U.S. Department of Housing and Urban Development
Office of Housing
Special Attention of:Notice H 99-36 (HUD)
All Community Builders
All Multifamily Hub DirectorsIssued: 12-29-99
All Multifamily Program Center DirectorsExpires: 12-21-00
All Project Managers
All Secretary’s Representatives
Contract Administrators, Owners and Managers
of Projects with Expiring Section 8 Contracts
Subject:Project-based Section 8 Contracts Expiring in Fiscal
Year 2000
TABLE OF CONTENTS
SECTION PAGE
I.BACKGROUND 4
II.PURPOSE 6
III.FY 2000 POLICY CHANGES 6
IV.APPLICABILTY 10
V.Initial and Subsequent RENEWALS 11
VI.CONTRACT TERMS AND EFFECTIVE DATES 12
VII.OWNER’S OPTIONS AT CONTRACT EXPIRATION 16
VIII.RENT COMPARABILITY STUDY (RCS) 18
IX.OPTION 1: Request Renewal Under
MARK-UP-TO-MARKET PROCEDURE 20
X. OPTION 2: REQUEST RENEWAL OF OTHER CONTRACTS WITH
CURRENT RENTS AT OR BELOW COMPARABLE MARKET RENTS 22
XI.OPTION 3: REQUEST REFERRAL TO OMHAR
FOR RESTRUCTURING 24
XII. OPTION 4: REQUEST RENEWALS FOR PROJECTS EXEMPTED FROM
OMHAR 25
XIII.OPTION 5: Request renewal for portfolio reengineering
or preservation contract 27
XIV.Option 6: Notification of intention to opt out of the
section 8 contract 29
XV.PROTECTING SECTION 8 FAMILIES 29
XVI.OWNER’S NOTIFICATION REQUIREMENTS 31
XVII.LEASE ADDENDUM 34
XVIII.RESIDUAL RECEIPTS 35
XIX.PHYSICAL CONDITION OF THE PROPERTY 36
XX.HUD’s REFUSAL TO RENEW A SECTION 8 CONTRACT 41
XXI.RURAL HOUSING SERVICE 515/8 PROJECTS 44
XXII.BUDGET-BASED RENT INCREASES FOR CAPITAL REPAIRS 46
XXIII.OTHER RENT INCREASES 48
XXIV.REMS REPORTING 49
XXV.FOR FURTHER INFORMATION 49
ATTACHMENTS
1.Acronyms Used in this Notice
2.Glossary of Terms
3A.Sample One Year Notification Reminder Letter from HUD to
Owners for Projects in Good Standing
3B. Sample One Year Notification Reminder Letter from HUD to
Owners for Projects Not in Good Standing
3C. Sample One Year Notification Letter When Owner Does Not Intend To Renew
3D. Sample One Year Notification when Owner Intends to Renew
3E.Sample 150-Day Notification Letter to Tenants When Owner
Pre-Pays a Preservation Eligible Project
4. Owner’s Option Checklist and Worksheet
4A.Processing Instructions for Attachment 4.
4B. Processing Instructions for Initial Renewal Under Option 1
4C. Worksheets for Mark-Up-To-Market
5.Addendum to Lease
1. Instructions for Completing the RCS
2. Overview of Conversion Procedure
3. Additional Guidance for Budget Submission (to be used with Chapter 7 of HUD Handbook 4350.1)
4. FY 2000 OCAF’s
5. Section 8 Renewal Help Desk Contacts
11A.Section 524(a) Contract - HUD as Contract Administrator
11B.Section 524(a) Contract - PHA as Contract Administrator
11C. Addendum to Section 524(a) Contract
12A.Section 524(b)(1) Contract - HUD as Contract Administrator
12B.Section 524(b)(1) Contract - PHA as Contract Administrator
12C. Addendum to Section 524(b)(1) Contract
13A. Annual Contributions Contract
13B. Annual Contributions Contract M2M
14.Section 524(e)(1) Preservation Contract
14A. Section 524(e)(1) Addendum
15A.Section 524(e)(2) Demonstration Project Contract - HUD as Contract Administrator
15B. Section 524(e)(2) Demonstration Project Contract - PHA as Contract Administrator
15C. Addendum to 524(e) Demonstration Project Contract
15D Section 524(e)(2) Addendum
16A. M2M HAP Renewal Contract and Rider - HUD as
Contract Administrator
16B. M2M HAP Renewal Contract and Rider - PHA as
Contract Administrator
17. Addendum to Section 8 HAP Renewal Contract
18. Anticipated Abatement or Termination of Full Section 8 HAP
Contracts Chart
19. HUD Form 92273
20. Voucher Processing Division Procedures
21. OMHAR-LITE Contract (HUD)
22. OMHAR-LITE Contract (PHA)
23. When To Use A Contract
24. Non-Profit Capital Repair Request
25A. Generic Contract (HUD)
25B. Generic Contract (PHA)
I.BACKGROUND
The Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRA), Title V of the HUD Fiscal Year 1998 Appropriations Act, Pub. L. 105-65, enacted October 27, 1997, established new policies for the renewal of Section 8 project-based contracts based on market rents. For most projects with rents above market, the Act transferred processing and oversight functions from the MultifamilyHubs and Program Centers to the new Office of Multifamily Housing Assistance Restructuring (OMHAR).
