HUD Outlines Section 236 Prepayment Procedures, Tenant Notice Requirements

In Section 236 multifamily housing, HUD subsidizes the interest on an owner’s mortgage. In exchange, HUD sets a basic rent, and the tenant must pay either the basic rent or 30 percent of his income, whichever is higher. A Section 236 site may also receive other forms of rent subsidy under the rent supplement, Section 236 RAP, or Section 8 project-based assistance programs. In the next few years, many of the Section 236 mortgages in HUD’s portfolio will reach maturity, so HUD has begun reaching out to owners to try to discourage them from opting out of the program at the mortgage maturity date.

HUD believes that opting out of the program would entice owners to significantly raise rents at these 236 properties, affecting many low-income tenants who currently reside there. A recent notice released by the Office of Multifamily Housing encourages Section 236 owners to voluntarily provide tenants with a minimum of 270 days (but no more than one-year’s advance notice) of the property’s mortgage maturity date, notwithstanding the owner’s intentions to either terminate the mortgage or preserve the long-term affordability of the property.

The memo points out that while these owners are not required under federal law or HUD regulations to do so, this voluntary action can be helpful to affordable housing residents by giving them the time necessary to make alternative housing arrangements. Or, if the owner intends to preserve affordable housing, the information will prevent residents from unnecessarily expending time and energy exploring alternative housing options they feel they might need if the site converts to market-rate rents after the Section 236 mortgage matures.

The notice also reminds owners that, in some cases, prepayment of a Section 236 mortgage may be subject to tenant notification requirements. This includes Section 236 mortgages subject to regulations under Section 250 of the National Housing Act (NHA), which requires at least 150 days’ but no more than 270 days’ advance notice of mortgage prepayment, or Section 219 of the Department of Veterans Affairs and Housing and Urban Development, and Independent Agencies Appropriations Act of 1999, which requires 150 days’ notice.

Finally, the notice reminds owners who intend to prepay their mortgages that they no longer need to submit applications to the Multifamily Hub or Program Center under the new centralized processing model, but rather should submit requests for approval of related prepayment transactions directly to Office of Affordable Housing Preservation (OAHP). The centralized model is designed to streamline how Section 236 prepayment applications and related requests are processed.