PART 881—SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM FOR SUBSTANTIAL REHABILITATION Authority: 42 U.S.C. 1437a, 1437c, 1437f, 3535(d), 12701, and 13611-13619. Source: 45 FR 7085, Jan. 31, 1980, unless otherwise noted. Subpart A—Summary and Applicability § 881.101 General. (a) The purpose of the Section 8 program is to provide low-income families with decent, safe and sanitary rental housing through the use of a system of housing assistance payments. This part contains the policies and procedures applicable to the Section 8 substantial rehabilitation program. The assistance may be provided to public housing agency owners or to private owners either directly from HUD or through public housing agencies. (b) This part does not apply to projects developed under other Section 8 program regulations, including 24 CFR parts 880, 882, 883, 884, and 885, except to the extent specifically stated in those parts. [61 FR 13591, Mar. 27, 1996] § 881.104 Applicability of part 881. (a) Part 881, in effect as of February 20, 1980, applies to all proposals for which a notification of selection was not issued before the February 20, 1980 effective date of part 881. (See 24 CFR part 881, revised as of April 1, 1980). Where a notification of selection was issued for a proposal before the February 20, 1980, effective date, part 881 in effect as of February 20, 1980 applies if the owner notified HUD within 60 calendar days that the owner wished the provisions of part 881, effective February 20, 1980, to apply and promptly brought the proposal into conformance. (b) Subparts E (Housing Assistance Payments Contract) and F (Management) of this part apply to all projects for which an Agreement was not executed before the February 20, 1980, effective date of part 881. Where an Agreement was so executed: (1) The owner and HUD may agree to make the revised subpart E of this part applicable and to execute appropriate amendments to the Agreement and/or Contract. (2) The owner and HUD may agree to make the revised subpart F of this part applicable (with or without the limitation on distributions) and to execute appropriate amendments to the Agreement and/or Contract. (c) Section 881.607 (Termination of tenancy and modification of leases) applies to all families. (d) Notwithstanding the provisions of paragraph (b) of this section, the provisions of 24 CFR part 5 apply to all projects, regardless of when an Agreement was executed. [61 FR 13591, Mar. 27, 1996, as amended at 65 FR 16722, Mar. 29, 2000] § 881.105 Applicability to proposals and projects under 24 CFR part 811. Where proposals and projects are financed with tax-exempt obligations under 24 CFR part 811, the provisions of part 811 will be complied with in addition to all requirements of this part. In the event of any conflict between this part and part 811, part 811 will control. Subpart B—Definitions and Other Requirements § 881.201 Definitions. Agreement. Annual Contributions Contract (ACC). Annual income. Assisted unit. Contract. Contract Administrator. Contract rent. Decent, safe, and sanitary. Elderly family. Fair Market Rent (FMR). Family. Final proposal. Housing assistance payment. HUD. Independent Public Accountant. Low income family. NOFA. Owner. Partially-assisted Project. PHA-Owner/HUD Project. Private-Owner/HUD Project. Private-Owner/PHA Project. Project Account. Public Housing Agency (PHA). Rent. Replacement cost. Secretary. Single Room Occupancy (SRO) Housing. Small project. Substantial rehabilitation. (b) Substantial rehabilitation may also include renovation, alteration or remodeling for the conversion or adaptation of structurally sound property to the design and condition required for use under this part or the repair or replacement of major building systems or components in danger of failure. Tenant rent. Total tenant payment. Utility allowance. Utility reimbursement. Vacancy payment. Very low income family. [45 FR 7085, Jan. 31, 1980, as amended at 48 FR 12705, Mar. 28, 1983; 49 FR 17449, Apr. 24, 1984; 49 FR 19944, May 10, 1984; 61 FR 5212, Feb. 9, 1996; 61 FR 13591, Mar. 27, 1996; 63 FR 46578, Sept. 1, 1998; 65 FR 16722, Mar. 29, 2000] § 881.205 Limitation on distributions. (a) Non-profit owners are not entitled to distributions of project funds. (b) For the life of the Contract, project funds may only be distributed to profit-motivated owners at the end of each fiscal year of project operation following the effective date of the Contract after all project expenses have been paid, or funds have been set aside for payment, and all reserve requirements have been met. The first year's distribution may not be made until cost certification, where applicable, is completed. Distributions may not exceed the following maximum returns: (1) For projects for elderly families, the first year's distribution will be limited to 6 percent on equity. The Assistant Secretary may provide for increases in subsequent years' distributions on an annual or other basis so that the permitted return reflects a 6 percent return on the value in subsequent years, as