition of chattel properties. (2) If the Agency decides to accept an offer of voluntary conveyance of chattel property, the borrower must provide an itemized listing of each chattel property item being conveyed and provide title to vehicles or other equipment, where applicable. § 3560.457 Negotiated debt settlement. (a) Borrower proposals to settle debt. (b) Required information. (c) Effective date of approval. (d) Appraisal requirement. (e) Disposition of security prior to offer. (f) Final release condition. § 3560.458 Special property circumstances. (a) Abandonment. (b) Other security. (c) Taking of additional security to protect Agency interests. (1) The account is in default; or (2) The property has not been properly managed or maintained. (d) Due diligence. [69 FR 69106, Nov. 26, 2004, as amended at 81 FR 11049, Mar. 2, 2016] § 3560.459 Special borrower circumstances. (a) Deceased borrower, bankruptcy, insolvency, and divorce actions. (1) On the part of the heirs or executor of the borrower's estate, evidence of legal action due to a will or court actions that establish who is to become the owner; (2) The financial status of the borrower and any member pledging additional security for the debt; (3) The status of the security property; and (4) The impact of the identified actions on the operation of the project. (b) Membership liability agreements. (c) Security issues in participation loans. § 3560.460 Double damages. (a) Action to recover assets or income. (2) For the purposes of this section, a use of assets or income in violation of the applicable loan, statute, or regulation includes any use for which the documentation in the books and accounts does not establish that the use was made for a reasonable operating expense or necessary repair of the project or for which the documentation has not been maintained in accordance with the requirements of the Agency and in reasonable condition for proper audit. (3) For the purposes of this section, the term “person” means: (i) Any individual or entity that borrows funds in accordance with programs authorized by this section; (ii) Any individual or entity holding 25 percent or more interest in any entity that the Agency funds in accordance with programs authorized by this section; and (iii) Any officer, director, or partner of an entity that borrows funds in accordance with programs authorized by this section. (b) Amount recoverable. (2) Notwithstanding any other provisions of law, the Agency may use amounts recovered under this section for activities authorized under this section and such funds must remain available for such use until expended. (c) Time limitation. (d) Continued availability of other remedies. § 3560.461 Enforcement provisions. (a) Equity skimming Criminal penalty. (2) Civil sanctions. (b) Civil monetary penalties When civil monetary penalties may be imposed. (i) Submitting information to the Agency that is false. (ii) Providing the Agency with false certifications. (iii) Failing to submit information requested by the Agency in a timely manner. (iv) Failing to maintain the property subject to loans made under this title in good repair and condition, as determined by the Agency. (v) Failing to provide management for a project that received a loan made under this title that is acceptable to the Agency. (vi) Failing to comply with the provisions of applicable civil rights statutes and regulations. (2) Amount. (i) The gravity of the offense; (ii) Any history of prior offenses by the violator (including offenses occurring prior to the enactment of this section); (iii) Any injury to tenants; (iv) Any injury to the public; (v) Any benefits received by the violator as a result of the violation; (vi) Deterrence of future violations; and (vii) Such other factors as the Agency may establish by regulation. (3) Payment of penalties. (4) Hearings under this part shall be conducted in accordance with the procedures applicable to hearings in accordance with 7 CFR part 1, subpart H. (c) Conditions for renewal extension. [69 FR 69106, Nov. 26, 2004, as amended at 81 FR 57442, Aug. 23, 2016] § 3560.462 Money laundering. The Agency will act in accordance with U.S. Code Title 18, part I, chapter 95, section 1956(c)(7)(D). § 3560.463 Obstruction of Federal audits. The Agency will act in accordance with U.S. Code Title 18, part I, chapter 73, section 1516(a). §§ 3560.464-3560.499 [Reserved] § 3560.500 OMB control number. The information collection requirements contained in this regulation have been approved by the Office of Management and Budget (OMB) and have been assigned OMB control number 0575-0189. Public reporting burden for this collection of information is estimated to vary from 15 minutes to 18 hours per response, including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. A person is not required to respond to a collection of information unless it displays a currently valid OMB control number. Subpart K—Management and Disposition of Real Estate Owned (REO) Properties § 3560.501 General. This subpart contains Agency procedures and other policies related to the management and disposition of multi-family housing (MFH) projects in the Agency's inventory (Real Estate Owned (REO) property). Housing projects will not be accepted into the Agency's inventory unless one of the following has occurred: (a) The borrower has abandoned the housing project and the Agency has performed the required steps to take the housing project into custody. (b) The housing project title has been transferred to the Agency as a result of foreclosure, voluntary conveyance, redemption, or other action. § 3560.502 Tenant notifications and assistance. Each tenant in an REO property designated to be sold as a non-program property will be notified by the Agency, in writing, of the housing projects' non-program designation and will be given an opportunity to obtain a Letter Of Priority Entitlement (LOPE) as specified in § 3560.159(c). § 3560.503 Disposition of REO property. (a) Preference will be given to offers from bidders who are determined eligible by the Agency to purchase REO property designated to be sold as program property. It is the Agency's priority that property previously operated as program property prior to becoming REO inventory property be sold as program property. However, REO property may be sold under whatever Agency program is most appropriate for the property and the community needs regardless of the program under which the property was originally financed or whether the property was being used to secure loans under more than one Agency program. (b) When the Agency determines that the REO property to be sold is not decent, safe, and sanitary and/or does not meet cost effective energy conservation standards, it will disclose the basis for this determination to prospective purchasers. The deed by which such an REO property is conveyed will contain a covenant restricting it from residential use until it is decent, safe, and sanitary, and meets the Agency's cost effective conservation standards. The Agency will also notify any potential purchaser of any known lead based paint hazards. § 3560.504 Sales price and bidding process. (a) The loan documents related to REO property sold for program purposes must contain the restrictive-use language specified in § 3560.662(a). (b) Entities bidding on REO property designated to be sold as program property must submit a loan application package that meets the requirements specified in subpart B of this part. (1) Bidders on REO property designated to be sold as program property must meet the eligibility requirements established under § 3560.55. (2) Bidders determined by the Agency to be ineligible to purchase REO property designated to be sold as program property will be notified in writing. The bidding process will continue regardless of pending appeals. (3) All offers from bidders determined to be eligible to purchase REO property designated to be sold as program property will be considered in the bidding process and must provide evidence of financial stability and credit worthiness. (c) The Agency will determine the successful bidder on REO property designated to be sold as program property by conducting a drawing of sealed bids. (1) The Agency may authorize the sale of an REO property by sealed bid or public auction when it is in the best interest of the Government. The Agency will publicly solicit requests for sealed bids and publicize auctions. If the highest bid is lower than the minimum acceptable bid established by the Agency, or if no acceptable bids are received, the Agency may negotiate a sale without further public notice. (2) Bidders who desire to withdraw their bids must do so prior to the drawing date. (d) Property designated to be sold as non-program property may be sold to entities that do not meet the Agency's eligible borrower requirements specified in § 3560.55, and must be sold for cash or on terms approved by the Agency. Cash sales will be given first preference and will be drawn before any sales on terms. § 3560.505 Agency loans to finance purchases of REO properties. (a) Agency loans to finance the purchase of REO property designated to be sold as program property must meet the same requirements as specified in subparts A and B of this part. In addition, the following provisions apply. (1) At the borrower's option, the interest rate will be the prevailing rate at the time of loan approval or the prevailing rate at loan closing. (2) Purchasers may pay closing costs from their own funds or, if allowable under subparts B, L, or M of this part, as applicable, may finance such costs as part of the Agency loan. (b) Agency loans to finance the purchase of REO property designated to be sold as non-program property must meet the following terms. (1) A down payment of not less than 10 percent of the purchase price is required at closing. (2) The interest rate will equal the lesser of the prevailing interest rate at the time of loan approval or loan closing for MFH loans plus one-half percent. (3) The note amount will be amortized over a period not to exceed 10 years. If the Agency determines that more favorable terms are necessary to facilitate the sale, the note amount may be amortized using a 30-year factor with payment in full due no later than 10 years from the date of closing (balloon payment). In no case will the term be longer than the useful life of the property. (4) Agency loans to finance the purchase of non-program REO property are subject to the availability of funds. (c) Loan limits and allowable uses of loan funds specified in subparts B, L, and M of this part, as applicable, are applicable to any Agency-financed (credit) sale of REO property. (d) Title clearance and loan closing for an Agency financed sale and any subsequent loan to be closed simultaneously with the sale must meet the requirements in subpart B of this part for an initial loan, with the following exceptions: (1) A “Quit Claim” or other non-warranty deed will be used; and (2) The buyer must pay attorney's fees, insurance costs, recording fees and other customary fees unless they are included in a subsequent loan and the subsequent loan is for purposes other than closing costs and fees. (e) After approval of an Agency-financed sale of occupied REO property designated to be sold as program property, but prior to closing, the purchaser must prepare a budget for housing operations in accordance with subpart B of this part. If a