New Guidance on Amending Use Agreements at LIHPRHA-Assisted Properties

November 15, 2016

HUD recently issued Notice H 2016-16, which implements provisions enacted by Congress in December 2015 that allow owners of sites assisted under the “Low Income Housing Preservation and Resident Homeownership Act of 1990” (LIHPRHA) to access residual receipts and eliminate limitations on distributions.

HUD recently issued Notice H 2016-16, which implements provisions enacted by Congress in December 2015 that allow owners of sites assisted under the “Low Income Housing Preservation and Resident Homeownership Act of 1990” (LIHPRHA) to access residual receipts and eliminate limitations on distributions.

The first two pages of the notice offer an explanation of the circumstances leading up to the creation of LIHPRHA, the HUD programs affected, and why there is a need for the provisions of this notice. During the 1960s and 1970s, the Section 221(d)(3) and Section 236 mortgage insurance programs financed the creation of thousands of sites with more affordable rents. These Federal Housing Administration (FHA) insured mortgages typically had 40-year terms and gave owners the option to prepay them after 20 years. If an owner prepaid the mortgage, that owner could convert a site to market-rate housing. This was a major incentive for owners to prepay an FHA-insured mortgage, particularly if a site had appreciated in value and was located in a desirable neighborhood. Consequently, in the 1980s hundreds of thousands of affordable apartments converted to market rate.

In response, Congress enacted LIHPRHA to prevent the further loss of affordable apartments. LIHPRHA limited prepayment of federally subsidized mortgages and offered owners fair-market-value incentives to extend low-income affordability for the remaining useful life of a property (not less than 50 years). LIHPRHA also allowed owners to transfer their sites to nonprofit organizations, tenant associations, and community-based organizations that would keep the housing affordable for the remaining useful life of a property. In 1996, Congress restored an owners’ right to prepay federally insured mortgages and stopped appropriating funds for new LIHPRHA incentives.

Notice H 2016-16 applies to all properties that received LIHPRHA incentives and that have a LIHPRHA Plan of Action and Use Agreement. It provides guidance regarding consideration of owner requests to amend LIHPRHA Plans of Action and Use Agreements.

Owners must apply to the HUD Regional Center or Satellite Office in order to amend the existing LIHPRHA Use Agreement and take advantage of these provisions. The notice sets forth the procedures and requirements for this submission, which include:

  • REAC score of 60+;
  • Satisfactory Management Review score;
  • No fair housing violations;
  • Updated Affirmative Fair Housing Marketing Plan;
  • Current annual financial submissions for the last three years;
  • Current Excess Income Reports for last seven years;
  • No compliance or regulatory “flags”;
  • If FHA-insured mortgage, current status for three years;
  • No other outstanding defaults or violations; and
  • By statute, a current Capital Needs Assessment must also be submitted in order to access funds in the residual receipts account.

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