---
kind: "range"
citation: "24 C.F.R. §§ 891.520–891.650"
title: "24"
from: "891.520"
to: "891.650"
count: 27
url: "https://uscodex.org/cfr/24/891.520..891.650"
---

# §891.520. Definitions applicable to 202/8 projects.


The following definitions apply to projects for eligible families receiving assistance under section 8 of the United States Housing Act of 1937 in addition to reservations under section 202 of the Housing Act of 1959 (202/8 projects):

Adjusted income as defined in [part 5](/cfr/24/part5.md), [subpart F](/cfr/24/subpartF.md) of subtitle A of this title.

Assisted unit means a dwelling unit eligible for assistance under a HAP contract.

Contract rent means the total amount of rent specified in the HAP contract as payable by HUD and the tenant to the Borrower for an assisted unit.

Family (eligible family) means an elderly or handicapped family that meets the project occupancy requirements approved by HUD and, if the family occupies an assisted unit, meets the requirements described in [24 CFR 5.403](/cfr/24/5.403.md).

HAP contract (housing assistance payments contract) means the contract entered into by the Borrower and HUD setting forth the rights and duties of the parties with respect to the project and the payments under the HAP contract.

Housing assistance payment means the payment made by HUD to the Borrower for assisted units as provided in the HAP contract. The payment is the difference between the contract rent and the tenant rent. An additional payment is made to a family occupying an assisted unit when the utility allowance is greater than the total tenant payment. A housing assistance payment, known as a “vacancy payment,” may be made to the Borrower when an assisted unit is vacant, in accordance with the terms of the HAP contract.

Project account means a specifically identified and segregated account for each project that is established in accordance with [§ 891.570(b)](/cfr/24/891.570.md?p=b) out of the amounts by which the maximum annual commitment exceeds the amount actually paid out under the HAP contract each year.

Project occupancy requirements means that eligible populations to be served under the [Section 202](/cfr/24/202.md) program are qualified individuals or families whose head of household or spouse is elderly, physically handicapped, developmentally disabled, or chronically mentally ill. Projects are designed to meet the special needs of the particular tenant population that the Borrower was selected to serve. Individuals from one eligible group may not be accepted for occupancy in a project designed for a different tenant group. However, a Sponsor can propose to house eligible tenant groups other than the one it was selected to serve, but must apply to the HUD field office for permission to do so, based on a plan that demonstrates that it can adequately serve the proposed tenant group. Upon review and recommendation by the field office, HUD Headquarters will approve or disapprove the request.

Rent, in the case of a unit in a cooperative project, means the carrying charges payable to the cooperative with respect to occupancy of the unit.

Tenant rent means the monthly amount defined in, and determined in accordance with [part 5](/cfr/24/part5.md), [subpart F](/cfr/24/subpartF.md) of subtitle A of this title.

Total tenant payment means the monthly amount defined in, and determined in accordance with [part 5](/cfr/24/part5.md), [subpart F](/cfr/24/subpartF.md) of subtitle A of this title.

Utility allowance is defined in [part 5](/cfr/24/part5.md), [subpart F](/cfr/24/subpartF.md) of subtitle A of this title and is determined or approved by HUD.

Utility reimbursement is defined in [part 5](/cfr/24/part5.md), [subpart F](/cfr/24/subpartF.md) of subtitle A of this title.

Vacancy payment means the housing assistance payment made to the Borrower by HUD for a vacant assisted unit if certain conditions are fulfilled, as provided in the HAP contract. The amount of the vacancy payment varies with the length of the vacancy period and is less after the first 60 days of any vacancy.