rent increase is necessary, procedures specified in subparts E and F of this part for calculating rents, net tenant contributions, and rental assistance will be followed by the borrower. § 3560.506 Conversion of single family type REO property to MFH use. Single family type REO property may be sold for conversion to MFH program use under the following conditions: (a) The Agency will allow nonprofit organizations, public bodies, or for-profit entities to purchase single family type REO property for conversion to MFH program use. When the Agency finances the sale of single family-type REO property for conversion to rural rental housing program use ( i.e. (b) The Agency will only accept written offers to purchase two or more single family type REO properties for conversion to rural rental housing from nonprofit organizations, public bodies, or for-profit entities with a good record of providing housing under the Agency's MFH programs. The single family type properties are not required to be contiguous, however, they must be located in close enough proximity so that management capabilities are not diminished because of distance. §§ 3560.507-3560.549 [Reserved] § 3560.550 OMB control number. The information collection requirements contained in this regulation have been approved by the Office of Management and Budget (OMB) and have been assigned OMB control number 0575-0189. Public reporting burden for this collection of information is estimated to vary from 15 minutes to 18 hours per response, including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. A person is not required to respond to a collection of information unless it displays a currently valid OMB control number. Subpart L—Off-Farm Labor Housing § 3560.551 General. This subpart establishes the requirements for making loans and grants for off-farm labor housing and for ongoing operations of this housing. Unless otherwise specified in this subpart, the requirements of subparts A through K, N, O, and P of this part will apply in addition to the requirements in this subpart. § 3560.552 Program objectives. (a) In addition to the objectives stated in § 3560.52, off-farm labor housing loan and grant funds will be used to increase: (1) The supply of affordable housing for farm labor; and (2) The ability of communities to attract farm labor by providing housing which is affordable, decent, safe and sanitary. (b) Under section 516(i) of the Housing Act of 1949 (42 U.S.C. 1486(i)), the Agency may award technical assistance grants to encourage the development of farm labor housing. § 3560.553 Loan and grant purposes. (a) In addition to the purposes stated in § 3560.53, off-farm labor housing loan and grant funds may be used to provide facilities for seasonal or temporary residential use with appropriate furnishings and equipment. A temporary residence is a dwelling which is used for occupancy, usually for a short period of time, but is not the legal domicile for the occupant. (b) The Agency may award technical assistance grants to eligible private and public nonprofit agencies. These grant recipients will, in turn, assist other organizations to obtain loans and grants for the construction of farm labor housing. (c) Technical assistance services may not be used to reimburse a nonprofit or public body applicant for technical services provided by a nonprofit organization, with housing and/or community development experience, to assist the nonprofit applicant entity in the development and packaging of its loan/grant docket and project. In addition, technical assistance will not be funded by the Agency when an identity of interest exists between the technical assistance provider and the loan or grant applicant. § 3560.554 Use of funds restrictions. Off-farm labor housing loan and grant funds may not be used for any purpose prohibited by § 3560.54 except § 3560.54(a)(1). Off-farm labor housing may be used to serve migrant farmworkers. § 3560.555 Eligibility requirements for off-farm labor housing loans and grants. (a) Eligibility for loans. (1) A broad-based nonprofit organization, a nonprofit organization of farmworkers, a federally recognized Indian tribe, a community organization, or an agency or political subdivision of State or local government, and must meet the requirements of § 3560.55, excluding § 3560.55(a)(6). A broad-based nonprofit organization is a nonprofit organization that has a membership that reflects a variety of interests in the area where the housing will be located; or (2) A limited partnership with a non-profit general partner which meets the requirements of § 3560.55(d). (b) Eligibility for grants. (1) Meet the requirements in § 3560.555(a)(1); and (2) Be able to contribute at least one-tenth of the total farm labor housing development cost from its own or other resources. The applicant's contribution must be available at the time of grant closing. An off-farm labor housing loan financed by RHS may be used to meet this requirement. (c) Limitation. § 3560.556 Application requirements and processing. Off-farm loans and grants will be available under a Notice of Funding Availability (NOFA) that will be published in the Federal Register § 3560.557 [Reserved] § 3560.558 Site requirements. The requirements established in § 3560.58 apply to all applications for off-farm labor housing loans and grants except that off-farm labor housing are not limited to rural areas. § 3560.559 Design and construction requirements. (a) General. (b) Additional requirements. (c) Davis-Bacon wage requirements. § 3560.560 Security. The security requirements established in § 3560.61 will apply to all applications for off-farm labor housing loans. § 3560.561 Technical, legal, insurance and other services. The requirements established under § 3560.62 apply to all applications for off-farm labor housing loans and grants. § 3560.562 Loan and grant limits. (a) Determining the security value. (b) Maximum amount of loan. (c) Maximum amount of grant. (1) Ninety percent of the total development cost, or (2) That portion of the total development cost which exceeds the sum of any amount provided by the applicant from their own resources plus the amount of any loans approved for the applicant, considering the capacity of the applicant to amortize the loan. § 3560.563 Initial operating capital. The requirements for § 3560.64 apply to all applications for off-farm labor housing loans and grants. § 3560.564 Reserve accounts. The requirements for § 3560.65 apply to all applications for off-farm labor housing loans and grants. § 3560.565 Participation with other funding or financing sources. The requirements established in § 3560.66 apply to all applications for off-farm labor housing loans and grants, except that the 25 percent requirements stated in paragraph § 3560.66(b)(1) may consist of loan and/or grant funds. § 3560.566 Loan and grant rates and terms. (a) Amortization period. (b) Interest rate. (c) Term of grant agreement. (d) Grant period of performance. [69 FR 69106, Nov. 26, 2004, as amended at 89 FR 85037, Oct. 25, 2024] § 3560.567 Establishing the profit base on initial investment. The requirements established under § 3560.68 apply to applicants eligible under § 3560.555(a)(2) and operating as a limited partnership with a nonprofit general partner. § 3560.568 Supplemental requirements for seasonal off-farm labor housing. For off-farm labor housing operating on a seasonal basis, the management plan must establish specific opening and closing dates. During the off-season, off-farm labor housing may be used as defined in subpart A of this part under short-term lease provisions. Where rents are charged on a per-unit basis and family income qualifies the household for rental assistance, rental assistance may be used. § 3560.569 Supplemental requirements for manufactured housing. The requirements established in § 3560.70 apply to all applications for off-farm labor housing loans and grants. § 3560.570 Construction financing. The requirements established in § 3560.71 apply to all applications involving off-farm labor housing loans and grants. In addition, the following requirements apply. (a) Equity contributions being made by a borrower or grantee must be contributed and disbursed prior to any disbursement of interim loan funds and any loan or grant funds from the Agency. (b) If the Agency is providing both loan and grant funds, loan funds must be fully released and expended prior to the release of grant funds by the Agency. (c) If construction is financed with a Labor Housing grant, it is subject to the provisions of the Davis-Bacon Act (published in the Department of Labor regulations 29 CFR parts 1, 2, and 5). § 3560.571 Loan and grant closing. The requirements established in § 3560.72 apply to all applications for off-farm labor housing loans and grants. In addition, the following requirements apply. (a) A nonprofit organization will have its Board of Directors adopt an Agency-approved loan and/or grant resolution, which is required as part of the loan docket before loan and/or grant approval. All other loan applicants will execute an Agency-approved loan agreement. (b) For grants, an Agency approved grant agreement, must be executed by the applicant on the date of grant closing. (c) The obligations incurred by the applicant, as a condition of accepting the grant, will be in accordance with the off-farm labor housing grant agreement. (d) Off-farm labor housing loans used to build or acquire new units made pursuant to a contract entered into on or after the effective date of this regulation, will be subject to the restrictive-use provision stated in § 3560.72(a)(2)(ii). All other off-farm labor housing loans are subject to the restrictive-use provisions contained in their loan documents and as outlined in subpart N of this regulation. Such restrictions must be included in the mortgage and deed of trust. § 3560.572 Subsequent loans. The requirements established in § 3560.73 will apply to all applications for subsequent off-farm labor housing loans. § 3560.573 Rental assistance. (a) Rental assistance may be provided to income eligible tenants living in off-farm labor housing in accordance with subpart F of this part. The requirements established in § 3560.252 apply to all tenants receiving rental assistance. (b) For dormitory style facilities operating on a per bed basis, rental assistance will be made available to the housing on a per unit basis, but may be pro-rated to tenants on a per bed basis. However, total rent charged for a unit must not exceed conventional rent for comparable units in the area or a similar area and per bed rents must be comparable to per bed rents in the market. § 3560.574 Operating assistance. Operating assistance may be used in lieu of tenant-specific rental assistance in off-farm labor housing projects financed under section 514 or section 516(i) of the Housing Act of 1949 (U.S.C. 1486(i)) that serve migrant farmworkers. Owners of eligible projects may choose tenant-specific rental assistance as described in § 3560.573 or operating assistance, or a combination of both, however, any tenant or unit assisted under this section may not receive rental assistance under § 3560.572. The objective of this program is to provide assistance toward the cost of operating the project so that rents may be set at rates that are affordable to very low and low-income migrant farmworkers. (a) Project eligibility requirements. (1) Off-farm labor housing