PART 290—DISPOSITION OF MULTIFAMILY PROJECTS AND SALE OF HUD-HELD MULTIFAMILY MORTGAGES Authority: 12 U.S.C. 1701z-11, 1701z-12, 1713, 1715b, 1715z-1b, 1715z-11a; 42 U.S.C. 3535(d) and 3535(i). Source: 61 FR 11685, Mar. 21, 1996, unless otherwise noted. Subpart A—Disposition of Multifamily Projects § 290.1 Applicability. The requirements of this part supplement the requirements of 12 U.S.C. 1701z-11 for the management and disposition of multifamily housing projects and the sale of HUD-held multifamily mortgages. The goals and objectives of this part are the same as the goals and objectives of 12 U.S.C. 1701z-11, which shall be referred to in this part as “the Statute.” With respect to the disposition of multifamily projects under subpart A, HUD may follow any other method of disposition, as determined by the Secretary. [64 FR 72412, Dec. 27, 1999] § 290.3 Definitions. The terms Department URA Cooperative HUD-owned project Market area Multifamily housing project Multifamily project Nonprofit organization Preexisting tenant Subsidized project (1) Below market interest rate mortgage insurance under the proviso of section 221(d)(5) of the National Housing Act (12 U.S.C. 1715l) (hereinafter, a BMIR project); (2) Interest reduction payments made in connection with mortgages insured under section 236 of the National Housing Act (hereinafter, a 236 project); (3) Direct loans made under section 202 of the Housing Act of 1959 (hereinafter, a 202 project); (4) Assistance, to more than 50 percent of the units in the project, in the form of: (i) Rent supplement payments under section 101 of the Housing and Urban Development Act of 1965 (12 U.S.C. 1701s) (hereinafter, Rent Supp); (ii) Additional assistance payments under section 236(f)(2) of the National Housing Act (hereinafter, RAP); (iii) Housing assistance payments under section 23 of the United States Housing Act of 1937 (42 U.S.C. 1437 note (iv) Housing assistance payments under Section 8 of the United States Housing Act of 1937 (42 U.S.C. 1437f) (excluding payments of tenant-based Section 8 assistance) (hereinafter, project-based Section 8 assistance). Sufficient habitable, affordable, rental housing is available e.g., e.g., e.g., (1) The rental housing vacancy rate is at a low level relative to the rate required for a balanced market, typically a four percent vacancy rate; except that a rate lower than four percent may be considered in unusual circumstances if it can be demonstrated that there is an adequate supply of affordable housing for low-income families; (2) The number of rental housing units being produced on an annual basis is not large enough to satisfy demand arising from the increase in households, or, in markets where there is little or no growth, evidence that the number of additional rental units being supplied is not sufficient to meet the demand arising from net losses to the available inventory and the inadequate supply of rental housing has inhibited growth; (3) The shortage of housing is resulting in rent increases that exceed normal increases commensurate with the costs of operating rental housing; (4) A significant number, or proportion, of the households holding Section 8 rental vouchers are unable to find adequate housing because of the shortage of rental housing, including PHA data showing a lower than average percentage of units under lease and a longer than average time required to find units. Unsubsidized project Useful life [61 FR 11685, Mar. 21, 1996, as amended at 89 FR 38290, May 7, 2024] § 290.7 Occupancy requirements. (a) Multifamily housing project that is HUD-owned or for which HUD is mortgagee-in-possession. (b) Evictions. (c) Threat to health and safety. § 290.9 Setting rental rates. Because of the subsidies involved in making multifamily housing projects affordable, the setting of rents involves two steps: first, establishing the rent on a unit that will be paid to the owner, and second, determining the rent that the tenant pays (with the difference made up by a subsidy), using a number of procedures to obtain income verification and notify tenants of changes in rent. These procedures for a property owned by HUD or where HUD is mortgagee-in-possession are explained below. (a) Setting unit rents. (b) Setting rents payable by tenants Tenant rent. (2) Utility allowance. (3) Rent adjustments for project viability. (4) Tenants who are rental voucher holders. (c) Income verification and rent notification procedures Income certification by tenants In subsidized projects. (B) For each family applying for admission to subsidized projects, HUD will request an income certification to determine the family's eligibility for a subsidized rent, and (if the rent is based on a percentage of adjusted income) the family's subsidized rent, in accordance with part 813 of this title. (ii) In unsubsidized projects. (B) For families applying for admission to such projects, HUD will request sufficient information for income verification to determine the family's ability to pay the unit rent. (2) Notice of increases in the amount of rent payable. (3) Disclosure and verification of Social Security