# §891.525. Amount and terms of financing.

- (a) The amount of financing approved shall be the amount stated in the Notice of [Section 202](/cfr/24/202.md) Fund Reservation, including any increase approved by the field office prior to the final closing of a loan; provided, however, that the amount of financing provided shall not exceed the lesser of:
  - (1) The dollar amounts stated in [paragraphs (b) through (f)](#b..f) of this section; or
  - (2) **The total development cost of the project as determined by the field office.**
- (b) For such part of the property or project attributable to dwelling use (excluding exterior land improvements, as defined by the Assistant Secretary) the maximum loan amount, depending on the number of bedrooms, may not exceed:
  - (1) $28,032 per family unit without a bedroom.
  - (2) $32,321 per family unit with one bedroom.
  - (3) $38,979 per family unit with two bedrooms.
- (c) In order to compensate for the higher costs incident to construction of elevator type structures of sound standards of construction and design, the field office may increase the dollar limitations per family unit, as provided in [paragraph (b)](#b) of this section, to not to exceed:
  - (1) $29,500 per family unit without a bedroom.
  - (2) $33,816 per family unit with one bedroom.
  - (3) $41,120 per family unit with two bedrooms.
- (d) **Reduced loan amount—leaseholds.** In the event the loan is secured by a leasehold estate rather than a fee simple estate, the allowable cost of the property upon which the loan amount is based shall be reduced by the value of the leased fee.
- (e) **Adjusted loan amount—rehabilitation projects.** A loan amount that involves a project to be rehabilitated shall be subject to the following additional limitations:
  - (1) **Property held in fee.** If the Borrower is the fee simple owner of the project not encumbered by a mortgage, the maximum loan amount shall not exceed 100 percent of the cost of the proposed rehabilitation.
  - (2) **Property subject to existing mortgage.** If the Borrower owns the project subject to an outstanding indebtedness, which is to be refinanced with part of the [Section 202](/cfr/24/202.md) loan, the maximum loan amount shall not exceed the cost of rehabilitation plus such portion of the outstanding indebtedness as does not exceed the fair market value of such land and improvements prior to the rehabilitation, as determined by the field office.
  - (3) **Property to be acquired.** If the project is to be acquired by the Borrower and the purchase price is to be financed with a part of the [Section 202](/cfr/24/202.md) loan, the maximum loan amount shall not exceed the cost of the rehabilitation plus such portion of the purchase price as does not exceed the fair market value of such land and improvements prior to the rehabilitation, as determined by the field office.
- (f) **Increased Mortgage Limits—High Cost Areas.**
  - (1)
    - (i) The Assistant Secretary may increase the dollar amount limitations in paragraphs [(b)](#b) and [(c)](#c) of this section:
      - (A) By not to exceed 110 percent in any geographical area in which the Assistant Secretary finds that cost levels so require; and
      - (B) By not to exceed 140 percent where the Assistant Secretary determines it necessary on a project-by-project basis.
    - (ii) In no case, however, may any such increase exceed 90 percent, where the Assistant Secretary determines that there is involved a mortgage purchased or to be purchased by the Government National Mortgage Association (GNMA) in implementing its Special Assistance Functions under section 305 of the National Housing Act (as [section 305](/cfr/24/305.md) existed immediately before its repeal on November 30, 1983).
  - (2) If the Assistant Secretary finds that because of high costs in Alaska, Guam, or Hawaii it is not feasible to construct dwellings without the sacrifice of sound standards of construction, design, and livability within the limitations of maximum loan amounts provided in this section, the principal amount of mortgages may be increased by such amounts as may be necessary to compensate for such costs, but not to exceed in any event the maximum, including high cost area increases, if any, otherwise applicable by more than one-half thereof.
- (g) **Loan interest rate.** Loans shall bear interest at a rate determined by HUD in accordance with this section.
  - (1) **Annual interest rate.** Except as provided under [paragraph (g)(2)](#g-2), loans shall bear interest at the rate in effect at the time the loan is made. The loan interest rate shall not exceed:
    - (i) The average yield on the most recently issued 30-year marketable obligations of the United States during the 3-month period immediately preceding the fiscal year in which the loan is made (adjusted to the nearest one-eighth of one percent), plus an allowance to cover administrative costs and probable losses under the program; and
    - (ii) Any applicable statutory ceiling on the loan interest rate including the allowance to cover administrative costs and probable losses.
  - (2) **Optional interest rate.** The Borrower may elect an optional loan interest rate. To elect the optional rate, the Borrower must request that HUD determine the loan interest rate at the time of the Borrower's request for conditional or firm commitment for direct loan financing.
    - (i) If the Borrower elects the optional loan interest rate, the loan interest rate shall not exceed:
      - (A) The average yield on the most recently issued 30-year marketable obligations of the United States during the 3-month period immediately preceding the fiscal year in which the request for commitment is submitted (adjusted to the nearest one-eighth of one percent), plus an allowance to cover administrative costs and probable losses under the program;
      - (B) The average yield on the most recently issued 30-year marketable obligations of the United States during the 1-month period immediately preceding the month in which the request for commitment is submitted (adjusted to the nearest one-eighth of one percent), plus an allowance to cover the administrative costs and probable losses under the program; and (C) Any applicable statutory ceiling on the loan interest rate including an allowance to cover administrative costs and probable losses under the program.
    - (ii) The date of submission of a request for conditional or firm commitment is the date that the Borrower submits the complete and acceptable request to HUD. The date of the submission of a request for commitment will not be affected by any subsequent resubmission of the request by the Borrower or by any reprocessing of the request by HUD.
    - (iii) The Borrower may withdraw its election of the optional interest rate at any time before initial loan closing. If the Borrower elected the optional interest rate with its request for conditional commitment and withdraws its election, the loan will bear interest at the rate determined under [paragraph (g)(1)](#g-1) of this section, unless the Borrower elects an optional interest rate with its request for firm commitment. If the Borrower withdraws its election after the date of submission of its request for firm commitment, the loan will bear interest at the rate determined under [paragraph (g)(1)](#g-1) of this section.
    - (iv) If initial loan closing has not occurred within 18 months after the Notice of [Section 202](/cfr/24/202.md) Fund Reservation is issued, the Borrower's election of the optional rate will be cancelled and the loan will bear interest at the rate determined under [paragraph (g)(1)](#g-1) of this section.
  - (3) **Allowance for administrative costs and probable losses.** For the purpose of computing the loan interest rate under [paragraphs (g)](#g) (1) and (2) of this section, the allowance to cover administrative costs and probable losses under the program is one-fourth of one percent (.25%) per annum for both the construction and permanent loan periods.
- (h) **Announcement of interest rates.**
  - (1) HUD will annually announce the loan interest rate determination under [paragraph (g)(1)](#g-1) of this section by publishing notice of the rate in the Federal Register. The Federal Register notice will include a statement explaining the basis for the interest rate determination.
  - (2) Upon the Borrower's request, HUD will provide available current information concerning the determination of the interest rate under [paragraph (g)(2)](#g-2) of this section.
- (i) The loan shall be secured by a first mortgage on real estate in fee simple or long term leasehold. The mortgage shall be repayable during a term not to exceed 40 years and shall be subject to such terms and conditions as shall be determined by the Assistant Secretary.
- (j) In order to assure HUD of the Borrower's continued commitment to the development, management, and operation of the project, a minimum capital investment is required of [Section 202](/cfr/24/202.md) Borrowers of one-half of one percent (0.5%) of the mortgage amount committed to be disbursed, not to exceed the amount of $10,000. [Section 106(b)](/cfr/24/106.md?p=b) loans made pursuant to section 106 of the Housing Act of 1968 may not be utilized to meet the minimum capital investment requirement. Such minimum capital investment shall be placed in escrow at the initial closing of the [Section 202](/cfr/24/202.md) loan and shall be held by HUD or other escrow agent acceptable to the field office for not less than a 3-year period from the date of initial occupancy and may be used for operating expenses or deficits as may be directed by the field office. Any unexpended balance remaining in the minimum capital investment account at the end of the escrow period shall be returned to the Borrower.