projects financed under section 514 or section 516 with units that are for migrant farmworkers. Housing units for year-round farmworker households are ineligible; and (2) Eligible for the Agency's rental assistance program as defined in § 3560.573. (b) Operating assistance limits. (c) Owner responsibilities Requesting for operating assistance program. (i) Estimated operating costs for the migrant units, including authorized expenditures such as reserve deposits; (ii) Proposed rental rates for the migrant units to generate sufficient funds for operating costs of those units, taking into consideration all other sources of project income; and (iii) Estimated rental income from tenants, based on a tenant contribution of 30 percent of the average adjusted monthly income of migrant farmworker households in the area. (2) Requesting operating assistance payments. (3) Verifying tenant income eligibility. (4) Reporting requirements. (ii) Owners will complete and submit monthly to the Agency a project worksheet for operating assistance. (iii) Owners must submit an annual planning budget to the Agency prior to the project's fiscal year. § 3560.575 Rental structure and changes. Off-farm labor housing is subject to the tenant contribution and rental unit rent requirements for Plan II housing established under subpart E of this part, except where seasonal housing will be occupied for less than a 3-month period. In such instances the best available and practical income verification methods may be used with prior approval of the Agency. § 3560.576 Occupancy restrictions. (a) Restrictions on conditions of occupancy. (2) Tenant selection should be in accordance with the loan agreement, subpart D of this part and § 3560.577. (3) No borrower or grantee will discriminate, or permit discrimination by any agent, lessee, or other operator in the use or occupancy of the housing or related facilities because of race, color, religion, sex, age, disability, familial status, or national origin. (b) Eligible households. (1) Occupational. (2) Income. (i) For housing rented to farm laborers and owned by public bodies, public or private nonprofit organizations, and limited partnerships when charging rent. (A) Actual dollars earned from farm labor by domestic farm laborers other than migrant farmworkers must equal at least 65 percent of the annual income limits indicated for the Standard Federal regions as published by the Agency for their particular region of the country. For migrant farmworkers living in seasonal housing the actual dollars earned from farm labor by a domestic farm laborer must equal at least 50 percent of annual income limits indicated for the Standard Federal regions, as published by the Agency. (B) An alternate measure for determining substantial portion of income when actual earnings are not available may be the duration of time a farm laborer worked on a farm or other farming enterprise as a domestic farmworker during the preceding 12 months. In order to be considered as substantial the farm laborer must have worked at least 110 whole days in farm work. For purposes of this section one whole day is the equivalent of at least 7 hours. When using a period of more than 1 year, a yearly average must amount to at least 110 days per year. (ii) For housing owned by a farmer, family-farm partnership, family-farm corporation, or an association of farmers which was initially provided on a non-rental basis, a substantial portion of income is earned when housing is provided by the owner as part of employment compensation for farm labor. (iii) When a natural disaster has occurred, such as a drought, flood, freeze, etc., figures for the 12 months preceding such disaster will be used to determine substantial portion of income under paragraph (b)(2) of this section. (iv) The tenant who qualifies as a domestic farm laborer residing in a property with a nonrestrictive farm labor clause in the mortgage covenants must not have adjusted income which exceeds the moderate income limit for the appropriate household size and appropriate geographical area. (3) Occupancy. (c) Tenant eligibility requirements for operating assistance rents. (d) Ineligible tenants. (e) Non-farm laborer tenants. [69 FR 69106, Nov. 26, 2004, as amended at 87 FR 11286, Mar. 1, 2022] § 3560.577 Tenant priorities for labor housing. Tenant occupancy in off-farm labor housing is based on eligible farm labor certified through the income certification process required by § 3560.152 and is prioritized in the following order. (a) First priority is to be given to eligible active farm laborer households with first priority going to very low-income households, next priority to low-income households, and last to moderate-income households. (b) Second priority is given to retired domestic farm laborer households and disabled domestic farm laborer households who were active in the local farm labor market area at the time of retiring or becoming disabled. Occupancy priority will be given in accordance with paragraph (a) of this section. (c) Third priority is to be given to retired domestic farm laborer households and disabled domestic farm laborer households who were not active in the local farm labor market at the time of retiring or becoming disabled. Occupancy priority will be given in accordance with paragraph (a) of this section. § 3560.578 Financial management of labor housing. The requirements established in subpart G of this part will apply to all off-farm labor housing. § 3560.579 Servicing off-farm labor housing. The requirements established in subparts I and J of this part will apply to all off-farm labor housing. Servicing according to subparts I and J of this part shall apply throughout the term of the loan or grant, whichever is longer. §§ 3560.580-3560.599 [Reserved] § 3560.600 OMB control number. The information collection requirements contained in this regulation have been approved by the Office of Management and Budget (OMB) and have been assigned OMB control number 0575-0189. Public reporting burden for this collection of information is estimated to vary from 15 minutes to 18 hours per response, including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. A person is not required to respond to a collection of information unless it displays a currently valid OMB control number. Subpart M—On-Farm Labor Housing § 3560.601 General. This subpart contains the requirements for making loans for on-farm labor housing and for ongoing operation and management of on-farm labor housing. Unless otherwise specified in this subpart, the requirements of subparts A through K, N, O, and P of this part will apply in addition to requirements given in this subpart. § 3560.602 Program objectives. In addition to the objectives stated in § 3560.52, on-farm labor housing funds will be used to increase: (a) The supply of affordable housing for farm labor; and (b) The ability of the farmer to provide affordable, decent, safe and sanitary housing for farm workers. § 3560.603 Loan purposes. On-farm labor housing loans may be made only for the purposes established in § 3560.553. Grants are not available for on-farm labor housing. § 3560.604 Restrictions on use of funds. On-farm labor housing loans may not be used for any purpose prohibited by § 3560.54 except § 3560.54(a)(1). On-farm labor housing may be used to serve migrant workers. In addition, on-farm labor housing loan funds may not be used to provide housing for members of the immediate family of the applicant when the applicant is an individual farm owner, family farm corporation, family farm partnership, or a member of an association of farmers. Immediate family includes mother, father, brothers, sisters, sons, and daughters of the applicant and spouse. § 3560.605 Eligibility requirements. (a) To be eligible for an on-farm labor housing loan, the applicant must meet the requirements of § 3560.55(a) with the exception of § 3560.55(a)(1), (5), and (6) and the following requirements. (1) The applicant must be a farm owner, family farm partnership, family farm corporation, or an association of farmers engaged in agricultural or aquacultural farming operations whose farming operations demonstrate a need for on-farm labor housing and who will own the housing and operate it on a nonprofit basis. (2) The applicant must agree to use the labor housing to engage in the farming operations of the individual farm owner applicant, or in the farming operations of its members if it is a family farm corporation or partnership, or an association of farmers. (3) The applicant must, as determined by the Agency, be unable to provide the necessary housing from the applicant's own resources and be unable to obtain credit from any other source upon terms and conditions which the applicant could reasonably be expected to fulfill. If the applicant is an association of farmers or family farm corporation or partnership, the individual members, individually and jointly, must be unable to provide the necessary housing by utilizing their own resources and be unable, by pledging their personal liability, to obtain other credit that would enable them to provide housing for farm workers at rental rates they can afford to pay. The individual resources of family farm corporation or partnership members with less than a 10 percent corporate or partnership interest should not be considered when determining if the applicant can obtain credit elsewhere. (b) The Agency may make an exception to the requirement that an individual farm owner, family farm corporation, family farm partnership or an association of farmers be unable to obtain the necessary credit elsewhere when all of the following conditions exist: (1) There is a housing need in the area for domestic farmworkers who are migrants and the applicant will provide such housing; and (2) There are no qualified state or political subdivisions or public or private nonprofit organizations available, or likely to become available within 12 months of the application, that are willing and able to provide the housing. (c) When an applicant is determined eligible under paragraph (b) of this section, the interest rate for such loans will be determined in accordance with 7 CFR part 1810, subpart A. (d) On-farm labor housing that consists of buildings with less than three units is not subject to the requirement that five percent of the units be constructed as fully accessible units, as described in § 3560.60(d). § 3560.606 Application requirements and processing. (a) On-farm labor housing loan applications will be processed according to 7 CFR part 1940, subpart L. Applicants must submit an application in an Agency-approved format that adequately documents the need for the housing and the eligibility of the applicant. (b) The applicant must certify that the farm workers for which the housing is intended are or will be involved in the applicant's agricultural or aquacultural farming operations. (c) The applicant must certify that housing operations will be conducted in a non-profit manner such that income from the housing does not exceed eligible expenses associated with the housing. Eligible expenditures for the housing include, but are not limited to housing repairs and upkeep, payment of installments on the loan, taxes, insurance and reserves and other essential uses needed for success of the operations. § 3560.607 [Reserved] § 3560.608 Site and construction requirements. (a) General. (b) Permanent units. (1) Housing may