numbers. (4) Signing of consent forms for income verification. (Approved by the Office of Management and Budget under control number 2502-0204) [61 FR 11685, Mar. 21, 1996, as amended at 89 FR 38291, May 7, 2024] § 290.11 Notification requirements. (a) In general. (b) Timing of notifications. (1) 60 or more days before HUD forecloses on a project; or (2) Before, or not more than 30 days after, HUD acquires a project. (c) Methods of notification To tenants. (2) To units of general local government. (3) To the community or any other party. (d) Content of notifications. § 290.13 Negotiated sales. When HUD conducts a negotiated sale involving the disposition of a project to a person or entity without a public offering, the following provisions apply: (a) HUD may negotiate the sale of any project to an agency of the federal, State, or local government. (b) When HUD determines that a purchaser can demonstrate the capacity to own and operate a project in accordance with standards set by HUD, and/or a competitive offering will not generate offers of equal merit from qualified purchasers, HUD may approve a negotiated sale of a subsidized project to: (1) A resident organization wishing to convert the project to a nonprofit or limited equity cooperative; (2) A cooperative ( e.g., (3) A nonprofit entity that will continue to operate the project as low-income housing and whose governing board is composed of project residents; (4) A State or local governmental entity with the demonstrated capacity to acquire, manage, and maintain the project as housing available to and affordable by low-income residents; (5) A State or local governmental or nonprofit entity with the demonstrated capacity to acquire, manage, and maintain the project as a shelter for the homeless or other public purpose, generally when the project is vacant or has minimal occupancy and is not needed in the area for continued use as rental housing for the elderly or families; or (6) Other nonprofit organizations. § 290.15 Disposition plan. (a) In general. (b) Environmental requirements. § 290.17 Displacement of tenants and relocation assistance. (a) Scope of section. (b) Minimizing displacement. (c) Relocation assistance at non-URA levels. e.g., (1) Advance written notice of the expected displacement shall be provided at least 60 days before displacement, describe the assistance and the procedures for obtaining the assistance, and contain the name, address and phone number of an official responsible for providing the assistance; (2) Other advisory services, as appropriate, including counseling, referrals to suitable (and where appropriate, accessible), decent, safe, and sanitary replacement housing, and fair housing-related advisory services; (3) Payment for actual reasonable moving expenses, as determined by HUD; and (4) Such other federal, State or local assistance as may be available. (d) Relocation assistance at URA levels General. (2) Definition of “initiation of negotiations”. (3) Definition of displaced person. (i) The person is excluded under 49 CFR 24.2(g)(2); (ii) The person has been evicted for a serious or repeated violation of the terms and conditions of the lease or occupancy agreement, violation of applicable federal, State, or local law, or other good cause, and HUD determines that the eviction was not undertaken for the purpose of evading the obligation to provide relocation assistance; (iii) The person moves into the property after transfer of title to the purchaser; or (iv) HUD determines that the person was not displaced as a direct result of acquisition, rehabilitation, or demolition for an assisted project. (e) Temporary relocation (URA and non-URA relocation assistance). e.g., (1) Reimbursement for all reasonable out-of-pocket expenses incurred in connection with the temporary relocation, including the cost of moving to and from the temporary housing and any increase in monthly rent or utility costs. The party responsible for this requirement may, at its option, perform the services involved in temporarily relocating the tenants or pay for such services directly; and (2) Appropriate advisory services, including reasonable advance written notice of the date and approximate duration of the temporary relocation; the suitable (and where appropriate, accessible), decent, safe, and sanitary housing to be made available for the temporary period; the terms and conditions under which the tenant may lease and occupy a suitable, decent, safe, and sanitary dwelling in the building/complex following completion of the repairs; and the right to financial assistance provided under paragraph (e)(1) of this section. (f) Appeals. § 290.18 Restrictions on sale to former mortgagors. The defaulting mortgagor, or any principal, successor, affiliate, or assignee thereof, on the mortgage on the property at the time of the default resulting in acquisition of the property by HUD shall not be eligible to purchase the property. A “principal” and an “affiliate” are defined as provided at 24 CFR 24.105. [66 FR 35847, July 9, 2001] § 290.19 Restrictions concerning nondiscrimination against Section 8 voucher