# §891.530. Prepayment privileges.

- (a) The prepayment (whether in whole or in part) or the assignment or transfer of physical and financial assets of any [Section 202](/cfr/24/202.md) project is prohibited, unless the Secretary gives prior written approval.
- (b) The Secretary may not grant approval unless he or she has determined that the prepayment or transfer of the loan is part of a transaction that will ensure the continued operation of the project, until the original maturity date of the loan, in a manner that will provide rental housing for the elderly and handicapped on terms at least as advantageous to existing and future tenants as the terms required by the original [Section 202](/cfr/24/202.md) loan agreement and any other loan agreements entered into under other provisions of law.

# §891.535. Requirements for awarding construction contracts.

- (a) Awards shall be made only to responsible contractors that possess the potential ability to perform successfully under the terms and conditions of a proposed construction contract. Consideration shall be given to such matters as contractor integrity, compliance with public policy, record of past performance, and financial and technical resources.
- (b) Each Borrower is permitted to use either competitive bidding (formal advertising) in selecting a construction contractor or the negotiated noncompetitive method of contract award under [paragraph (c)](#c) of this section. In competitive bidding, sealed bids are publicly solicited and a firm, fixed-price contract is awarded (in accordance with the requirements of this [paragraph (b)](#b)) to the responsible bidder whose bid, conforming with all the material terms and conditions of the invitation for bids, is lowest in price. Regardless of which method a Borrower uses, there should be an opportunity for minority owned and women owned businesses to be awarded a contract.
  - (1) Bids shall be solicited from an adequate number of known contractors a reasonable time prior to the date set forth for opening of bids. In addition, the invitation shall be publicly advertised.
  - (2) The invitation for bids shall specify:
    - (i) The name of the Borrower;
    - (ii) A brief description of the proposed project and the proposed construction contract;
    - (iii) A preliminary estimate of cost;
    - (iv) That bids will be received at a specified place until a specified time at which time and place all bids will be publicly opened;
    - (v) The location where the proposed forms of contract and bid documents, including plans and specifications, are on file and may be obtained on payment of a specified returnable deposit;
    - (vi) That a certified check or bank draft or satisfactory bid bond in the amount of 5 percent of the bid shall be submitted with the bid;
    - (vii) That the successful bidder will be required to provide assurance of completion in the form of a performance and payment bond or cash escrow; and
    - (viii) **That the Borrower reserves the right to reject any or all bids and to waive any informality.**
  - (3) The bid form, which must be submitted by all bidders, must specify:
    - (i) The name of the project;
    - (ii) The name and address of the bidder;
    - (iii) That the bidder proposes to furnish all labor, materials, equipment and services required to construct and complete the project, as described in the invitation for bids (including the contents of all documents on file), for a specified lump-sum price;
    - (iv) That the security specified in [paragraph (b)(2)(vi)](#b-2-vi) of this section accompanies the bid;
    - (v) The period after the bid opening during which the bid shall not be withdrawn without the consent of the Borrower;
    - (vi) That the bidder will, if notified of acceptance of such bid within a specified period after the opening, execute and deliver a contract in the prescribed form and furnish the required bond within ten days thereafter;
    - (vii) That the bidder acknowledges any amendments to the invitation for bids; and
    - (viii) That the bidder certifies that the bid is in strict accordance with all terms of the invitation for bids (including the contents of all documents on file) and that the bid is signed by a person authorized to bind the bidder.
  - (4) Bidding shall be open to all general contractors who furnish the security guaranteeing their bid, as described in [paragraph (b)(2)(vi)](#b-2-vi) of this section.
  - (5) All bids shall be opened publicly at the time and place stated in the invitation for bids, in the presence of the HUD Regional Administrator or his designee.
  - (6) A firm, fixed-price contract award shall be made by written notice to the responsible bidder whose bid, conforming to the invitation for bids, is lowest. The contract may provide for an incentive payment to the contractor for an early completion.
- (c) A Sponsor or Borrower may award a negotiated, noncompetitive construction contract.

