PART 906—PUBLIC HOUSING HOMEOWNERSHIP PROGRAMS Authority: 42 U.S.C. 1437z-4 and 3535(d). Source: 68 FR 1172, Mar. 11, 2003, unless otherwise noted. Subpart A—General § 906.1 Purpose. (a) This part states the requirements and procedures governing public housing homeownership programs involving sales of individual dwelling units to families or to purchase and resale entities (PREs) for resale to families carried out by public housing agencies (PHAs), as authorized by section 32 of the United States Housing Act of 1937 (42 U.S.C. 1437z-4) (1937 Act). A PHA may only transfer public housing units for homeownership under a homeownership program approved by HUD under this part, except as provided under § 906.3. This section does not govern new construction or substantial rehabilitation of units sold under this part. Such construction or rehabilitation is governed by the public housing development and modernization regulations. (b) Under a public housing homeownership program, a PHA makes available for purchase by low-income families for use as their principal residences public housing dwelling units, public housing developments, and other housing units or developments owned, assisted, or operated, or otherwise acquired by the PHA for sale under a homeownership program in connection with the use of assistance provided under the 1937 Act (1937 Act funds). A PHA may sell all or a portion of a property for purposes of homeownership in accordance with a HUD-approved homeownership program, and in accordance with the PHA's annual plan under part 903 of this title. § 906.2 Definitions. Annual Contributions Contract Low-income family Non-public housing unit PHA Plan Purchase and Resale Entity (PRE) § 906.3 Requirements applicable to homeownership programs previously approved by HUD. (a) Any existing section 5(h) or Turnkey III homeownership program continues to be governed by the requirements of part 906 or part 904 of this title, respectively, contained in the April 1, 2002, edition of 24 CFR, parts 700 to 1699. The use of other program income for homeownership activities continues to be governed by agreements executed with HUD. (b) A PHA may convert an existing homeownership program, or a specific number of the units in such a program, to a homeownership program under this part with HUD approval. Subpart B—Basic Program Requirements § 906.5 Dwelling units and types of assistance that a PHA may make available under a homeownership program under this part. (a) A homeownership program under this part may provide for sale of: (1) Units that are public housing units; and (2) Other units owned, operated, assisted, or acquired for homeownership sale and that have received the benefit of 1937 Act funds or are to be sold with the benefit of 1937 Act funds (non-public housing units). In selecting such units to be sold in a homeownership program under this part, the PHA shall not select units such that it could not comply with § 906.7(a). (b) A homeownership program under this part may provide for financing to eligible families ( see (1) Under this part, a PHA may use assistance from amounts it receives under the Capital Fund under section 9(d) of the 1937 Act or from other income earned from its 1937 Act programs to provide assistance to public housing residents only to facilitate the purchase of homes ( e.g., (2) A PHA may provide financing assistance for other eligible purchasers from other income, i.e., (3) In accordance with the rules and regulations governing the Section 8(y) Homeownership Option, found in 24 CFR part 982 subpart M, a PHA may make its housing choice voucher funds available to provide assistance to a family purchasing a unit under this part. A family receiving assistance under the Section 8(y) program and participating in a homeownership program under this part must meet the requirements of both programs. (c) A PHA must not use 1937 Act funds to rehabilitate units that are not public housing units. § 906.7 Physical requirements that a property offered for sale under this part must meet. (a) Property standards. (b) A unit in this program for which the purchasing family is receiving assistance under Section 8(y) must be an eligible unit for purposes of the Homeownership Option under 24 CFR part 982, subpart M. § 906.9 Title restrictions and encumbrances on properties sold under a homeownership program. (a) If the property is subject to indebtedness under the Annual Contributions Contract (ACC), HUD will continue to make any debt service contributions for which it is obligated under the ACC, and the property sold will not be subject to the encumbrance of that indebtedness. (b) Upon sale of a public housing unit to a public housing tenant or eligible family, or to a PRE operating the units as non-public housing, in accordance with the HUD-approved homeownership program, HUD will execute a release of the title restrictions prescribed by the ACC. Because the property will no longer be subject to the ACC after sale, it will cease to be eligible for public housing Operating Fund or Capital Fund payments. Subpart C—Purchaser Requirements § 906.11 Eligible purchasers. Entities that purchase units from the PHA for resale to low-income families (purchase and resale entities or PREs) and low-income families are eligible to purchase properties made available for sale under a PHA homeownership program. § 906.13 Right of first refusal. (a) In selling a public housing unit under a homeownership program, the PHA or PRE must initially offer the unit to the resident occupying the unit, if any, notwithstanding the requirements of §§ 906.15(a) and 906.15(c). (b) This program does not require the PHA, when selling a unit that is a non-public housing unit, to offer the unit for sale first to the current resident of the unit. § 906.15 Requirements