be multi-family or single family in type and may be located on the farm away from farm service buildings, or in the nearby community. Single-family type housing is defined as an individual or a group of individual single family detached dwelling units. All sites and housing shall be planned and constructed in accordance with 7 CFR part 1924, subparts A and C. (2) Sites must be accessible from a public road, when feasible. (c) Seasonal units. (1) Housing designed for seasonal occupancy may be either single family or multi-family. (2) Seasonal housing may be constructed in accordance with exhibit I of 7 CFR part 1924, subpart A. If constructed in accordance with exhibit I, the housing must be suitable to allow for conversion to full-year occupancy if the need for migrant farmworkers in the area declines. (d) Accessibility. § 3560.609 [Reserved] § 3560.610 Security. (a) Security instruments must meet the requirements established under § 3560.560. (b) When feasible, the on-farm labor housing will be located on a tract of land that is surveyed such that, for security purposes, it is considered separate and distinct from the farm. The security for the loan must include a lien on the tract of land where the on-farm labor housing is located and the security must have adequate value to protect the Federal government's interest. The Agency will seek a first or parity lien position on Agency-financed property in all instances, however, the Agency may accept a junior lien position if the Federal government's interests are adequately secured. (c) The Agency will determine the value of the security for the loan in accordance with 7 CFR part 1922, subpart B if the farm is used as security or in accordance with section 502 of the Housing Act of 1949, if only the on-farm labor housing and related land is used for security. (d) If necessary to provide adequate security for the loan, the Agency may require that any household furnishings purchased with loan funds also be secured. (e) Personal liability and recourse will be required of all borrowers, including the individual members, stockholders or partners of an association of farmers, family farm corporations or partnerships, respectively. § 3560.611 Technical, legal, insurance and other services. When technical, legal, insurance, or services are required for development of on-farm labor housing, applicants must comply with the applicable requirements of § 3560.62. Regarding insurance coverage, the requirements of § 3560.62(d) apply to on-farm labor housing. § 3560.612 Loan limits. The maximum loan amount will be 100 percent of the allowable total development costs of on-farm labor housing and related facilities subject to §§ 3560.603, 3560.604 and 3560.608. § 3560.613 [Reserved] § 3560.614 Reserve accounts. When on-farm labor housing operations include 12 or more units, the Agency will require such properties to comply with the reserve account requirements in § 3560.65. § 3560.615 Participation with other funding sources. The Agency encourages the use of other funding sources in conjunction with on-farm labor housing loans. Use of such financing in conjunction with an on-farm labor housing loan is subject to the approval of the Agency and must comply with the requirements of § 3560.66. § 3560.616 Rates and terms. (a) The interest rate for on-farm labor housing loans will be 1 percent. (b) The term of the on-farm labor housing loan will not exceed 33 years. (c) Loan amortization for on-farm labor housing may be on a monthly or an annual basis. § 3560.617 [Reserved] § 3560.618 Supplemental requirements for on-farm labor housing. The management plan for on-farm labor housing operated on a seasonal basis must have specific opening and closing dates. During the off-season, on-farm labor housing may be used under short-term lease provisions. § 3560.619 Supplemental requirements for manufactured housing. On-farm labor housing loan funds used for manufactured housing must comply with § 3560.70. Manufactured housing located on-farm may consist of individual units. § 3560.620 Construction financing. The requirements established in § 3560.71 apply to all applications involving on-farm labor housing loans. § 3560.621 Loan closing. Applicants for on-farm labor housing loans must execute an Agency-approved loan agreement. In addition, if determined appropriate by the Agency, on-farm labor housing loans made on or after the effective date of this regulation may be subject to the restrictive-use provisions as stated in § 3560.72(a)(2)(ii). All other on-farm labor housing loans are subject to the restrictive-use provisions contained in their loan documents and as outlined in subpart N of this regulation. § 3560.622 Subsequent loans. The requirements established in § 3560.572 apply to all applications for on-farm labor housing subsequent loans. § 3560.623 Housing management and operations. Borrowers with on-farm labor housing loans must: (a) Develop and submit to the Agency a management plan in a format specified by the Agency. At a minimum, the management plan will detail the borrower's operational and occupancy policies, how the borrower will deal with resident complaints, and how repairs will be completed; and (b) Maintain a lease or employment contract with each tenant specifying employment with the borrower as a condition for continued occupancy. § 3560.624 Occupancy restrictions. (a) The immediate relatives of the borrowers are ineligible occupants for on-farm labor housing. (b) Occupants must meet the definition of a domestic farm laborer, as defined in § 3560.11. (a) Occupancy of on-farm labor housing is restricted to employees of the borrower unless otherwise approved by the Agency. (d) With prior written permission of the Agency, on-farm labor housing may be occupied by ineligible tenants on a short-term basis. The permission of the Agency must also be for a limited duration. § 3560.625 Maintaining the physical asset. On-farm labor housing must meet state and local building and occupancy codes. § 3560.626 Affirmative Fair Housing Marketing Plan. On-farm labor housing must meet the requirements of § 3560.104. § 3560.627 Response to resident complaints. The management plan submitted in accordance with § 3560.623 (a) will include a provision for dealing with resident complaints. § 3560.628 Establishing and modifying rental charges. If it becomes necessary to establish or modify a shelter cost, the borrower must obtain Agency approval as specified in subpart E of this part. § 3560.629 Security deposits. Borrowers that require security deposits to be paid by the tenants will be required to comply with the requirements of § 3560.204. § 3560.630 Financial management. Financial information must be submitted in an Agency-approved format and will show operation of the housing in a non-profit manner. § 3560.631 Agency monitoring. A compliance review and physical inspection will be conducted by the Agency at least once every 3 years. The purpose of this review will be to inspect: (a) Tenant eligibility documentation; (b) Financial information on the operation and management of the labor housing, including relevant borrower financial materials; (c) Payment of taxes, insurance and hazard insurance; (d) Compliance with the security deposit requirements; (e) Compliance with the operating plan; (f) Compliance with the loan agreement; (g) Compliance with Agency requirements for affordable, decent, safe, and sanitary housing; and (h) Compliance with civil rights requirements. §§ 3560.632-3560.649 [Reserved] § 3560.650 OMB control number. The information collection requirements contained in this regulation have been approved by the Office of Management and Budget (OMB) and have been assigned OMB control number 0575-0189. Public reporting burden for this collection of information is estimated to vary from 15 minutes to 18 hours per response, including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. A person is not required to respond to a collection of information unless it displays a currently valid OMB control number. Subpart N—Housing Preservation § 3560.651 General. (a) This subpart contains the Agency's housing preservation requirements as related to prepayment requests and restrictive-use provisions (RUPs). The requirements of this subpart support the Agency's commitment to the preservation of decent, safe, sanitary, and affordable multi-family housing (MFH) for very low-, low-, and moderate-income households. (b) The Agency will coordinate, direct, and monitor the Agency's MFH preservation activities from the National Office level. § 3560.652 Prepayment and restrictive-use categories. (a) Loans with prepayment prohibitions include: (1) Initial section 515 loans made on or after December 15, 1989, and (2) Subsequent loans made on or after December 15, 1989, for additional rental units. (b) Loans without prepayment prohibitions but with restrictive-use provisions include: (1) All loans made after December 21, 1979, but prior to December 15, 1989; (2) Subsequent loans made on or after December 15, 1989, for purposes other than additional rental units; or (3) Loans subsequently restricted by servicing actions including transfers. (c) Loans without prepayment prohibitions or restrictive-use provisions include all loans made on or before December 21, 1979 or loans that had restrictive-use provisions that have expired. Such loans are eligible to receive incentives subject to the provisions of this subpart. (d) Loans may be prepaid if another loan or grant from the Agency imposes the same or more stringent restrictive-use provisions on the housing project covered by the loan being prepaid. § 3560.653 Prepayment requests. (a) Borrowers seeking to prepay an Agency loan must submit a written prepayment request to the Agency at least 180 days in advance of the anticipated prepayment date and must obtain Agency approval before the Agency will accept prepayment. (b) Prior to submitting a prepayment request, borrowers must take whatever actions are necessary to provide the following items: (1) A clear description of the loan to be prepaid, the housing project covered by the loan being prepaid, and the requested date of prepayment. (2) A statement documenting the borrower's ability to prepay under the terms specified. (3) A certification that the borrower will comply with any federal, state, or local laws or regulations which may relate to the prepayment request and a statement of actions needed to assure such compliance. (4) A copy of lease language to be used during the period between the submission date and the final resolution of the prepayment request notifying tenant applicants that the owner of the housing project has submitted a prepayment request to the Agency and explaining the potential effect of the request on the lease. (5) Borrowers are required to submit a signed release of information form along with the prepayment request. The Agency will notify nonprofit organizations and public bodies involved in providing affordable housing or financial assistance to tenants of the receipt of a borrower's request to prepay their loan(s). Additionally, the Agency is to notify nonprofit organizations and public bodies whenever a borrower, who has requested prepayment, is required or elects to offer their property for sale to a nonprofit or public body. (6) A certification that the borrower has notified all governmental entities involved in providing affordable housing or financial assistance