# §891.540. Loan disbursement procedures.

- (a) Disbursements of loan proceeds shall be made directly by HUD to or for the account of the Borrower and may be made through an approved lender, mortgage servicer, title insurance company, or other agent satisfactory to the Borrower and HUD.
- (b) All disbursements to the Borrower shall be made on a periodic basis in an amount not to exceed the HUD-approved cost of portions of construction or rehabilitation work completed and in place (except as modified in [paragraph (d)](#d) of this section), minus the appropriate holdback, as determined by the field office.
- (c) Requisitions for loan disbursements shall be submitted by the Borrower on forms to be prescribed by the Assistant Secretary and shall be accompanied by such additional information as the field office may require in order to approve loan disbursements under subpart E of this part, including but not limited to evidence of compliance with the Davis-Bacon Act, Department of Labor regulations, all applicable zoning, building, and other governmental requirements, and such evidence of continued priority of the mortgage of the Borrower as the Assistant Secretary may prescribe.
- (d) In loan disbursements for building components stored off-site, the term building component shall mean any manufactured or preassembled part of a structure as defined by HUD and that the Assistant Secretary has designated for off-site storage because it is of such size or weight that storage of the components required for timely construction progress at the construction site is impractical, or weather damage or other adverse conditions prevailing at the construction site would make storage at the site impractical or unduly costly. Each building component must be specifically identified for incorporation into the property as provided under [paragraph (d)(1)(ii)](#d-1-ii) of this section.
  - (1) **Storage.**
    - (i) A loan disbursement may be made for up to 90 percent of the invoice value (to exclude costs of transportation and storage) of the building components stored off-site if the components are stored at a location approved by HUD.
    - (ii) Each building component shall be adequately marked so as to be readily identifiable in the inventory of the off-site location. It shall be kept together with all other building components of the same manufacturer intended for use in the same project for which loan disbursements have been made and separate and apart from similar units not for use in the project.
    - (iii) Storage costs, if any, shall be borne the general contractor.
  - (2) **Responsibility for transportation, storage and insurance of off-site building components.** The general contractor of the project shall have the responsibility for:
    - (i) Insuring the components in the name of the Borrower while in transit and storage; and
    - (ii) Delivering or contracting for the delivery of the components to the storage area and to the construction site, including payment of freight.
  - (3) **Loan disbursements.**
    - (i) **Before a loan disbursement for a building component stored off-site is made, the Borrower shall—**
      - (A) Obtain a bill of sale for the component;
      - (B) Provide HUD with a security agreement pledged by a first lien on the building components with the exception of such other liens or encumbrances as may be approved by HUD; and
      - (C) **File a financing statement in accordance with the Uniform Commercial Code.**
    - (ii) Before each loan disbursement for building components stored off-site is made the manufacturer and the general contractor shall certify to HUD that the components, in their intended use, comply with HUD-approved contract plan and specifications.
    - (iii) Loan disbursements may be made only for components stored off-site in a quantity required to permit uninterrupted installation at the site.
    - (iv) At no time shall the invoice value of building components being stored off-site, for which advances have been insured, represent more than 25 percent of the total estimated construction costs for the insured mortgaged project as specified in the construction contract. Notwithstanding the preceding sentence and other regulatory requirements that set bonding requirements, the percentage of total estimated construction costs insured by advances under this section may exceed 25 percent but not 50 percent if the mortgagor furnishes assurance of completion in the form of a corporate surety bond for the payment and performance each in the amount of 100 percent of the amount of the construction contract. In no event will insurance of components stored off-site be made in the absence of a payment and performance bond.
    - (v) No single loan disbursement which is to be made shall be in an amount less than ten thousand ($10,000) dollars.

# §891.545. Completion of project, cost certification, and HUD approvals.

- (a) The Borrower must satisfy the requirements for completion of construction and substantial rehabilitation and approvals by HUD before submission of a final requisition for disbursement of loan proceeds.
- (b) The Borrower shall submit to the field office all documentation required for final disbursement of the loan, including:
  - (1) A Borrower's/Mortgagor's Certificate of Actual Cost, showing the actual cost to the mortgagor of the construction contract, architectural, legal, organizational, offsite costs, and all other items of eligible expense. The certificate shall not include as actual cost any kickbacks, rebates, trade discounts, or other similar payments to the mortgagor or to any of its officers, directors, or members.
  - (2) A verification of the Certificate of Actual Cost by an independent Certified Public Accountant or independent public accountant acceptable to the field office.
  - (3) In the case of projects not subject to competitive bidding, a certification of the general contractor (and of such subcontractors, material suppliers, and equipment lessors as the Assistant Secretary or field office may require), on a form prescribed by the Assistant Secretary, as to all actual costs paid for labor, materials, and subcontract work under the general contract exclusive of the builder's fee and kickbacks, rebates, trade discounts, or other similar payments to the general contractor, the mortgagor, or any of its officers, directors, stockholders, partners, or members.
- (c) In lieu of the requirements set forth in paragraphs (c)(1) and (3) of this section, a simplified form of cost certification prescribed by the Secretary may be completed and submitted by the Borrower for projects with mortgages of $500,000 or less. The simplified cost certification shall be verified by an independent Certified Public Accountant or an independent public accountant in a manner acceptable to the Secretary.
- (d) If the Borrower's certified costs provided in accordance with paragraph (c) or [(d)](#d) of this section and as approved by HUD are less than the loan amount, the contract rents will be reduced accordingly.
- (e) If the contract rents are reduced pursuant to [paragraph (e)](#e) of this section, the maximum annual HAP Contract commitment will be reduced. If contract rents are reduced based on cost certification after HAP Contract execution, any overpayment after the effective date of the Contract will be recovered from the Borrower by HUD.