applicable to a family purchasing a property under a homeownership program. (a) Low-income requirement. (b) Principal residence requirement. (c) Financial capacity requirement. (1) Cost/income ratio. (i) 35 percent of the applicant's adjusted income as defined in 24 CFR part 913; and (ii) Any subsidy that will be available for such payments; (2) Down payment requirement. (3) The family must use its own resources other than grants, gifts, contributions, or similar amounts, to contribute an amount of the down payment that is not less than one percent of the purchase price of the housing. The PHA or PRE must maintain records that are verifiable by HUD through audits regarding the source of this one percent contribution. (d) Other requirements established by the PHA. (1) Employment or participation in employment counseling or training activities; (2) Criminal activity; (3) Participation in homeownership counseling programs; and (4) Evidence of regular income. § 906.17 PHA handling of homeownership applications. Families who are interested in purchasing a unit must submit applications to the PHA or PRE for that specific purpose, and those applications must be handled separately from applications for other PHA programs. Application for homeownership must not affect an applicant's place on any other PHA waiting list for rental units. § 906.19 Requirements applicable to a purchase and resale entity (PRE). (a) In general. (b) PRE requirements. (1) Assurances that the PRE will comply with all provisions of the HUD-approved homeownership program; (2) Assurances that the PRE will be subject to a title restriction providing that the property must be resold or otherwise transferred only by conveyance of individual dwellings to eligible families, in accordance with the HUD-approved homeownership program, or by reconveyance to the PHA, and that the property will not be encumbered by the PRE without the written consent of the PHA; (3) Protection against fraud or misuse of funds or other property on the part of the PRE, its employees, and agents; (4) Assurances that the resale proceeds will be used only for the purposes specified by the HUD-approved homeownership program; (5) Limitation of the PRE's administrative and overhead costs, and of any compensation or profit that may be realized by the PRE, to amounts that are reasonable in relation to its responsibilities and risks; (6) Accountability to the PHA and residents for the recordkeeping, reporting, and audit requirements of § 906.33; (7) Assurances that the PRE will administer its responsibilities under the plan on a nondiscriminatory basis, in accordance with the Fair Housing Act, its implementing regulations, and other applicable civil rights statutes and authorities, including the authorities cited in § 5.105(a) of this title; and (8) Adequate legal remedies for the PHA and residents, in the event of the PRE's failure to perform in accordance with the agreement. (c) Sale to low-income families. (d) Resale within five years. Subpart D—Program Administration § 906.23 Protections available to non-purchasing public housing residents. (a) If a public housing resident does not exercise the right of first refusal under § 906.13, and the PHA determines to move the tenant for the purpose of transferring possession of the unit, the PHA must provide the notice stated in this section 90 days before the date the resident is displaced, and may not displace the resident, except as stated in paragraph (a)(1) of this section, for the full 90-day period. The PHA: (1) Must notify the resident residing in the unit 90 days prior to the displacement date, except in cases of imminent threat to health or safety, that: (i) The public housing unit will be sold; (ii) The transfer of possession of the unit will not occur until the resident is relocated; and (iii) Each resident displaced by such action will be offered comparable housing (as defined in paragraph (b) of this section); (2) Must provide for the payment of the actual costs and reasonable relocation expenses of the resident to be displaced; (3) Must ensure that the resident is offered comparable housing under paragraph (a)(1)(iii) of this section; (4) Must provide counseling for displaced residents regarding their rights to comparable housing, including their rights under the Fair Housing Act to choice of a unit on a nondiscriminatory basis, without regard to race, color, religion, national origin, disability, age, sex, or familial status; and (5) Must not transfer possession of the unit until the resident is relocated. (b) For purposes of this section, the term “comparable housing” means housing: (1) That meets housing quality standards; (2) That is located in an area that is generally not less desirable than the displaced resident's original development; and (3) Which may include: (i) Tenant-based assistance (tenant-based assistance must only be provided upon the relocation of the resident to the comparable housing); (ii) Project-based assistance; or (iii) Occupancy in a unit owned, operated, or assisted by the PHA at a rental rate paid by the resident that is comparable to the rental rate applicable to the unit from which the resident is vacating. § 906.24 Protections available to non-purchasing residents of housing other than public housing. Residents of non-public housing that would be displaced by a homeownership program are eligible for assistance under the Uniform Relocation Act and part 42 of this title. For purposes of this part, a family that was over-income ( i.e., § 906.25 Ownership interests that may be conveyed to a purchaser. A homeownership program may provide for sale to the purchasing family of any ownership interest that the PHA considers appropriate under the homeownership program, including but not limited to: (a) Ownership in fee