In general, MAHRA required that expiring Section 8 project-based contracts be renewed under Section 524(a)(1) or 524(a)(2).
- Section 524(a)(1) renewals required a Rent Comparability Study (RCS).
If the RCS indicated rents at or below comparable market rents, the contract was renewed at current rents, unless the Owner submitted documentation justifying a budget-based rent increase. In no case could renewal rents exceed comparable market rents.
If the RCS indicated rents above comparable market rents, the contract was referred to OMHAR for debt restructuring and/or rent reduction.
- Section 524(a)(2) renewals were for projects identified as “exception” projects that were not eligible to be referred to OMHAR(no RCS was required except under 524(a)(2)(E)).
These requirements are discussed in detail in HUD's Interim Rule for Multifamily Housing Mortgage and Housing Assistance Restructuring Program (Mark-To-Market) and Renewal of Expiring Section 8 Project-Based Assistance Contracts, published in the Federal Register on September 11, 1998, at 63 FR 48925.
On October 16, 1998, HUD published Housing Notice H 98-34 which provided instructions for renewing Section 8 contracts expiring in FY 1999. On May 27, 1999, HUD published Housing Notice H 99-08 which made several modifications to H 98-34. On June 16, 1999, HUD published Housing Notice H 99-15 which implemented the Mark-Up-To-Market Option for Owners of projects with expiring Section 8 contracts.
The Preserving Affordable Housing for Senior Citizens and Families Into the 21st Century Act of 1999, Titles II and V of the HUD Fiscal Year 2000 Appropriations Act, Pub. L. 106-74, enacted on October 20, 1999, made some modifications to the previous Section 8 renewal policies, and established specific provisions for rent adjustments in subsequent years after an initial renewal under MAHRA.
This Notice provides instructions for renewing Section 8 contracts expiring in FY 2000. While Section 8 renewal policy remains substantially similar to the policy already in place, the major changes from FY 1999 renewal policies are highlighted in Section III below. Because of changes to MAHRA, all references to renewing contracts under Sections 524(a)(1) and 524(a)(2) are no longer accurate. In FY 2000, six options are available to Owners of projects with expiring contracts. These options are explained in Section VII of this Notice.
This Notice is the comprehensive policy for Section 8 project-based contract renewals in FY 2000 and incorporates the procedures contained in previous Housing Notices. Therefore, the following Notices are no longer in effect:
- H 98-34 published on October 16, 1998, which provided instructions for renewing Section 8 contracts expiring in FY 1999.
- H 99-08 published on May 27, 1999, which made several modifications to H 98-34.
- H 99-15 published on June 16, 1999, which implemented the Emergency Mark-Up-To-Market Initiative for certain projects with expiring Section 8 contracts.
- H 99-25 published on September 22, 1999, which extended Notices H 98-34 and H 99-08.
- H 99-32 published December 1, 1999, which clarified existing policies.
II.PURPOSE
This Notice provides instructions for renewing Section 8 project-based assistance contracts (or stages) expiring in FY 2000. It:
A.Provides guidance to Owners, management agents, contract administrators and HUD staff on:
1.Renewing contracts, including the combination of multiple stages and/or multiple contracts;
2.Setting initial renewal rents and handling annual rent increases at subsequent renewals; and
3.The requirements and procedures for opting-out of a Section 8 project-based contract.
B.Advises Owners to submit their option selection (Attachment 4) to HUD120 days before expiration of the contract, rather than the previous 90 days.
C.Defines Owners’ notification responsibilities regarding:
1.Contract expiration/termination;
2.Prepayment notification for Emergency Low-Income Housing Preservation Act (ELIPHA) and Low-Income Housing Preservation and Resident Home Ownership Act (LIHPRHA)projects; and
3.Intent to Opt out of the Section 8 program.
III.FY 2000 POLICY CHANGES
The following are highlights of the differences between the FY 1999 and FY 2000 renewal policies. These highlights are explained in greater detail throughout the body of this Notice.