to tenants in the project and that the borrower has provided a statement specifying how long financial assistance from such parties will be provided to tenants after prepayment. (7) A statement affirming that units in the property applying for prepayment will continue to be available for rent by eligible residents during the prepayment process. (c) The Agency will review complete requests to determine if: (1) The loan is eligible for prepayment under § 3560.652(b); (2) The borrower has the ability to prepay; and (3) The borrower has complied or has the ability to comply with applicable Federal, state, and local laws related to the prepayment request. (d) If a prepayment request lacks full and complete information on any item, the Agency will return the prepayment request to the borrower with a letter citing the deficiencies in the prepayment request. The Agency will offer borrowers an opportunity, within 30 days following the date of the return, to address the reasons given by the Agency for the return of the prepayment request and will allow the borrower to submit a revised prepayment request. (e) If the Agency determines that the prepayment request appropriately satisfies all the conditions listed in paragraph (d) of this section, the Agency will process the prepayment request and make a reasonable effort to enter into a new restrictive-use agreement with the borrower in accordance with § 3560.662 or § 3560.655. If the Agency determines that a loan is ineligible for prepayment or the borrower does not have the ability to prepay, the Agency will return the prepayment request to the borrower with a written explanation of the Agency's determinations. [69 FR 69106, Nov. 26, 2004, as amended at 73 FR 65506, Nov. 4, 2008] § 3560.654 Tenant notification requirements. (a) Within 30 calendar days of receiving a complete prepayment request, the Agency will send a prepayment request notice to each tenant in the housing project. Borrowers must post the Agency's prepayment request notice in public areas throughout the housing project from the date of the notice until the final resolution of the prepayment request. The prepayment request notice will establish a date and place where tenants may meet with the Agency to discuss the prepayment request and will advise tenants that: (1) They may review all information submitted with the prepayment request except financial information regarding the borrower entity, which the Agency will withhold from tenant review unless given written permission for the release of the information from the borrower; and, (2) They have 30 days from the date of the prepayment request notice to give the Agency comments on the prepayment request. (b) Borrowers may provide a prepayment request notice of their own directly to tenants and may establish a date and place where tenants may meet with the borrower to discuss the prepayment request. The Agency and other providers of housing assistance for very-low, low, and moderate-income households may attend a borrower's prepayment request meeting with tenants. (c) If the Agency agrees to accept prepayment on a loan, the Agency will send a prepayment acceptance notice to each tenant in the housing project at least 60 days prior to the prepayment date. Borrowers must post copies of the Agency's prepayment acceptance notice in public areas throughout the housing project until prepayment is made. If the prepayment acceptance was based on a borrower's agreement to comply with restrictive-use provisions, the notice will describe the restrictive-use provisions that will apply to the housing project after prepayment and the tenant's rights to enforcement of the provisions. (d) If the borrower withdraws the prepayment request, the Agency will provide a prepayment request cancellation notice to each tenant in the housing project. Borrowers must post copies of the prepayment request cancellation notice in the public areas throughout the housing project for a period of 60 days following the date of the prepayment request cancellation notice. (e) If the borrower agrees to accept incentives and restrictive-use provisions, the Agency will notify each tenant, in writing, of the agreement and provide a description of the restrictive-use provision. (f) If a borrower agrees to sell a housing project involved in a prepayment request to a nonprofit organization or public body, the Agency will notify each tenant, in writing, of the proposed sale to a nonprofit organization or public body and will explain the timeframes involved with the proposed sale, any potential impact on tenants, and the actions tenants may take to alleviate any adverse impact. Borrowers must post copies of the Agency's proposed sale notice in public areas throughout the housing project until the housing project is sold or the offer to sell is withdrawn. (g) If a tenant applicant signs a lease in a housing project for which a prepayment request has been submitted, the borrower must provide the tenant with copies of all notifications provided to tenants by the Agency or the borrower prior to the tenant's occupancy in the housing project. (h) If a borrower is unable to sell a housing project involved in a prepayment request to a nonprofit organization or public body within 180 days as specified in § 3560.659, the Agency will send a notice to each tenant in the housing project explaining the potential impact of the borrower's inability to sell the housing project on tenants and the actions tenants may take to alleviate any adverse impact. Borrowers must post the Agency's notice in public areas throughout the housing project for a period of 60 days following the date of the notice. § 3560.655 Agency requested extension. Before accepting an offer to prepay from a borrower with a restricted loan, the Agency must first make a reasonable effort to enter into a new restrictive-use agreement with the borrower. Under this agreement, the borrower would make a binding commitment to extend the low-income use of the housing and related facilities for 20 years for loans with interest credit, beginning on the date on which the new agreement is executed. If the borrower is unwilling to enter into a new restrictive-use provisions and restrictive-use agreement, the Agency should proceed to take the actions described in § 3560.658. § 3560.656 Incentives offers. (a) The Agency may offer a borrower, who submits a prepayment request meeting the conditions of § 3560.653(d), incentives to agree to the restrictive-use period in § 3560.662 if the following conditions are met: (1) The market value of the housing project is determined by the Agency, based on an appraisal conducted in accordance with subpart P of this part. (2) There are no restrictive-use agreements or prepayment prohibitions in effect. (b) Specific incentives offered will be based on the Agency's assessment of: (1) The value of the housing project as determined by the Agency based on an “as-is” market value appraisal conducted in accordance with subpart P of this part; (2) An incentive amount that will provide a fair return to the borrower; (3) An incentive amount that will not cause basic rents at the housing project to exceed conventional rents for comparable units; except that when determined necessary by the Agency to allow for decent, safe and sanitary housing to be provided in market areas where conventional rents are not sufficient to cover necessary operating, maintenance, and reserve costs. Basic rents may be allowed to exceed comparable rents for conventional units, but in no case by more than 150% of the comparable rent for conventional unit rent level; and (4) An incentive amount that will be the least costly alternative for the Federal Government while being consistent with the Agency's commitment to the preservation of housing for very-low, low, and moderate income households in rural areas. (c) The Agency may offer the following incentives: (1) The Agency may increase the borrower's annual return on equity by one of the following two methods. The actual withdrawal of the return remains subject to the procedures and conditions for withdrawal specified in subpart G of this part. (i) The Agency may recognize the borrower's current equity in the housing project. The equity will be determined using an Agency accepted appraisal based on the housing project's value as unsubsidized conventional housing. (ii) When a current appraisal indicates an equity loan can not be made, the Agency may recognize the borrower's current equity in the housing project at the higher of the original rate of return or the current 15-year Treasury bond rate plus 2 percent rounded to the nearest one-quarter percent. The equity will be determined using the most recent Agency accepted appraisal of the housing project prior to receiving the prepayment request. (2) The Agency may agree to convert projects without interest credit or with Plan I interest credit to Plan II interest credit or increase the interest credit subsidy for loans with Section 8 assistance to lower the interest rate on the loan and make basic rents more financially feasible. (3) The Agency may offer additional rental assistance, or an increase in assistance provided under existing contracts under §§ 521(a)(2), 521(a)(5) of the Housing Act of 1949 (42 U.S.C. 1490a(a)(2)) or section 8 of the United States Housing Act of 1937 (42 U.S.C. § 1437f). (4) The Agency may make an equity loan to the borrower. The equity loan must not adversely affect the borrower's ability to repay other Agency loans held by the borrower and must be made in conformance with the following requirements: (i) The equity loan must not exceed the difference between the current unpaid loan balance and 90 percent of the housing project's value as determined by an “as-is” market value appraisal conducted in accordance with subpart P of this part. (ii) Borrowers with farm labor housing loans are not eligible to receive equity loans as incentives. (iii) If an incentive offer for an equity loan is accepted, the equity loan may be processed and closed with the borrower or any eligible transferee. (iv) Excess reserve funds will be used to reduce the amount of an equity loan offered to a borrower. (v) Equity loans may not be offered unless the Agency determines that other incentives are not adequate to provide a fair return on the investment of the borrower to prevent prepayment of the loan or to prevent displacement of project tenants. (5) The Agency will offer rental assistance to protect tenants from rent overburden caused by any rent increase as a result of a borrower's acceptance of an incentive offer or tenants who are currently overburdened. (6) In housing projects with project-based section 8 assistance, the Agency may permit the borrower to receive rents in excess of the amounts determined necessary by the Agency to defray the cost of long-term repair or maintenance of such a project. (d) The Agency must determine that the combination of assistance provided is necessary to provide a fair return on the investment of the borrower and is the least costly alternative for the Federal Government. (e) At the time a specific incentive offer is developed, the Agency must take into consideration the costs of any deferred maintenance, items in the housing project's operating budget, and any expected long-term repair or replacement costs based on a capital needs assessment developed in accordance with § 3560.103(c). Deferred maintenance may