# §891.550. Broadband infrastructure.


Any new construction or substantial rehabilitation, as substantial rehabilitation is defined by [24 CFR 5.100](/cfr/24/5.100.md), of a building with more than 4 rental units and funded by a grant awarded after January 19, 2017 must include installation of broadband infrastructure, as this term is also defined in [24 CFR 5.100](/cfr/24/5.100.md), except where the owner determines and documents the determination that:

- (a) The location of the new construction or substantial rehabilitation makes installation of broadband infrastructure infeasible;
- (b) The cost of installing broadband infrastructure would result in a fundamental alteration in the nature of its program or activity or in an undue financial burden; or
- (c) The structure of the housing to be substantially rehabilitated makes installation of broadband infrastructure infeasible.

# §891.560. HAP contract.

- (a) **HAP contract.** The housing assistance payments contract sets forth rights and duties of the Borrower and HUD with respect to the project and the housing assistance payments.
- (b) **HAP contract execution.**
  - (1) Upon satisfactory completion of the project, the Borrower and HUD shall execute the HAP contract on the form prescribed by HUD.
  - (2) The effective date of the HAP contract may be earlier than the date of execution, but no earlier than the date of HUD's issuance of the permission to occupy.
  - (3) If the project is completed in stages, the procedures of [paragraph (b)](#b) of this section shall apply to each stage.
- (c) **Housing assistance payments to owners under the HAP contract.** The housing assistance payments made under the HAP contract are:
  - (1) **Payments to the Borrower to assist eligible families leasing assisted units.** The amount of the housing assistance payment made to the Borrower for an assisted unit leased to an eligible family is equal to the difference between the contract rent for the unit and the tenant rent payable by the family.
  - (2) **Payments to the Borrower for vacant assisted units (vacancy payments).** The amount of and conditions for vacancy payments are described in [§ 891.650](/cfr/24/891.650.md). The housing assistance payments are made monthly by HUD upon proper requisition by the Borrower, except payments for vacancies of more than 60 days, which are made semiannually by HUD upon requisition by the Borrower.
- (d) **Payment of utility reimbursement.** As applicable, a utility reimbursement will be paid to a family occupying an assisted unit as an additional housing assistance payment. The HAP contract will provide that the Borrower will make this payment on behalf of HUD. Funds will be paid to the Borrower in trust solely for the purpose of making the additional payment. The Borrower may pay the utility reimbursement jointly to the family and the utility company, or, if the family and utility company consent, directly to the utility company.

# §891.565. Term of HAP contract.


The term of the HAP contract for assisted units shall be 20 years. If the project is completed in stages, the term of the HAP contract for assisted units in each stage shall be 20 years. The term of the HAP contract for all assisted units in all stages of a project shall not exceed 22 years.


# §891.570. Maximum annual commitment and project account.

- (a) **Maximum annual commitment.** The maximum annual amount that may be committed under the HAP contract is the total of the contract rents and utility allowances for all assisted units in the project.
- (b) **Project account.**
  - (1) HUD will establish and maintain a specifically identified and segregated project account for each project. The project account will be established out of the amounts by which the maximum annual commitment exceeds the amount actually paid out under the HAP contract each year. HUD will make payments from this account for housing assistance payments as needed to cover increases in contract rents or decreases in tenant income and other payments for costs specifically approved by the Secretary.
  - (2) If the HUD-approved estimate of required annual payments under the HAP contract for a fiscal year exceeds the maximum annual commitment for that fiscal year plus the current balance in the project account, HUD will, within a reasonable time, take such steps authorized by section 8(c)(6) of the United States Housing Act of 1937 ([42 U.S.C. 1437f](/usc/42/1437f.md) note), as may be necessary, to assure that payments under the HAP contract will be adequate to cover increases in contract rents and decreases in tenant income.

# §891.575. Leasing to eligible families.

- (a) **Availability of assisted units for occupancy by eligible families.**
  - (1) During the term of the HAP contract, a Borrower shall make available for occupancy by eligible families the total number of units for which assistance is committed under the HAP contract. For purposes of this section, making units available for occupancy by eligible families means that the Borrower:
    - (i) Is conducting marketing in accordance with [§ 891.600(a)](/cfr/24/891.600.md?p=a);
    - (ii) Has leased or is making good faith efforts to lease the units to eligible and otherwise acceptable families, including taking all feasible actions to fill vacancies by renting to such families;
    - (iii) **Has not rejected any such applicant family except for reasons acceptable to HUD.**
  - (2) If the Borrower is temporarily unable to lease all units for which assistance is committed under the HAP contract to eligible families, one or more units may, with the prior approval of HUD, be leased to otherwise eligible families that do not meet the income eligibility requirements of [24 CFR 5.653](/cfr/24/5.653.md). Failure on the part of the Borrower to comply with these requirements is a violation of the HAP contract and grounds for all available legal remedies, including an action for specific performance of the HAP contract, suspension or debarment from HUD programs, and reduction of the number of units under the HAP contract as set forth in [paragraph (b)](#b) of this section.
- (b) **Reduction of number of units covered by the HAP contract.** HUD may reduce the number of units covered by the HAP contract to the number of units available for occupancy by eligible families if:
  - (1) The Borrower fails to comply with the requirements of [paragraph (a)](#a) of this section; or
  - (2) Notwithstanding any prior approval by HUD, HUD determines that the inability to lease units to eligible families is not a temporary problem.
- (c) **Restoration.** HUD will agree to an amendment of the HAP contract to provide for subsequent restoration of any reduction made under [paragraph (b)](#b) of this section if:
  - (1) HUD determines that the restoration is justified by demand;
  - (2) The Borrower otherwise has a record of compliance with the Borrower's obligations under the HAP contract; and
  - (3) **Contract and budget authority is available.**
- (d) **Applicability.** In accordance with [section 555](/cfr/24/555.md) of the Cranston-Gonzalez National Affordable Housing Act of 1990, paragraphs [(a)](#a) and [(b)](#b) of this section apply to all contracts. An owner who had leased an assisted unit to an ineligible family consistent with the regulations in effect at the time will continue to lease the unit to that family. However, the owner must make the unit available for occupancy by an eligible family when the ineligible family vacates the unit.
- (e) **Occupancy by families that are not elderly or handicapped.** HUD may permit units in the project to be leased to other than elderly or handicapped families if:
  - (1) The Borrower has made reasonable efforts to lease assisted and unassisted units to eligible families;
  - (2) The Borrower has been granted HUD approval under [paragraph (a)](#a) of this section; and
  - (3) The Borrower is temporarily unable to achieve or maintain a level of occupancy sufficient to prevent financial default and foreclosure under the [Section 202](/cfr/24/202.md) loan documents. HUD approval under [paragraph (e)(3)](#e-3) of this section will be of limited duration. HUD may impose terms and conditions to this approval that are consistent with program objectives and necessary to protect its interest in the [Section 202](/cfr/24/202.md) loan.
- (f) The regulations of [24 CFR part 5](/cfr/24/part5.md), [subpart L](/cfr/24/subpartL.md) (Protection for Victims of Domestic Violence, Dating Violence, Sexual Assault, or Stalking) apply to this section.