holders. The purchaser of any multifamily housing project shall not refuse unreasonably to lease a dwelling unit offered for rent, offer to sell cooperative stock, or otherwise discriminate in the terms of tenancy or cooperative purchase and sale because any tenant or purchaser is the holder of a Voucher under Section 8 of the United States Housing Act of 1937 (42 U.S.C. 1437f), or any successor legislation. The purchaser's agreement to this condition must be contained in any contract of sale and also may be contained in any regulatory agreement, use agreement, or deed entered into in connection with the disposition. [61 FR 11685, Mar. 21, 1996, as amended at 89 FR 38291, May 7, 2024] § 290.21 Computing annual number of units eligible for substitution of tenant-based assistance or alternative uses. (a) Substitution of tenant-based Section 8 assistance to low-income families instead of project-based assistance to units. (b) Alternate uses. i.e., § 290.23 Rebuilding. HUD may provide project-based assistance to support the rebuilding of a HUD-owned multifamily housing project only. The required determination that rebuilding the project would be less expensive than substantial rehabilitation means that the costs to HUD for rebuilding are such that the monthly debt service needed to amortize the cost of relocating tenants, demolition, site preparation, rebuilding, operating expenses, and a reasonable return to the purchaser cannot be provided with rents that are within 120 percent of the most recently published Section 8 Fair Market Rents for Existing Housing (24 CFR part 888, subpart A), and would be less expensive than rehabilitation. § 290.25 Determination not to preserve a project or a part of a project. HUD may determine to demolish, or otherwise dispose of, a HUD-owned multifamily housing project, or any portion of such a project, or to foreclose a HUD-held mortgage on a multifamily housing project, without ensuring its continued availability as affordable rental or cooperative housing for low- and very low-income families under appropriate circumstances which may include one or more those listed in paragraphs (a) through (g) of this section. If HUD decides not to preserve an occupied multifamily housing project at a foreclosure sale or sale of a HUD-owned project, tenants must be provided relocation assistance as described in § 290.17. (a) The costs to HUD of rehabilitation are such that the monthly debt service needed to amortize the cost of rehabilitation, operating expenses, and a reasonable return to the purchaser cannot be provided with rents that are, for subsidized and formerly subsidized projects, within 120 percent of the most recently published Section 8 Fair Market Rents for Existing Housing (24 CFR part 888, subpart A) or, for unsubsidized and formerly unsubsidized projects, within rents obtainable in the market. (b) Construction is substantially incomplete. (c) Preservation is not feasible because of environmental factors that cannot be mitigated by HUD or the purchaser. For example, when the project is located on a site that cannot be made to comply with the Section 8 Site and Neighborhood standards in 24 CFR 886.307(k) because of factors that adversely affect the health, safety and general welfare of residents such as air pollution; smoke; mud slides; fire or explosion hazards. Preservation may also be infeasible because of significantly deteriorated surrounding neighborhood conditions with inadequate police or fire protection; high crime rates; drug infestation; or lack of public community services needed to support a safe and healthy living environment for residents. (d) HUD determines the project is unfit for rehabilitation. (e) Rehabilitation would cost more than constructing comparable new housing. (f) A reduction in the number of units in the project will enhance long-term project viability, for example, demolition of a building to provide space for a playground, open space, or combining one-bedroom units to create larger units for families. (g) Continued preservation of the project as rental or cooperative housing is not compatible with State or local land use plans for the area in which the project is located. § 290.27 Up-front grants and loans. (a) General. (b) Eligible projects. (1) Has more than 50% of the units in the project occupied by very low-income residents at the time a disposition plan is approved by HUD, or that HUD determines is essential, as affordable housing, to the revitalization of its community; (2) Is located in a housing market or submarket in which there is not sufficient habitable, affordable, rental housing, as defined in § 290.3; (3) Will generate, after rehabilitation or rebuilding, sufficient rental income in a competitive market to cover all operating expenses, meet after sale debt service requirements, fund required reserves and throw off positive cash flow; (4) Will provide affordable housing for at least 20 years or the term of the loan, whichever is shorter, after the rehabilitation and/or rebuilding is completed; and (5) Meets such other requirements, including deed restrictions, loan provisions, and