include specific items identified in previous Agency inspections where the borrower has had the opportunity and resources available to take corrective actions and did not. (1) Deferred maintenance does not include routine repair and replacement that results from normal wear and tear of the physical asset. The amount required for the reserve account to be considered fully funded will be adjusted accordingly. To determine if basic rents exceed conventional rents for comparable units in the area, monthly contributions necessary to obtain the adjusted fully funded reserve account will be included in the calculation of basic rents. (2) Deferred maintenance including any deficiencies identified in project compliance with section 504 of the Rehabilitation Act of 1973 must be addressed as part of the development of the incentive and must be completed as part of an acceptance agreement of any incentive. (f) Existing loans must be consolidated, provided consolidation retains the Agency's lien position, and reamortized in accordance with subparts I and J of this part, provided it maintains feasibility of the housing for the tenants or reduces the debt service or the level of monthly rental assistance. (g) The borrower must accept or reject the incentive offer within 30 days. If no answer to the offer is received within 30 days, the Agency may consider the incentive offer to be rejected. (1) If the borrower accepts the incentive offer, procedures outlined in § 3560.657 must be followed. (2) If the borrower rejects the incentive offer, the borrower must comply with requirements listed in § 3560.658. [69 FR 69106, Nov. 26, 2004, as amended at 73 FR 65506, Nov. 4, 2008; 87 FR 11286, Mar. 1, 2022] § 3560.657 Processing and closing incentive offers. (a) Borrower responsibilities. (1) Subject to the Agency's approval, the borrower must legally restrict the use of the project in accordance with and for the number of years stated in § 3560.662. (2) If the incentive offer accepted includes an equity loan, the borrower must complete an application for the equity loan, and the borrower must continue to qualify as an eligible borrower or transferee in accordance with subpart B of this part. (3) If the incentive offer accepted includes rent increases, the borrower must follow the rent increase requirements established in subpart E of this part. (b) Waiting lists. (c) Unfunded incentive offers. (1) The borrower may offer to sell the housing project in accordance with § 3650.659. In this case the borrower will be removed from the list of borrowers awaiting incentives. (2) The borrower may stay on the list of borrowers awaiting incentives until the borrower's incentive offer is funded. The Agency will not negotiate the incentive offer; but, at a borrower's request, may adjust the incentive amount to reflect an updated appraisal, loan balance, and terms of third party financing. (3) The borrower may withdraw the prepayment request and be removed from the list of borrowers awaiting incentives and either continue operating the housing project for program purposes and in accordance with Agency requirements or continue processing their prepayment process in accordance with § 3560.658. If the borrower chooses to withdraw their request, the borrower may resubmit an updated prepayment request, at any time, and repeat the prepayment process in accordance with this subpart. (4) The borrower may elect to obtain a third-party equity loan provided rents will not exceed comparable rents in the market area. § 3560.658 Borrower rejection of the incentive offer. (a) If a borrower rejects the incentive package offered by the Agency or an Agency request to extended restrictive-use provisions, made in accordance with § 3560.662, the loan will only be prepaid if the borrower elects to agree to the following: (1) The borrower agrees to sign restrictive-use provisions to extend restrictive-use by 10 years from the date of prepayment, and at the end of the restrictive-use period offer to sell the housing to a qualified nonprofit organization or public body in accordance with § 3560.659. (2) If housing opportunities for minorities would be lost as a result of prepayment, the borrower will offer to sell the housing to a qualified nonprofit organization or public body in accordance with § 3560.659. (b) If the borrower does not elect or agree to enter an agreement in accordance with paragraph (a) of this section, then the Agency will assess the impact of prepayment on two factors: housing opportunities for minorities and the supply of decent, safe, sanitary, and affordable housing in the market area. The Agency will review relevant information to determine the availability of comparable affordable housing for existing tenants in the market area and if minorities in the project, on the waiting list or in the market area will be disproportionately adversely affected by the loss of the affordable rental housing units. (1) If restrictive-use provisions are in place, the borrower will agree to sign the restrictive-use provisions, as determined by the Agency, and at the end of the restrictive-use period, offer to sell the housing to a qualified nonprofit organization or public body in accordance with § 3560.659. (2) If the Agency determines that prepayment will have an adverse impact on minorities, then the borrower must offer to sell to a qualified nonprofit organization or public body in accordance with the provisions of paragraph (a) of this section. (3) If the Agency determines that the prepayment will not have an adverse effect on housing opportunities for minorities but there is not an adequate supply of decent, safe, and sanitary rental housing affordable to program eligible tenant households in the market area, the loan may be prepaid only if the borrower agrees to sign restrictive-use provisions, as determined by the Agency, to protect tenants at the time of prepayment. (4) If the Agency determines that there is no adverse impact on minorities and there is an adequate supply of decent, safe, and sanitary rental housing affordable to program eligible tenant households in the market area the prepayment will be accepted with no further restriction. (c) If the borrower agrees to the restrictive-use provisions, as determined by the Agency, the applicable language must be included in the release documents and the borrower must execute a restrictive-use agreement acceptable to the Agency and a deed restriction. (d) If the borrower will not agree to applicable restrictive-use provisions, as determined by the Agency, the borrower must offer to sell to a nonprofit or public body in accordance with § 3560.659 or withdraw their prepayment request. [69 FR 69106, Nov. 26, 2004, as amended at 73 FR 65506, Nov. 4, 2008] § 3560.659 Sale or transfer to nonprofit organizations and public bodies. (a) Sales price. (1) The expense of the borrower's appraisal shall be borne by the borrower. The appraiser selected may not have an identity of interest with the borrower. (2) If the two appraisers fail to agree on the market value, the Agency and the borrower will jointly select an appraiser whose appraisal will be binding on the Agency and the borrower. The Agency and the borrower shall jointly fund the cost of the appraisal. (b) Marketing to nonprofit organizations and public bodies. (1) The borrower must advertise and offer to sell the project for a minimum of 180 days. The borrower may choose to suspend advertising and other sales efforts while eligibility of an interested purchaser is determined. If the purchaser is determined to be ineligible, the borrower must resume advertising for the balance of the required 180 days. (2) The Agency will assist the borrower in initially notifying nonprofit organizations and public bodies. (3) The borrower must provide the nonprofit organizations and public bodies contacted with sufficient information regarding the housing project and its operations for interested purchasers to make an informed decision. The information provided must include the minimum value of the housing project based on the market value determined in accordance with paragraph (a) of this section. (4) If an interested purchaser requests additional information concerning the housing project, the borrower must promptly provide the requested materials. (c) Preference for local nonprofit and public bodies. (d) Eligible nonprofit organizations. (e) Requirements for nonprofit organizations and public bodies. (1) The purchaser must agree to maintain the housing project for very low- and low-income families or persons for the remaining useful life of the housing and related facilities. However, currently eligible moderate-income tenants will not be required to move. (2) The purchaser must agree that no subsequent transfer of the housing project will be permitted for the remaining useful life of the housing project unless the Agency determines that the transfer will further the provision of housing for low-income households, or there is no longer a need for the housing project. Language to be included in the deed, conveyance instrument, loan resolution, and assumption agreement (as applicable) is provided in § 3560.662. (3) The purchaser must demonstrate financial feasibility of the housing project including anticipated funding. (4) The purchaser must certify to the Agency that no identity-of-interest relationships in accordance with § 3560.102(g). The purchaser must not have any identity of interest with the seller or any borrower that has previously prepaid or requested prepayment of an Agency MFH loan. (5) The purchaser must complete an Agency-approved application and obtain Agency approval in accordance with subpart B of this part. (6) The purchaser must make a ;good faith offer taking into consideration the value of the housing project as determined in accordance with paragraph (a) of this section. (f) Selection priorities. (g) Loans made by the Agency or other sources to nonprofit organizations and public bodies. (1) Agency loans to nonprofit organizations or public bodies for the purchase of a housing project will be based on the appraised value determined in accordance with paragraph (a) of this section. (2) With proper justification, an Agency loan may be made to help the nonprofit organization or public body meet the housing project's first year operating expenses if there are insufficient funds in the housing project's general operating and expense account to meet such expenses. An Agency loan, for the purpose of covering first year operating expenses, may not exceed 2 percent of the housing project's appraised value determined in accordance with paragraph (c) of this section. (h) Advances for nonprofit organizations and public bodies. (i) Waiting list. (j) Withdrawal from sales process. (k) When no offer to purchase is received. [69 FR 69106, Nov. 26, 2004, as amended at 73 FR 65506, Nov. 4, 2008] § 3560.660 Acceptance of prepayments. (a) When the Agency agrees to accept prepayment, the Agency will notify borrowers, in writing, of the conditions under which the Agency will accept prepayment including the specific restrictive-use provisions to which the borrower has agreed and the date by which the borrower must make the prepayment. (1) Prepayment must be made 180 days from the date of the Agency's prepayment acceptance notice to the borrower. (2) If the borrower's prepayment is not received within 180 days of the prepayment acceptance notice and the Agency has