# §891.580. HAP contract administration.


HUD is responsible for the administration of the HAP contract.


# §891.582. Management and occupancy reviews.

- (a) The contract administrator will conduct management and occupancy reviews to determine whether the owner is in compliance with the HAP Contract. Such reviews will be conducted in accordance with a schedule set out by the Secretary and published in the Federal Register, following notice and the opportunity to comment. Where a change in ownership or management occurs, a management and occupancy review must be conducted within six months.
- (b) HUD or the Contract Administrator may inspect project operations and units at any time.
- (c) Equal Opportunity reviews may be conducted by HUD at any time.

# §891.585. Default by Borrower.

- (a) **HAP contract provisions.** The HAP contract will provide:
  - (1) That if HUD determines that the Borrower is in default under the HAP contract, HUD will notify the Borrower of the actions required to be taken to cure the default and of the remedies to be applied by HUD including an action for specific performance under the HAP contract, reduction or suspension of housing assistance payments and recovery of overpayments, where appropriate; and
  - (2) That if the Borrower fails to cure the default, HUD has the right to terminate the HAP contract or to take other corrective action.
- (b) **Loan provisions.** Additional provisions governing default under the [section 202](/cfr/24/202.md) loan are included in the regulatory agreement and other loan documents.

# §891.590. Notice upon HAP contract expiration.

- (a) **Notice required.** The HAP contract will provide that the Borrower will, at least one year before the end of the HAP contract term, notify each family leasing an assisted unit of any increase in the amount the family will be required to pay as rent as a result of the expiration.
- (b) **Service requirements.** The notice under [paragraph (a)](#a) of this section shall be accomplished by sending a letter by first class mail, properly stamped and addressed, to the family at its address at the project, with a proper return address; and serving a copy of the notice on any adult person answering the door at the leased dwelling unit, or if no adult responds, by placing the notice under or through the door, if possible, or else by affixing the notice to the door. Service shall not be considered to be effective until both required notices have been accomplished. The date on which the notice shall be considered to be received by the family shall be the date on which the Borrower mails the first class letter provided for in [paragraph (b)](#b) of this section, or the date on which the notice provided for in [paragraph (b)](#b) of this section is properly given, whichever is later.
- (c) **Contents of notice.** The notice shall advise each affected family that, after the expiration date of the HAP contract, the family will be required to bear the entire cost of the rent and that the Borrower may, subject to requirements and restrictions contained in the regulatory agreement, the lease, and State or local law, change the rent. The notice also shall state:
  - (1) The actual (if known) or the estimated rent that will be charged following the expiration of the HAP contract;
  - (2) The difference between the new rent and the total tenant payment toward rent under the HAP contract; and
  - (3) The date the HAP contract will expire.
- (d) **Certification to HUD.** The Borrower shall give HUD a certification that families have been notified in accordance with this section and shall attach to the certification an example of the text of the notice.
- (e) **Applicability.** This section applies to all HAP contracts entered into under an agreement to enter into a housing assistance payments contract executed on or after October 1, 1981, or entered into under such an agreement executed before October 1, 1981 but renewed or amended after February 9, 1995.

# §891.595. HAP contract extension or renewal.


Upon expiration of the term of the HAP contract, HUD and the Borrower may agree (subject to available funds) to extend the term of the HAP contract or to renew the HAP contract. The number of assisted units under the extended or renewed HAP contract shall equal the number of assisted units under the original HAP contract, except that:

- (a) HUD and the Borrower may agree to reduce the number of assisted units by the number of assisted units that are not occupied by eligible families at the time of the extension or renewal; and
- (b) HUD and the Borrower may agree to permit reductions in the number of assisted units during the term of the extended or renewed HAP contract as assisted units are vacated by eligible families. Nothing in this section shall prohibit HUD from reducing the number of units covered under the extended or renewed HAP contract in accordance with [§ 891.575(b)](/cfr/24/891.575.md?p=b).