simple; (b) A condominium interest; (c) An interest in a limited dividend cooperative; (d) A shared appreciation interest with a PHA providing financing; or (e) A leasehold under a bona fide lease-purchase arrangement. § 906.27 Limitations applicable to net proceeds on the sale of a property acquired through a homeownership program. (a) Where the family has owned a unit under this part, the following rules apply: (1) In this section, the term gain from appreciation (2) In this section, the term net proceeds (3) A PHA must have a policy that provides for the recapture of net proceeds in an amount that the PHA considers appropriate under the guidelines in this section. (4) A PHA must have a policy that provides the recapture of the following amounts, if a family resells a homeownership unit it purchased under this part during the 5-year period beginning upon purchase of the dwelling unit: (i) All or a portion of the gain from appreciation; and (ii) All or a portion of the assistance provided (which includes below-market financing, but which does not include Section 8(y) assistance used for mortgage payments under this part) under the homeownership program to the family to the extent there are net proceeds, considering the factors the PHA establishes under paragraphs (b)(1)-(7) of this section. (b) The PHA's program under this part may provide for consideration of any factors the PHA considers appropriate in determining how much of the gain from appreciation and assistance to recapture, including but not limited to the following: (1) The aggregate amount of assistance provided under the homeownership program to the family; (2) The contribution of equity by the purchasing family; (3) The period of time elapsed between purchase by the homebuyer under the homeownership program and resale by the homebuyer; (4) The reason for resale; (5) Any improvements made by the family purchasing under the homeownership program; (6) Any appreciation in the value of the property; and (7) Any other factors that the PHA considers appropriate in making the recapture determination under this section. (c) After the expiration of the 5-year period in paragraph (a)(4) of this section, the PHA must recapture all or a portion of the assistance provided under the homeownership program to the family to the extent there are net proceeds. (d) The PHA must enforce its recapture policy through an appropriate form of title restriction. § 906.29 Below-Market sales and financing. A homeownership plan may provide for below-market purchase prices or below-market financing to enable below-market purchases, or a combination of the two. Discounted purchase prices may be determined on a unit-by-unit basis, based on the particular purchaser's ability to pay, or may be determined by any other fair and reasonable method ( e.g., § 906.31 Requirements applicable to net proceeds resulting from sale. (a) PHA use of net proceeds. (b) PRE use of resale net proceeds. (c) Transfer of unsold unit to PHA. (1) If the unit has not been operated by the PRE as a public housing unit at any time during the 5-year period, the PHA may resell the unit in accordance with this part or any successor homeownership program of the department, or apply to have the unit included in its public housing program, if it meets all statutory and regulatory requirements of the public housing program; or (2) If the unit has been operated by the PRE as a public housing unit within such a 5-year period, the PHA must return the unit to operation in its regular public housing program. (d) Transfer of unsold unit operated as public housing to PHA. § 906.33 Reporting and recordkeeping requirements. The PHA is responsible for the maintenance of records (including sale and financial records) for all activities incident to implementation of the HUD-approved homeownership program. Where a PRE is responsible for the sale of units, the PHA must ensure that the PRE's responsibilities include proper recordkeeping and accountability to the PHA, sufficient to enable the PHA to monitor compliance with the approved homeownership program and to meet its audit responsibilities. All books and records must be subject to inspection and audit by HUD and the General Accounting Office (GAO). The PHA must report annually to HUD on the progress of each program approved under this part. The PHA must report as part of the Annual Plan process under § 903.7(k) of this title, except for those PHAs under §§ 903.11(c)(1) and (2) of this title who are not required to include information on their public housing homeownership programs in their Annual Plan. Those PHAs must report by providing a description of the homeownership program to HUD, including the cumulative number of units sold. § 906.35 Inapplicability of section 18 of the United States Housing Act of 1937. The provisions of section 18 of the 1937 Act (42 U.S.C. 1437p) do not apply to disposition of public housing dwelling units under a homeownership program approved by HUD under this part, or to the sale of a unit to a PRE to operate as public housing and sell to a low-income family within 5 years, under the requirements of § 906.19. § 906.37 Davis-Bacon and HUD wage rate requirements. (a) Wage rates applicable to laborers and mechanics. (1) Rehabilitation, repairs, and accessibility modifications performed under an agreement or contract with the PHA or by the PHA, pursuant to § 906.7. Davis-Bacon or HUD-determined wage rates apply as follows: (i) Existing public housing units that will be sold under a homeownership program: Davis-Bacon rates apply, except that HUD rates apply to nonroutine maintenance as defined in § 968.105 of this title; (ii) Non-public housing units acquired by a PHA using Capital Funds that will be sold under a homeownership program: Davis-Bacon rates apply; and (iii) Non-public housing units owned or acquired by a PHA with the intent to use 1937 Act funds to finance the sale of the units, or otherwise provide assistance to purchasers of the units: Davis-Bacon rates apply; (2) New construction of non-public housing units pursuant to a contract for acquisition by a PHA for the purpose of sale under a homeownership program: Davis-Bacon rates apply; (3) Operation, rehabilitation, and repair of units operated as public housing units by a PRE: HUD rates apply to nonroutine maintenance, as defined in § 968.105 of this title, and routine maintenance. Davis-Bacon rates apply to rehabilitation and repair that does not qualify as nonroutine maintenance. (b) Technical wage rates. Subpart E—Program Submission and Approval § 906.38 Requirement of HUD approval to implement a homeownership program under this part. A PHA must obtain HUD approval before implementing a homeownership program under this part. A homeownership program under this part must be carried out in accordance with the requirements of this part and the PHA Plan submitted under part 903 of this title. § 906.39 Contents of a homeownership program. A homeownership program must include the following matters, as applicable to the particular factual situation: (a) Method of Sale: bona fide (b) Property description. (2) If the PHA is selling existing public housing, it must describe the property, including identification of the property by project number, or street address if there is no project number, and the specific dwellings to be sold, with bedroom distribution by size and type broken down by development; (3) If the PHA is acquiring units with 1937 Act funds to sell under the program, it must comply with the provisions of § 906.40 concerning this element of the program; (c) Repair or rehabilitation. (d) Purchaser eligibility and selection. (e) Sale and financing. (f) Consultation with residents and purchasers. (g) Counseling. (h) Sale via PRE. (i) Non-purchasing residents. (j) Sale proceeds. (k) Records, accounts, and reports. (l) Budget. (m) Timetable. (n) Deed restrictions. § 906.40 Supporting documentation. The following supporting documentation must be submitted to HUD with the proposed homeownership program, as appropriate for the particular program: (a) Supporting documentation—PREs. (1) Organizational documents of the PRE; (2) Regulatory and operating agreement between the PHA and PRE regarding the provision of operating subsidy and the operation of the public housing units in accordance with all applicable public housing requirements; (3) Management agreement and plan; (4) Financing documents, if any; (5) A description of the use of operating subsidy during the PRE's period of ownership, in the form of an operating pro forma; (6) A mixed-finance ACC amendment governing these units; (7) A deed restriction or covenant running with the land that will assure to HUD's satisfaction that the PRE will operate the units in accordance with public housing laws and regulations, including § 906.19. (8) A bond for repairs or proof of insurance to cover any damage to the property during the period of PRE ownership and operation; (9) Such other materials as may be required by HUD. (b) Physical assessment. (c) Feasibility. See (d) PHA performance in homeownership. (e) Nondiscrimination certification. (f) Legal opinion. (g) Board resolution. (h) Section 8(y). (i) Other information. § 906.41 Additional supporting documentation for acquisition of non-public housing for homeownership. (a) Proposal contents. (1) Property description. (2) Certification. (3) Site information. (4) Property costs. (5) Appraisal. (6) Property acquisition schedule. (7) Environmental information. (ii) Where the PHA's homeownership program is submitted for approval to HUD and contemplates acquisition of properties not identified at the time of submission or approval, the procedures at § 906.47(e) apply. (8) Market analysis. (9) Additional HUD-requested information. (b) Cost limit. § 906.43 Where a PHA is to submit a homeownership program for HUD approval. A PHA must submit its proposed homeownership program together with supporting documentation, in a format prescribed by HUD, to the Special Applications Center with a copy to the appropriate HUD field office. § 906.45 HUD criteria for reviewing a proposed homeownership program. HUD will use the following criteria in reviewing a homeownership program: (a) Feasibility. (b) Legality. (c) Documentation. (d) PHA performance in homeownership. § 906.47 Environmental requirements. (a) General. (b) Assistance to facilitate the purchase of homes. (c) Public housing units in the PHA's inventory. (d) Units to be acquired with federal funds and used for public housing homeownership. (e) Specific units unidentified. (f) Information. (g) Non-exclusivity. § 906.49 HUD approval; implementing agreement. HUD may approve a homeownership program as submitted, conditionally approve it under § 906.47(e), or return it to the PHA for revision and resubmission. Where such conditional approval is given, the PHA, partners, and contractors remain subject to the restrictions in § 906.47. Upon HUD notification to the PHA that the homeownership program is approvable (in final form that satisfies all applicable requirements of this part), the PHA and HUD will execute a written implementing agreement, in a form prescribed by HUD, to evidence HUD approval and authorization for implementation. The program itself, as approved by HUD, must be incorporated in the implementing agreement. Any of the items of supporting documentation may also be incorporated, if agreeable to the PHA and HUD. The PHA is obligated to carry out the approved homeownership program and other provisions of the implementing agreement without modification, except with written approval by HUD.