A.Section 524(a) replaces Section 524(a)(1) and now provides general Section 8 expiring contract renewal authority. It:
1.Provides the renewal authority for what had been the “Emergency Initiative” implemented by HUD Notice H 99-15, which in FY 2000 is Option 1, Mark-Up-To-Market Procedure. It is generally the same policy as in FY 1999, except that non-profit transfers are now eligible for Mark-Up-To-Market, even if the property does not meet the standard eligibility criteria. (See Section IX)
2.Is the authority for renewing other contracts with current rents that are at or below comparable market rents. In general, rents at initial renewal will be determined by applying an OCAF to current rents, or if the Owner requests, a budget-based adjustment. This is a change from last year, when below-market contracts generally were renewed at current rents without an OCAF adjustment. In no case may initial renewal rents under 524(a) exceed comparable market rents. (See Section X)
3.Permits non-profit Owners to mark rents up to a budget-based level, not to exceed comparable market rent, to perform capital repairs on the project, an option that was not available last year. (See Section XXII)
4.In general, requires that contracts with current rents above market rents must be referred to OMHAR for processing. (See Section XI)
B.Section 524(b) now provides the authority to renew projects exempted from OMHAR. The major change, other than the change in Section cite from 524(a)(2) to 524(b), is that in FY 2000, FHA insured properties that are State or locally financed may be eligible for the Mark-To-Market program, and will be referred to OMHAR for processing. (See Section XII)
C.Section 524(c) provides general authority to adjust rents at subsequent renewal by:
1.OCAF; or,
2.Upon the request of the Owner, a budget basis which, in some cases, will be limited to comparable market rents.
(See Sections IX, X and XII)
NOTE: There are exceptions to the general rules stated in Section 524 (a) through (c). Where applicable, these exceptions are noted in this Notice.
D.The new law states that OCAFs established by HUD shall not result in a negative rent adjustment.
E.In accordance with 24 CFR 402.2, in FY 1999, MAHRA required Owners of contracts that renewed under Section 524(a)(1) to submit a RCS with their request for contract renewal. Future rent increases were to be by application of an OCAF, but not to exceed comparable market rents. The regulation reserved to HUD the right to re-determine rents on the budget-based method from time to time. The FY 2000 Act changed this to make automatic OCAF adjustments for four years after initial renewal, unless the Owner requests a budget-based rent increase. In the fifth year, the Owner must submit a new RCS in order to ensure contract rents do not exceed market rents.
For Owners who wish to combine contracts or request a budget-based increase, the RCS submitted at initial renewal can be used for any contract or stage that expires during the five year term of the RCS, but to do so, the RCS must include all of the Section 8 units in the project (not just the units in the expiring Section 8 contract). (See Attachments 4 and 6 and Section VIII)
Note: The five year cycle for each RCS starts with the initial renewal of the Section 8 project-based contract under MAHRA. This includes contracts renewed in FY 1999 and Portfolio Reengineering Demonstration contracts.
The law also gives HUD the right to request one updated RCS at any time during the five year period.
F.The new law authorizes an “enhanced” voucher instead of a “standard” voucher for an eligible family living in an assisted unit when a Section 8 contract expires. If the contract is terminated, eligible families will continue to receive a standard voucher. (See Section XV)
G.The new law allows Preservation projects with contracts expiring to renew under the provisions outlined in the approved Plan of Action (POA), even if these rents exceed market. Additionally, such projects are no longer eligible for Mark-to-Market.
1.Preservation projects will receive all of the benefits called for in the POA.
2.In FY 2000, Preservation Section 8 contracts, by statute, cannot be renewed for more than one year.
H.Portfolio Reengineering Demonstration Projects:
Projects that went through the Portfolio Reengineering Demonstration Program will renew the Section 8 contract in one of the following ways:
1.Projects that went through the Portfolio
Reengineering Demonstration Program and had their mortgages restructured and/or had rents reduced to market should not be forwarded to OMHAR. They should be renewed as follows:
a.Annually for the four years after the Demonstration Contract was signed, the contract will receive an OCAF adjustment.
b.At the end of the fifth year, the project must follow the procedures outlined in Section X (option 2) of this Notice. This includes having to complete a RCS.
2.If the mortgage was not restructured and the project’s rents were not reduced to market, the Owner must submit a rationale as to why debt restructuring is inappropriate. The rationale and the renewal request should be submitted to Headquarters, Office of Portfolio Management, attention Frank Malone.