# §891.600. Responsibilities of Borrower.

- (a) **Marketing.**
  - (1) The Borrower must commence and continue diligent marketing activities not later than 90 days before the anticipated date of availability for occupancy of the first unit of the project. Market activities shall include the provision of notices of availability of housing under the program to operators of temporary housing for the homeless in the same housing market.
  - (2) Marketing must be done in accordance with the HUD-approved affirmative fair housing marketing plan and all Federal, State, or local fair housing and equal opportunity requirements. The purpose of the plan and requirements is to achieve a condition in which eligible families of similar income levels in the same housing market have a like range of housing choices available to them regardless of discriminatory considerations, such as their race, color, creed, religion, familial status, disability, sex or national origin. Marketing must also be done in accordance with the communication and notice requirements of [Section 504](/cfr/24/504.md) at 24 CFR [8.6](/cfr/24/8.6.md) and [24](/cfr/24/24.md) CFR 8.54.
  - (3) At the time of HAP contract execution, the Borrower must submit to HUD a list of leased and unleased assisted units, with a justification for the unleased units, in order to qualify for vacancy payments for the unleased units.
- (b) **Management and maintenance.** The Borrower is responsible for all management functions. These functions include selection and admission of tenants, required reexaminations of incomes for families occupying assisted units (or residential spaces, as applicable), collection of rents, termination of tenancy and eviction, and all repair and maintenance functions (including ordinary and extraordinary maintenance and replacement of capital items). All functions must be performed in compliance with equal opportunity requirements.
- (c) **Contracting for services.**
  - (1) With HUD approval, the Borrower may contract with a private or public entity for performance of the services or duties required in paragraphs [(a)](#a) and [(b)](#b) of this section. However, such an arrangement does not relieve the Borrower of responsibility for these services and duties. All such contracts are subject to the restrictions governing prohibited contractual relationships described in §§ [891.130](/cfr/24/891.130.md) and [891.505](/cfr/24/891.505.md), if applicable. (These prohibitions do not extend to management contracts entered into by the Borrower with the Sponsor or its nonprofit affiliate).
  - (2) **Consistent with the objectives of Executive Order No.** 11625 (36 FR 19967, [3 CFR](/cfr/3.md), 1971-1975 Comp., p. 616; as amended by Executive Order No. 12007 (42 FR 42839, [3 CFR](/cfr/3.md), 1977 Comp., p. 139; unless otherwise noted); Executive Order No. 12432 (48 FR 32551, [3 CFR](/cfr/3.md), 1983 Comp., p. 198; unless otherwise noted); and Executive Order No. 12138 (44 FR 29637, [3 CFR](/cfr/3.md), 1979 Comp., p. 393; unless otherwise noted), the Borrower will promote awareness and participation of minority and women's business enterprises in contracting and procurement activities.
- (d) **Submission of financial and operating statements.** The Borrower must submit to HUD:
  - (1) Within 60 days after the end of each fiscal year of project operations, financial statements for the project audited by an independent public accountant and in the form required by HUD; and
  - (2) Other statements regarding project operation, financial conditions and occupancy as HUD may require to administer the housing assistance payments contract (HAP contract) or the project assistance contract (PAC), as applicable, and to monitor project operations.
- (e) **Use of project funds.** The Borrower shall maintain a separate project fund account in a depository or depositories that are members of the Federal Deposit Insurance Corporation or National Credit Union Share Insurance Fund and shall deposit all rents, charges, income and revenues arising from project operation or ownership to this account. All project funds are to be deposited in Federally-insured accounts. All balances shall be fully insured at all times, to the maximum extent possible. Project funds must be used for the operation of the project (including required insurance coverage), to make required principal and interest payments on the [Section 202](/cfr/24/202.md) loan, and to make required deposits to the replacement reserve under §§ [891.605](/cfr/24/891.605.md) and [891.745](/cfr/24/891.745.md) (as applicable), in accordance with a HUD-approved budget. Any project funds in the project funds account (including earned interest) following the expiration of the fiscal year shall be deposited in a Federally-insured residual receipts account within 60 days following the end of the fiscal year. Withdrawals from this account may be made only for project purposes and with the approval of HUD. If there are funds remaining in the residual receipts account when the mortgage is satisfied, such funds shall be returned to HUD.
- (f) **Reports.** The Borrower shall submit such reports as HUD may prescribe to demonstrate compliance with applicable civil rights and equal opportunity requirements.

# §891.605. Replacement reserve.

- (a) **Establishment of reserve.** The Borrower shall establish and maintain a replacement reserve to aid in funding extraordinary maintenance, and repair and replacement of capital items.
- (b) **Deposits to reserve.** The Borrower shall make monthly deposits to the replacement reserve in an amount determined by HUD. Further requirements regarding the amount of the deposits for projects funded under [§§ 891.655 through 891.790](/cfr/24/891.655..891.790.md) are provided in [§ 891.745](/cfr/24/891.745.md).
- (c) **Level of reserve.** The reserve must be built up to and maintained at a level determined by HUD to be sufficient to meet projected requirements. Should the reserve reach that level, the amount of the deposit to the reserve may be reduced with the approval of HUD.
- (d) **Administration of reserve.** Replacement reserve funds must be deposited with HUD or in a Federally-insured depository in an interest-bearing account(s) whose balances are fully insured at all times. All earnings including interest on the reserve must be added to the reserve. Funds may be drawn from the reserve and used only in accordance with HUD guidelines and with the approval of, or as directed by, HUD.