determined by HUD, of the approved initial equity. Any such adjustment will be made by Notice in the Federal Register. (2) For projects for non-elderly families, the first year's distribution will be limited to 10 percent on equity. The Assistant Secretary may provide for increases in subsequent years' distributions on an annual or other basis so that the permitted return reflects a 10 percent return on the value in subsequent years, as determined by HUD, of the approved initial equity. Any such adjustment will be made by Notice in the Federal Register. (c) For the purpose of determining the allowable distribution, an owner's equity investment in a project is deemed to be 10 percent of the replacement cost of the part of the project attributable to dwelling use accepted by HUD at cost certification (see § 881.405), unless the owner justifies a higher equity contribution by cost certification documentation in accordance with HUD mortgage insurance procedures. (d) Any short-fall in return may be made up from surplus project funds in future years. (e) If HUD determines at any time that project funds are more than the amount needed for project operations, reserve requirements and permitted distribution, HUD may require the excess to be placed in an account to be used to reduce housing assistance payments or for other project purposes. Upon termination of the Contract, any excess funds must be remitted to HUD. (f) Owners of small projects or partially-assisted projects are exempt from the limitation on distributions contained in paragraphs (b) through (d) of this section. (g) In the case of HUD-insured projects, the provisions of this section will apply instead of the otherwise applicable mortgage insurance program provisions. (h) HUD may permit increased distributions of surplus cash, in excess of the amounts otherwise permitted, to profit-motivated owners who participate in a HUD-approved initiative or program to preserve below-market housing stock. The increased distributions will be limited to a maximum amount based on market rents and calculated according to HUD instructions. Funds that the owner is authorized to retain under section 236(g)(2) of the National Housing Act are not considered distributions to the owner. (i) Any State or local law or regulation that restricts distributions to an amount lower than permitted by this section or permitted by the Commissioner under this paragraph (i) is preempted to the extent provided by section 524(f) of the Multifamily Assisted Housing Reform and Affordability Act of 1997. [45 FR 7085, Jan. 31, 1980, as amended at 65 FR 61074, Oct. 13, 2000] § 881.207 Property standards. Projects must comply with: (a) [Reserved] (b) In the case of congregate or single room occupant housing, the appropriate HUD guidelines and standards; (c) HUD requirements pursuant to section 209 of the Housing and Community Development Act of 1974 for projects for the elderly or handicapped; (d) HUD requirements pertaining to noise abatement and control; (e) The Lead-Based Paint Poisoning Prevention Act (42 U.S.C. 4821-4846), the Residential Lead-Based Paint Hazard Reduction Act of 1992 (42 U.S.C. 4851-4856), and implementing regulations at part 35, subparts A, B, H, and R of this title; and (f) Applicable State and local laws, codes, ordinances and regulations. (g) Smoke detectors Performance requirement. (2) Acceptability criteria. [45 FR 7085, Jan. 31, 1980, as amended at 52 FR 1893, Jan. 15, 1987; 57 FR 33851, July 30, 1992; 63 FR 46578, Sept. 1, 1998; 64 FR 50227, Sept. 15, 1999] § 881.208 Financing. (a) Types of financing. (1) Conventional loans from commercial banks, savings banks, savings and loan associations, pension funds, insurance companies or other financial institutions; (2) Mortgage insurance programs under the National Housing Act; and (3) Financing by tax-exmpt bonds or other obligations. (b) HUD approval. (1) An issuer of obligations that are tax-exempt under any provision of Federal law or regulation, the proceeds of the sale of which are to be used to purchase GNMA mortgage-backed securities issued by the mortgagee of the Section 8 project, will be subject to 24 CFR part 811, subpart B. (2) Issuers of obligations that are tax-exempt under Section 11(b) of the U.S. Housing Act of 1937 will be subject to 24 CFR part 811, subpart A if paragraph (b)(1) of this section is not applicable. (3) Issuers of obligations that are tax-exempt under any provision of Federal law or regulation other than Section 11(b) of the U.S. Housing Act of 1937 will be subject to 24 CFR 811, subpart A if paragraph (b)(1) of this section is not applicable, except that such issuers that are State Agencies qualified under 24 CFR part 883 are not subject to 24 CFR part 811, subpart A and are subject solely to the requirements of 24 CFR part 883 with regard to the approval of tax-exempt financing. (c) Pledge of contracts. Provided, however, (d) Foreclosure and other transfers. (1) The Agreement, the Contract and the ACC, if applicable, will continue in effect, and (2) Housing assistance payments