New regulations give HUD more flexibility

The U.S. Department of Housing and Urban Development (HUD) will have more flexibility in selling HUD-owned, low-income housing projects under revised property disposition regulations issued to implement 1994 legislation.

Prior law generally required HUD to sell projects with project-based Section 8 rent subsidies, a costly and sometimes limited resource. As a result, the department has had to keep some projects in its inventory, absorbing expensive maintenance costs because it was unable to sell them.

The 1994 law, which rewrote Section 203 of the Housing and Community Development Amendments of 1978, relaxed the project-based subsidy requirement, giving the department other options for preserving low-income housing and protecting vulnerable tenants. The law applies to projects financed with Federal Housing Administration-insured mortgages or with Section 202 loans or capital grants.

The regulations set different requirements for the disposition of subsidized and unsubsidized projects. Subsidized projects include Section 221(d)(3) below market interest rate (BMIR), Section 236 and Section 202 projects and other FHA-financed projects in which more than half of the units received a project-based rental subsidy, such as Section 8.

When HUD sells a subsidized project, the regulations generally require project-based Section 8 assistance be provided for at least all of the units that were previously covered by a project-based rent subsidy. If a tenant not eligible for Section 8 happens to occupy one of these units, the tenant won't be evicted, but the owner will be required to rent the unit to an eligible tenant once it is vacant.

HUD also will impose use or rent restrictions to assure that the remaining units in a subsidized project are affordable for the useful life of the project. A unit occupied by a very low-income family (generally, a family with an income no higher than 50% of area median income) will be affordable if the rent doesn't exceed 30% of 50% of area median. Similarly, a unit occupied by a low-income family (generally, an income no higher than 80% of area median) will be affordable if the rent doesn't exceed 30% of 80% of area median.

As an alternative to providing project-based Section 8 for units in the subsidized project being sold, HUD can provide project-based assistance or impose very low-income affordability restrictions on an equivalent number of units in unsubsidized projects in the same area. If this option is used, Section 8 certificates or vouchers will be provided to tenants in the subsidized project who would have received project-based assistance.

As another option, HUD can provide certificates or vouchers to all low-income tenants living in units that would have received project-based Section 8, if the department determines that there is an adequate supply of housing in the area suitable for leasing with the certificates or vouchers.

For unsubsidized projects, HUD will provide project-based Section 8 for all units covered by rent supplements, Section 23 leased housing assistance or project-based Section 8 other than Section 8 loan management set-aside (LMSA) assistance. Tenant-based Section 8 will be provided for LMSA units.

Again, HUD has the option of providing tenant-based, rather than project-based, Section 8 assistance if there is an adequate supply of housing for certificate and voucher holders.

The regulations also authorize a number of actions HUD can take to supplement or replace the Section 8 assistance that would otherwise be required on the sale of subsidized and unsubsidized projects, as long as the overall affordability requirements are met. These actions include a reduction in the project sales price, up-front grants, shortterm loans and additional use and rent restrictions.

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