monetary penalties for non-performance, as HUD may determine are appropriate on a case-by-case basis. (c) Eligible sales and purchasers Negotiated sales to governmental entities. (2) Other sales and purchasers. (d) Up-front grant or loan amount. [64 FR 72412, Dec. 27, 1999] Subpart B—Sale of HUD-Held Multifamily Mortgages § 290.30 General. (a) Except as otherwise provided in § 290.31(a)(2), HUD will sell HUD-held multifamily mortgages on a competitive basis. HUD retains full discretion to offer any qualifying mortgage for sale and to withhold or withdraw any offered mortgage from sale. However, when a qualifying mortgage is offered for sale, the procedures set out in this subpart will govern the sale. (b) References in subpart B of this part to mortgages securing subsidized projects include HUD-held purchase money mortgages on subsidized projects. [61 FR 11685, Mar. 21, 1996, as amended at 61 FR 32265, June 21, 1996] § 290.31 Sale of current mortgages securing subsidized projects. HUD will sell current mortgages securing subsidized projects, as follows: (a) Current mortgages with FHA mortgage insurance (1) On a competitive basis to FHA-approved mortgagees; or (2) On a negotiated basis, to State or local governments, or to a group of investors that includes an agency of a State or local government if, in addition to meeting the requirements of the Statute, the sales price is the best price that HUD can obtain from an agency of a State or local government while maintaining occupancy for the tenant group originally intended to be served by the subsidized housing program. (b) Current mortgages without FHA mortgage insurance § 290.33 Sale of delinquent mortgages securing subsidized projects. Delinquent mortgages securing subsidized projects will be sold only if, as part of the sales transaction: (a) The mortgages are restructured; and (b) Either FHA mortgage insurance or equivalent protections are provided. § 290.35 Sale of HUD-held mortgages securing unsubsidized projects. HUD's policy for selling HUD-held mortgages securing unsubsidized projects is as follows: (a) Current mortgages (b) Delinquent mortgages (1) HUD believes that foreclosure is unavoidable; and (2) The project securing the mortgage is occupied by very low-income tenants who are not receiving housing assistance and would be likely to pay rent in excess of 30 percent of their adjusted monthly income if HUD sold the mortgage. § 290.37 Requirements for continuing Federal rental subsidy contracts. For any mortgage that, at the time HUD offers the mortgage for sale without FHA mortgage insurance, is delinquent and secures a subsidized project or unsubsidized project that receives any of the forms of assistance enumerated in paragraphs (4)(i) to (4)(iv) of the “subsidized project” definition in § 290.3: (a) The mortgage purchaser and its successors and assigns shall require the mortgagor to record a covenant running with the land as part of any loan restructuring or of a final compromise of the mortgage debt and shall include a covenant in any foreclosure deed executed in connection with the mortgage. The covenant shall continue in effect until the last federal project-based rental assistance contract expires by its own terms. The covenant shall provide that, except where otherwise approved by HUD, a project purchaser shall agree to assume the obligations of any outstanding: (1) Project-based federal rental subsidy contract; and (2) Tenant-based Section 8 housing assistance payments contract with a public housing agency and the related lease. (b) In the event of foreclosure of the mortgage sold by HUD, the mortgage purchaser and its successors and assigns: (1) Shall foreclose in a manner that does not interfere with any lease related to federal project-based assistance or any lease related to tenant-based, Section 8 housing assistance payments; and (2) Shall foreclose in manner that ensures that the right of possession of the purchaser at a foreclosure sale shall be subject to the terms of any residential lease not subject to paragraph (b)(1) of this section for the remaining term of the lease or for one year, whichever period is shorter. [61 FR 11685, Mar. 21, 1996, as amended at 61 FR 32265, June 21, 1996] § 290.39 Nondiscrimination in admitting certificate and voucher holders. (a) Nondiscrimination requirement. (b) Inapplicability to current mortgages securing unsubsidized projects that receive no project based-assistance. (c) Applicability to mortgages securing unsubsidized projects receiving project-based assistance (partially-assisted projects) or securing subsidized projects. (i) An unsubsidized project that receives any of the forms of assistance enumerated in paragraphs (4)(i) to (4)(iv) of the “subsidized project” definition in § 290.5; or (ii) A subsidized project, as defined in § 290.3. (2) This requirement shall continue in effect until the mortgage debt is satisfied. (d) Covenant requirement for all delinquent mortgages sold without FHA mortgage insurance. [61 FR 11685, Mar. 21, 1996; 61 FR 19188, May 1, 1996, as amended at 61 FR 32265, June 21, 1996; 89 FR 38291, May 7, 2024]