not agreed to an alternative date based on a written request from the borrower, the Agency may cancel the prepayment acceptance agreement. (b) Tenants will be notified of the prepayment acceptance agreement in accordance with § 3560.654(c). If a prepayment is anticipated to result in increased net tenant contributions, displacements or involuntary relocations, the tenants, who are affected by such a circumstance, may request a Letter Of Priority Entitlement (LOPE) in accordance with § 3560.159(c). Tenants must request a LOPE within one year of the prepayment acceptance notice date. (c) Owners will provide certification stating that they will meet state and local laws prior to prepayment acceptance. § 3560.661 Sale or transfers. (a) If a sale or transfer is to take place in conjunction with the Agency incentive offer, the sale or transfer must comply with the processing provisions of subpart I of this part. (b) If a proposed transferee is determined not to be eligible for the transfer and assumption, the borrower will be given an additional 45 days to find another transferee. (c) In cases where the existing owner is in program non-compliance or default, the Agency may make an offer of incentives contingent on the successful transfer of the housing to an acceptable purchaser. The Agency may offer a smaller incentive or no incentive if the borrower does not agree to transfer the project to an acceptable purchaser, or if the transfer does not take place. § 3560.662 Restrictive-use provisions and agreements. All restrictions require Agency approval and must be in accordance with the following restrictions: (a) The undersigned, and any successors in interest, agree to use the property (described herein) in compliance with 42 U.S.C. 1484 or 1485, whichever is applicable, and applicable regulations and the subsequent amendments, for the purpose of housing: (1) Very low-, or low-income households when required by § 3560.658(a)(2), or (2) Very low-, low-, or moderate-income households. (b) The period of the restriction will be inserted in accordance with the following: (1) 10 years if required by § 3560.658(a)(1); (2) The last existing tenant (that occupied the property on the date of prepayment) voluntarily vacates if required by § 3560.658(b)(3); (3) 30 years if required by § 3560.406(g); (4) Remaining period of existing restrictive-use provisions and any agreed extension if required by § 3560.655 or § 3560.658 (b)(1); (5) The remaining useful life of the housing and related facilities if required by § 3560.658(a)(2); and (6) 20 years in all other cases. (c) When required by § 3560.658(a)(1) or (a)(2), the undersigned agrees that at the end of the expiration of the period described in paragraph (b) of this section, the property will be offered for sale to a qualified nonprofit organization or public body, in accordance with previously cited statutes and regulations. (d) The Agency and eligible tenants or applicants may enforce these restrictions. (e) The undersigned also agrees to: (1) To set rents, other charges, and conditions of occupancy in a manner to meet these restrictions; (2) To post an Agency approved notice of this restriction for the tenants of the property; (3) To adhere to applicable local, state, and Federal laws; and (4) To obtain Agency concurrence for any rental procedures that deviate from those approved at the time of prepayment, prior to implementation. (f) The undersigned will be released from these obligations before the termination period in paragraph (b) of this section only when the Agency determines that there is no longer a need for the housing or that financial assistance provided the residents of the housing will no longer be provided due to no fault, action or lack of action on the part of the borrower. [69 FR 69106, Nov. 26, 2004, as amended at 73 FR 65506, Nov. 4, 2008] § 3560.663 Post-payment responsibilities for loans subject to continued restrictive-use provisions. (a) If a borrower prepays a loan and the housing project remains subject to restrictive-use provisions, the requirements of this section apply after prepayment. (b) Owners of prepaid housing projects will be responsible for ensuring that the restrictive-use provisions agreed to as a condition of prepayment are observed. (c) Owners must maintain appropriate documentation to demonstrate compliance with the restrictive-use provisions and must make the documentation and the housing project site available for Federal Government inspection upon request. (1) Owners must document rent increases in accordance with subpart G of this part. (2) Owners must document tenant eligibility in accordance with § 3560.152. (3) In an Agency approved format, owners must provide the agency with a signed and dated certification within 30 days of the beginning of each calendar year for the full period of the restrictive-use provisions establishing that the restrictive-use provisions are being met. (d) Owners must observe Agency policies on tenant grievances as described in § 3560.160. The Agency may enforce restrictive-use provisions through administrative and legal actions. Tenants may enforce the restrictive-use provisions by contacting the Agency or through legal action. The Agency will release the restrictive-use provisions when the Agency conditions have been met. §§ 3560.664-3560.699 [Reserved] § 3560.700 OMB control number. The information collection requirements contained in this regulation have been approved by the Office of Management and Budget (OMB) and have been assigned OMB control number 0575-0189. Public reporting burden for this collection of information is estimated to vary from 15 minutes to 18 hours per response, including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. A person is not required to respond to a collection of information unless it displays a currently valid OMB control number. Subpart O—Unauthorized Assistance § 3560.701 General. (a) This subpart contains the policies for recapturing unauthorized assistance when the Agency determines that a borrower or tenant was ineligible for, or improperly used, assistance received from the Agency. (b) The Agency may seek repayment of any unauthorized assistance provided to a borrower or tenant, plus the cost of collection, regardless of whether the unauthorized assistance was due to errors by the Agency, the borrower, or the tenant. § 3560.702 Unauthorized assistance sources and situations. (a) Unauthorized assistance can be received by a borrower or tenant in the form of loans, grants, interest credit, rental assistance, or other assistance provided by the Agency including assistance received as a result of an incorrect interest rate being applied to an Agency loan. Agency officials may pursue identification and recapture of unauthorized assistance through any legal remedies available. (b) Unauthorized assistance may result from situations such as: (1) Assistance being provided to an ineligible borrower or tenant; (2) Assistance to an eligible borrower or tenant being used for an unauthorized purpose; (3) Assistance being obtained as a result of inaccurate, incomplete, or fraudulent information provided by a borrower or tenant; or (4) Assistance being obtained as a result of errors by the Agency, borrower, or tenant. § 3560.703 Identification of unauthorized assistance. (a) The Agency will use all available means to identify unauthorized assistance, including Agency monitoring activities, OIG reports, GAO reports, and reports from any source, if the information provided can be substantiated by the Agency. (b) Borrowers have the primary responsibility for identifying repayment of unauthorized assistance received by tenants. § 3560.704 Unauthorized assistance determination notice. (a) The Agency will notify borrowers, in writing, when a determination has been made that unauthorized assistance was received by the borrower. Borrowers will notify tenants, in writing, when a determination is made that unauthorized assistance was received by the tenant and will simultaneously send the Agency of copy of the written notice to the tenant. (b) The unauthorized assistance determination notice is a preliminary notice, not a demand letter. The unauthorized assistance determination notice will: (1) Specify the reasons the assistance was determined to be unauthorized; (2) State the amount of unauthorized assistance to be repaid and specify the party responsible for repayment of the unauthorized assistance ( i.e. (3) Establish a place and time when the person receiving the unauthorized assistance determination notice may meet with the Agency or, in the case of tenants, may meet with the borrower, to discuss issues related to the unauthorized assistance notice such as the establishment of a repayment schedule; and (4) Advise the borrower or tenant that they may present facts, figures, written records, or other information within a specified period of time which might alter the determination that the assistance received was unauthorized. (c) Upon request, the Agency or borrower, in the case of tenants, will grant additional time for discussions related to an unauthorized assistance determination notice. Borrowers must notify the Agency of schedule revisions when additional time is granted to a tenant in unauthorized assistance claims. § 3560.705 Recapture of unauthorized assistance. (a) The Agency will seek repayment of all unauthorized assistance received by a borrower or tenant, plus the cost of collection, to the fullest extent permitted by law. Agency efforts to collect unauthorized assistance may include offsets, the use of private or public collection agents, and any other remedies available. Agency findings related to unauthorized assistance determinations will be referred to credit reporting bureaus and other federal, state, or local agencies with jurisdictions related to the unauthorized assistance findings for suspension, debarment, civil or criminal action to the fullest extent permitted by law. (b) If a borrower or tenant agrees to repay unauthorized assistance, the amount due will be the amount stated in the unauthorized assistance determination notice unless another amount has been approved by the Agency. (c) Repayment may be made either with a lump sum payment or through payments made over a period of time. If a borrower or tenant agrees to repay unauthorized assistance, the borrower or tenant proposed repayment schedule must be approved by Agency prior to implementation. Agency approval of a repayment schedule will take into consideration the best interest of the borrower, the tenant, and the Federal Government. (d) Borrowers must retain copies of all correspondence and a record of all conversations between the borrower and a tenant regarding unauthorized assistance received by a tenant. (e) When a tenant, who has received unauthorized assistance due to tenant error or fraud as determined by the Agency, moves out of a housing project, the borrower is no longer responsible for recapturing the unauthorized assistance provided that the borrower notifies the Agency of the tenant's move and transfers all records related to the tenant's unauthorized assistance to the Agency within 30 days of the tenant's move. The Agency will pursue collection of the unauthorized assistance from the tenant. (f) If a borrower refuses to enter into an unauthorized assistance repayment schedule with the Agency, the Agency will initiate liquidation procedures, in accordance with § 3560.456, or other enforcement actions, such as suspension, debarment, civil, or criminal penalties, in accordance with § 3560.461. If a tenant refuses to enter into an unauthorized assistance repayment schedule, the Agency will initiate recovery actions against the tenant. (g) Borrowers may not use housing project funds to pay amounts due to the Agency as a result of unauthorized assistance due to borrower fraud. § 3560.706 Offsets. Offsets and any other available remedies may be used by the Agency to recapture unauthorized assistance. Guidance concerning use of offsets can be found at 7 CFR 3550.210. § 3560.707 Program participation and corrective actions. (a) With Agency approval, a borrower or tenant, who has received unauthorized assistance, may continue to participate in the project if they have the legal and financial capabilities to do so. Approval considerations for such forbearance and repayment are in § 3560.705. (b) A borrower or tenant who was responsible for the circumstances causing the unauthorized assistance must take appropriate action to correct the problem within 90 days of the unauthorized assistance determination notice date, unless an alternative date is agreed to by the Agency. (c) When the interest rate shown in a debt instrument resulted in the receipt of unauthorized assistance, the debt instrument will be modified to the correct interest rate. All payments made by the borrower at the incorrect interest rate will be reapplied at the correct interest rate, and remaining payments due on the loan will be recalculated on the basis of the correct interest rate, plus any amounts due to the Agency as a result of the use of an incorrect interest rate, unless the Agency agrees to a separate repayment process. § 3560.708 Unauthorized assistance received by tenants. (a) Tenant actions that require tenant repayment of unauthorized assistance received by tenants include, but are not limited to: (1) Knowingly or mistakenly misrepresenting income, assets, adjustments to income, or household status to the borrower as required under subpart D of this part; or (2) Failure to properly report changes in income, assets, adjustments to income, or household status to the borrower as required in subpart D of this part. (b) Borrower actions that require borrower repayment of unauthorized assistance received by tenants include, but are not limited to: (1) Incorrect determination of tenant income or household status by the borrower, resulting in rental assistance or interest credit that is not allowable under the provisions of subparts D, E, or F of this part, as applicable; or (2) Assignment of rental assistance to a household that is ineligible under the requirements of subpart F of this part. (c) When it is determined that a tenant has received unauthorized assistance, the borrower shall notify the tenant and the Agency through the procedure specified in § 3560.704. (d) Borrowers may not charge tenants to pay amounts due to the Agency as a result of unauthorized assistance to tenants through borrower error. (e) Borrowers must notify the Agency of all collections from tenants as repayments for unauthorized assistance and must remit or credit the amounts collected to applicable housing project accounts. (f) When rental assistance was improperly assigned to a tenant, for any reason, the rental assistance benefit must be canceled and reassigned. (1) Before a borrower notifies a tenant of rental assistance cancellation, the borrower must request Agency approval. If the Agency determines that the unauthorized rental assistance was received by the tenant due to borrower fraud or error, the borrower must give the tenant 30 days notice, in writing, that the unit was assigned in error and that the rental assistance benefit will be canceled effective on date that the next monthly rental payment is due after the end of the 30-day notice period. (2) Tenants also must be notified, in writing, that they may cancel their lease without penalty at the time the rental assistance is canceled. Tenants must be offered an opportunity to meet with a borrower to discuss the rental assistance cancellation. § 3560.709 Demand letter. (a) If a borrower fails to respond to an unauthorized assistance determination notice or fails to agree to a repayment schedule, the Agency will send the borrower a demand letter specifying: (1) The amount of unauthorized assistance to be repaid and the basis for the unauthorized assistance determination; and (2) The actions to be taken by the Agency if repayment is not made by a specified date. (b) If a tenant fails to respond to the unauthorized assistance determination notice or fails to agree to a repayment schedule, the borrower will send the tenant a demand letter specifying: (1) The amount of unauthorized assistance to be repaid and the basis for the unauthorized assistance determination; (2) The actions to be taken if repayment is not made by a specified date, including termination of tenancy; and (3) The appeal rights of the tenant as specified in § 3560.160. (c) A demand letter may be sent to a borrower or tenant, in lieu of an unauthorized assistance determination notice, when the evidence documenting the unauthorized assistance determination is deemed to be conclusive by the Agency or borrower sending the letter. §§ 3560.710-3560.749 [Reserved] § 3560.750 OMB control number. The information collection requirements contained in this regulation have been approved by the Office of Management and Budget (OMB) and have been assigned OMB control number 0575-0189. Public reporting burden for this collection of information is estimated to vary from 15 minutes to 18 hours per response, including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. A person is not required to respond to a collection of information unless it displays a currently valid OMB control number. Subpart P—Appraisals § 3560.751 General. This subpart sets forth appraisal policies for Agency-financed multi-family housing (MFH) projects consisting of five or more rental units. Agency-financed housing projects with fewer than five rental units may be appraised in accordance with the Agency's single family housing appraisal policies established under 7 CFR 3550.62. § 3560.752 Appraisal use, request, review, and release. (a) Appraisal uses. (b) Appraisal requests. (1) Type of Value. (i) A request for “market value, subject to restricted rents” means the appraisal will take into consideration any rent limits, rent subsidies, expense abatements, or restrictive-use conditions that will affect the property as a result of an agreement with the Agency or any other financing source. Each type of financing involved, including, but not limited to, interest credit subsidy, low-interest loans from other sources, tax-exempt bond financing, tax credits, and grants, must be valued separately in the appraisal. (ii) A request for “market value” means the appraisal will take into consideration the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (A) Buyer and seller are typically motivated; (B) Both parties are well informed or well advised and acting in what they consider their best interests; (C) A reasonable time is allowed for exposure in the open market; (D) Payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and (E) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. (2) “ ‘As-is’ Value” or “Prospective Value”. (i) “ ‘As-is’ value” means the value of the housing and related facilities as of the effective date of the appraisal. It relates to what physically exists and is legally permissible at the time of the appraisal and excludes all hypothetical conditions. (ii) “Prospective value” means the forecasted value of the housing and related facilities as of a specified future date. For Agency appraisals, this date will typically be the projected completion date of proposed new construction or rehabilitation. (3) Section 8 project-based assistance. (4) Low-Income Housing Tax Credit (LIHTC) and other financing sources. (c) Appraisal review. (d) Release of appraisals. § 3560.753 Agency appraisal standards and requirements. (a) General. (b) Appraisers. (c) Appraisal report. (1) Form appraisal reports. (2) Narrative appraisal reports. (i) Transmittal letter; (ii) Factual information about the property; (iii) Regional and neighborhood data; (iv) Description of the subject property; (v) Description of existing and planned improvements; (vi) A highest and best use analysis; (vii) A statement regarding any environmental issues, such as potential contamination of the property from hazardous substances, hazardous wastes, or petroleum products; (viii) A cost approach analysis (if applicable); (ix) A sales comparison approach analysis (if applicable); (x) An income approach analysis (if applicable); (xi) A reconciliation of the value indications derived from the included approaches to value; and (xii) A signed and dated certification of value. (3) At the time an appraisal is requested, the Agency will specify either a complete or a limited appraisal and one of the following types of appraisal reports, based upon the complexity of the appraisal assignment. (i) A self-contained report that comprehensively describes all information significant to the solution of the appraisal problem; (ii) A summary report that summarizes all information significant to the solution of the appraisal problem; or (iii) A restricted use report, intended for Agency use only, that briefly states all information significant to the solution of the appraisal problem. (d) Highest and best use statement and analysis. (1) Physically possible; (2) Legally permissible; (3) Financially feasible; and (4) Maximally productive. (e) Valuation methods and variances. (f) Real estate history. (g) Reserve accounts. (h) Escrow accounts. (i) Rental rates comparison. (j) Description of housing and property rights. (k) Exclusion of rental units from valuation. (l) Non-contiguous sites. §§ 3560.754-3560.799 [Reserved] § 3560.800 OMB control number. The information collection requirements contained in this regulation have been approved by the Office of Management and Budget (OMB) and have been assigned OMB control number 0575-0189. Public reporting burden for this collection of information is estimated to vary from 15 minutes to 18 hours per response, including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. A person is not required to respond to a collection of information unless it displays a currently valid OMB control number. Subpart Q [Reserved] Subpart R—Credit Report Requirements Source: 89 FR 106980, Dec. 31, 2024, unless otherwise noted. § 3560.851 General. This subpart contains the Agency's credit reporting requirements for all Multifamily (MFH) programs. § 3560.852 Requirements. When required to submit a credit report under any provision of this part, such submission must include a current comprehensive credit report for both the entity and the individual principals, partners, members, and the individual sub-entities or natural persons who are responsible for controlling the ownership and operations of the applicant entity, including but not limited to, principals, partners, or members. The Agency will also accept combination comprehensive credit reports which provides a comprehensive view of the applicant's credit profile by combining data from all three major credit bureaus (Experian, Equifax, and TransUnion).

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