HUD Issues Notice on Project-Based Rental Assistance and Income-Based Use Restriction Transfers

April 17, 2015

On March 31, HUD published a notice in the Federal Register establishing the terms and conditions by which HUD will approve an owner’s request to transfer the project-based rental assistance, statutorily required income-based use restrictions, and debt held or insured by HUD at a multifamily project that is obsolete or not economically viable to another property that is in better physical or financial condition.

On March 31, HUD published a notice in the Federal Register establishing the terms and conditions by which HUD will approve an owner’s request to transfer the project-based rental assistance, statutorily required income-based use restrictions, and debt held or insured by HUD at a multifamily project that is obsolete or not economically viable to another property that is in better physical or financial condition. In other words, the notice provides information to owners of obsolete HUD projects that need to transfer their current use restrictions or HUD-related loans to a new project. It provides guidance on how HUD will process and approve these requests. HUD considers the ability to make such transfers an important affordable housing preservation tool.

This transfer authority is contained in Section 214 of the FY 2014 and FY 2015 Appropriations Acts. Following Section 214, the notice presents a number of conditions that must be met for HUD to approve a transfer, including:

Number and bedroom size of units. For occupied units at the transferring property, the number of low-income units and the bedroom size of the units at the receiving project must not be less than at the transferring project. In addition, the net dollar amount of federal assistance must be the same.

If there are unoccupied units at the transferring property, HUD may allow a reduction in the number of units at the receiving project in order to reconfigure bedroom sizes to meet market demand. The transferring owner must justify a reduction. One justification offered by the notice is an average vacancy rate of at least 25 percent for the past two years.

Physical obsolescence or economic non-viability. Six options are presented for demonstrating physical obsolescence, including a Real Estate Assessment Center (REAC) score of 30 or below, two consecutive REAC scores below 60, local government condemnation of the property, and a taking by eminent domain. Four options are presented for demonstrating economic non-viability, including a market analysis showing there is little or no market for the type of unit, or an average vacancy rate of at least 25 percent for at least two years.

Receiving project physical standard. The receiving project must have a REAC score of at least 60 or have a HUD-approved plan to correct physical deficiencies, as well as meet Section 504 of the Rehabilitation Act and Title II of the Americans with Disabilities Act.

Tenant notification. The transferring owner must give tenants and tenant organizations written notice of a proposed transfer, and provide a comment period of at least 30 days. The notice must describe any impact on tenant rent assistance and rent payments. The notice must also explain tenant relocation rights, including the possibility of Uniform Relocation Act compensation. The transferring owner must hold a meeting with tenants and tenant organizations to discuss details and answer questions. The owner must submit a copy of all tenant comments and the owner’s written response to negative comments to HUD.

Tenant relocation. Tenants cannot be required to vacate their homes until new units in the receiving property are available for occupancy. HUD will review any tenant relocation that occurs to ensure that there is no permanent displacement.

Best interest of the tenants. HUD will determine that a transfer is in the best interest of tenants based on provisions that include:

  • The transfer will preserve affordable housing where needed;
  • The receiving property is in a location that is the same or better, and complies with fair housing site and neighborhood standards;
  • Tenants will have the same level of assistance they had prior to the transfer;
  • Tenant lease provisions will not be changed;
  • A lease cannot be terminated by the receiving owner because of a tenant’s actions before the transfer; and
  • Tenants who do not wish to relocate to the receiving property will be offered a tenant protection voucher.

 Use restrictions. If the receiving property has a use restriction, the owner must agree to a new or amended use restriction that includes all of the income and eligibility restrictions of the transferring property. The new or amended use restriction must run for the duration of the transferring property’s existing use restriction or the use restriction of the receiving property, whichever is longer.

If the transfer involves project-based Section 8, the receiving owner must renew the Section 8 HAP contract for a 20-year term and attach the Preservation Exhibit agreeing to automatic renewal of the HAP contract at the end of the 20-year term for a minimum of the time remaining on the HAP contract that was in effect before the transfer.

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