I.HUD now has the authority to renew contracts for any term, subject to appropriations. Generally, renewals should be for either one year or five years. However, HUD will permit terms ranging from less than one year to more than five years in certain situations. (See Section VI)
J.The FY 2000 Appropriations Act amended Section 8(c)(8) of the U. S. Housing Act of 1937 to provide for a uniform one-year notification requirement for contract expiration or termination. See Section XVI for further discussion. Revised notification letters are provided in Attachment 3.
K.If an Owner of an expiring Section 8 contract requests a contract renewal, and it is determined that he/she or an affiliate is a suspended or debarred Owner, HUD may permit the Owner to renew the Section 8 contract if the project(s) in question is(are) adequately managed and maintained, and activities at the project(s) were not the cause of the administrative actions against the Owner.
L.Under certain circumstances, a budget-based rent increasewill be permitted during the term of a Section 524 contract. These rent increases are “other rent increases.” (See Section XXIII)
M.When a Contract Administrator is administering the Section 8 contract, a HUD signature is no longer required on the “PHA as Contract Administrator”contract form.
IV.APPLICABILITY
A.This Notice applies to all Multifamily Housing Projects with project-based Section 8 assistance contracts expiring in FY 2000, unless otherwise noted.
1.It does not apply to Moderate Rehabilitation projects administered by the Office of Public and Indian Housing or to any projects administered by the Office of Community Planning and Development.
2.Until a project has a contract or stage of a contract that is expiring, project Owners and Field staff should follow the procedures in place when the contract was executed.
B.This Notice does not provide detailed instructions regarding OMHAR’s Mark-To-Market Program. For detailed information on restructuring:
1.Contact the OMHAR staff at 202-708-0001.
2.You can also access Mark-To-Market information on the web at:
V.INITIAL AND SUBSEQUENT RENEWALS
Two years ago Congress made major changes to the Section 8 project-based renewal process. As a requirement for renewal under Section 524(a)(1)of MAHRA, project Owners with expiring Section 8 project-based contracts had to submit a RCS to demonstrate that current rents were at or below comparable market rents. In FY 2000, most Owners are still required, at the initial renewal stage, to submit a RCS to establish that the contract rents are at or below comparable market rents.
The FY 2000 Act states that, beginning with the date of the initial renewal of an expiring Section 8 project-based contract, the RCS will start a five-year “life cycle” before a new RCS is required. During the five-year life cycle, all subsequent renewals of the first contract and renewals of other Section 8 project-based contracts or stages will not require a new RCS.
A.An “Initial Renewal” is the first renewal of a project’s contract or stage that is processed under the rules established by MAHRA.
B.A “Subsequent Renewal” is the renewal of an expiring Section 524 contract at the end of its term. A contract that received its initial renewal in FY 1999 under Section 524(a)(1) or 524(a)(2) of MAHRA, will receive its subsequent renewal in FY 2000 under the procedures outlined in this Notice.
1.Projects are eligible to apply for Mark-up-to-Market at any expiration, not just at initial renewal.
2.Staged contracts that were not combined and are expiring for the first time in FY 2000 may use the RCS submitted at the initial renewal, if the RCS included all of the Section 8 units in the project.
C.Initial and Subsequent renewals have separate processing instructions.
1.Field Office staff and Contract Administrators should check the Owner’s Attachment 4 submission to see which option the Owner selected.
2.Based on the option selected by the Owner, refer to the table of contents to see how to process the request.
VI.CONTRACT TERMS AND EFFECTIVE DATES
In FY 1999, only contracts that renewed under the “Emergency Initiative” (Mark-Up-To-Market) were permitted to enter into contract renewals for five year terms. All other renewals, with the exception of short-term renewals under 514(c) (for projects being referred to OMHAR) and short-term renewals for the protection of the families (to allow time to issue vouchers in instances of Owner opt-outs), were renewed for one-year terms. In FY 2000, HUD has the authority to enter into Section 8 project-based contract renewals for any term.
A.Generally, contract terms shall be for one or five years.
1.If an Owner chooses a contract term of more than one year, the contract will be funded for one year with the balance of years selected by the Owner being subject to annual appropriations.
2.The effective date of the new contract is the day following the expiration date of the previous contract.
Note: HUD will consider terms longer than five years on a case-by-case basis.
B.HUD offices should make every effort to align contract renewal terms with the five-year life cycle of the RCS. For example, if an Owner renewed the contract in FY 99 under section 524(a)(1) for a one year term, and in FY 2000 the Owner wishes to renew the contract for a five year term, the Owner has two options:
1.They may renew the contract for four years, using the RCS submitted at initial renewal (the 524(a)(1) renewal) and adjusting it by OCAF, or,