will continue in accordance with the terms of the Contract. (e) Financing of manufactured home parks. [45 FR 7085, Jan. 31, 1980, as amended at 45 FR 62797, Sept. 22, 1980; 48 FR 12706, Mar. 28, 1983; 49 FR 17449, Apr. 24, 1984] § 881.211 Audit. (a) Where a non-Federal entity (as defined in 2 CFR 200.69) is the eligible owner of a project or a contract administrator under § 881.505 receiving financial assistance under this part, the audit requirements in 2 CFR part 200, subpart F, shall apply. [80 FR 75941, Dec. 7, 2015] § 881.212 Broadband infrastructure. Any new construction or substantial rehabilitation, as substantial rehabilitation is defined by 24 CFR 5.100, of a building with more than 4 rental units and that is subject to a Housing Assistance Payments contract executed or renewed after January 19, 2017 must include installation of broadband infrastructure, as this term is also defined in 24 CFR 5.100, except where the owner determines and documents the determination that: (a) The location of the new construction or substantial rehabilitation makes installation of broadband infrastructure infeasible; (b) The cost of installing broadband infrastructure would result in a fundamental alteration in the nature of its program or activity or in an undue financial burden; or (c) The structure of the housing to be substantially rehabilitated makes installation of broadband infrastructure infeasible. [81 FR 92637, Dec. 20, 2016] Subparts C-D [Reserved] Subpart E—Housing Assistance Payments Contract § 881.501 The contract. (a) Contract. (b) [Reserved] (c) Housing assistance payments to owners under the contract. (1) Payments to the owner to assist eligible families leasing assisted units, and (2) Payments to the owner for vacant assisted units (“vacancy payments”) if the conditions specified in § 881.611 are satisfied. The housing assistance payments are made monthly by the contract administrator upon proper requisition by the owner, except payments for vacancies of more than 60 days, which are made semi-annually by the contract administrator upon requisition by the owner. (d) Amount of housing assistance payments to owner. (2) A housing assistance payment will be made to the owner for a vacant assisted unit in an amount equal to 80 percent of the contract rent for the first 60 days of vacancy, subject to the conditions in § 881.611. If the owner collects any tenant rent or other amount for this period which, when added to this vacancy payment, exceeds the contract rent, the excess must be repaid as HUD directs. (3) For a vacancy that exceeds 60 days, a housing assistance payment for the vacant unit will be made, subject to the conditions in § 881.611, in an amount equal to the principal and interest payments required to amortize that portion of the debt attributable to the vacant unit for up to 12 additional months. (e) Payment of utility reimbursement. [45 FR 7085, Jan. 31, 1980, as amended at 49 FR 19944, May 10, 1984; 61 FR 13591, Mar. 27, 1996] § 881.502 Term of contract. (a) Term (except for Manufactured Home Parks). (1) Where the estimated cost of the rehabilitation is less than 25 percent of the estimated value of the project after completion of the rehabilitation, the contract will be for a term of 20 years for any dwelling unit. (2) Where the estimated cost of rehabilitation is 25 percent or more of the estimated value of the project after completion of rehabilitation, the contract may be for a term which: (i) Will cover the longest term, but not less than 20 years, of a single credit instrument covering: (A) The cost of rehabilitation, or (B) The existing indebtedness, or (C) The cost of rehabilitation and the refinancing of the existing indebtedness, or (D) The cost of rehabilitation and the acquisition of the property; and (ii) For assisted units in a project financed with the aid of a loan insured or co-insured by the Federal government or a loan made, guaranteed or intended for purchase by the Federal government, will be 20 years for any dwelling unit; or (iii) For units in a project financed other than as described in paragraph (a)(2)(ii) of this section will not exceed 30 years for any dwelling unit except that this limit will be 40 years if (A) the project is owned or financed by a loan or loan guarantee from a state or local agency, (B) the project is intended for occupancy by non-elderly families and (C) the project is located in an area designated by HUD as one requiring special financing assistance. (b) Term for manufactured home parks. (c) Staged projects. [48 FR 12707, Mar. 28, 1983, and 49 FR 17449, Apr. 24, 1984] § 881.503 Cross-reference. All of the provisions of §§ 880.503, 880.504, 880.505, 880.506, 880.507, and 880.508 of this chapter apply to projects assisted under this part, subject to the requirements of § 881.104. [61 FR 13592, Mar. 27, 1996] Subpart F—Management § 881.601 Cross-reference. All of the provisions of part 880, subpart F, of this chapter apply to projects assisted under this part, subject to the requirements of § 881.104. [61 FR 13592, Mar. 27, 1996]