# §891.610. Selection and admission of tenants.

- (a) **Written procedures.** The Owner shall adopt written tenant selection procedures that ensure nondiscrimination in the selection of tenants and that are consistent with the purpose of improving housing opportunities for very low-income elderly or handicapped persons; and reasonably related to program eligibility and an applicant's ability to perform the obligations of the lease. Owners shall promptly notify in writing any rejected applicant of the grounds for any rejection. Additionally, owners shall maintain a written, chronological waiting list showing the name, race, gender, ethnicity and date of each person applying for the program.
- (b) **Application for admission.** The Borrower must accept applications for admission to the project in the form prescribed by HUD and is obligated to confirm all information provided by the applicant families on the application. Applicant families must be requested to complete a release of information consent for verification of information. Applicants applying for assisted units must complete a certification of eligibility as part of the application for admission. Applicant families must meet the disclosure and verification requirements for Social Security Numbers, and sign and submit consent forms for the obtaining of wage and claim information from State Wage Information Collection Agencies, as provided by [24 CFR part 5](/cfr/24/part5.md), subpart B. Both the Borrower and the applicant must complete and sign the application for admission. On request, the Borrower must furnish copies of all applications for admission to HUD.
- (c) **Determination of eligibility and selection of tenants.** The borrower is responsible for determining whether applicants are eligible for admission and for selection of families. To be eligible for admission, an applicant must be an elderly or handicapped family as defined in [§ 891.505](/cfr/24/891.505.md); meet any project occupancy requirements approved by HUD; meet the disclosure and verification requirement for Social Security numbers and sign and submit consent forms for obtaining wage and claim information from State Wage Information Collection Agencies, as provided by [24 CFR part 5](/cfr/24/part5.md), [subpart B](/cfr/24/subpartB.md); and, if applying for an assisted unit, be eligible for admission under [subpart F](/cfr/24/subpartF.md) of [24 CFR part 5](/cfr/24/part5.md), which governs selection of tenants and occupancy requirements. The provisions of [24 CFR part 5](/cfr/24/part5.md), [subpart L](/cfr/24/subpartL.md) (Protection for Victims of Domestic Violence, Dating Violence, Sexual Assault, or Stalking) apply to this section.
- (d) **Unit assignment.** If the Borrower determines that the family is eligible and is otherwise acceptable and units are available, the Borrower will assign the family a unit. The Borrower will assign the family a unit of the appropriate size in accordance with HUD's general occupancy guidelines. If no suitable unit is available, the Borrower will place the family on a waiting list for the project and notify the family of when a suitable unit may become available. If the waiting list is so long that the applicant would not be likely to be admitted within the next 12 months, the Borrower may advise the applicant that no additional applications for admission are being considered for that reason, except that the Borrower may not refuse to place an applicant on the waiting list if the applicant is otherwise eligible for assistance and claims that he or she qualifies for a Federal preference as provided in [24 CFR part 5](/cfr/24/part5.md), subpart D.
- (e) **Ineligibility determination.** If the Borrower determines that an applicant is ineligible for admission or the Borrower is not selecting the applicant for other reasons, the Borrower will promptly notify the applicant in writing of the determination, the reasons for the determination, and that the applicant has a right to request a meeting with the Borrower or managing agent to review the rejection, in accordance with HUD requirements. The review, if requested, may not be conducted by a member of the Borrower's staff who made the initial decision to reject the applicant. The applicant may also exercise other rights (e.g., rights granted under Federal, State, or local civil rights laws) if the applicant believes he or she is being discriminated against on a prohibited basis.
- (f) **Records.** Records on applicants and approved eligible families, which provide racial, ethnic, gender, handicap status, and place of previous residency data required by HUD, must be retained for three years.
- (g) **Reexamination of family income and composition—**
  - (1) **Regular reexaminations.** The Borrower must reexamine the income and composition of the family at least every 12 months. Upon verification of the information, the Borrower shall make appropriate adjustments in the total tenant payment in accordance with [§ 5.657](/cfr/24/5.657.md) of this title and determine whether the family's unit size is still appropriate. The Borrower must adjust tenant rent and the housing assistance payment and must carry out any unit transfer in accordance with the administrative instructions issued by HUD. At the time of reexamination, the Borrower must require the family to meet the disclosure and verification requirements for Social Security Numbers, as provided by [24 CFR part 5](/cfr/24/part5.md), subpart B.
  - (2) **Interim reexaminations.** The family must comply with the provisions in [§ 5.657](/cfr/24/5.657.md) of this title regarding interim reporting of changes in income. If the Borrower receives information concerning a change in the family's income or other circumstances between regularly scheduled reexaminations, the Borrower must consult with the family and make any adjustments determined to be appropriate. Any change in the family's income or other circumstances that results in an adjustment in the total tenant payment, tenant rent, or housing assistance payment must be verified.
  - (3) **Continuation of housing assistance payments.**
    - (i) A family shall remain eligible for housing assistance payments until the total tenant payment equals or exceeds the gross rent. The termination of subsidy eligibility will not affect the family's other rights under its lease. Housing assistance payments may be resumed if, as a result of changes in income, rent, or other relevant circumstances during the term of the HAP contract, the family meets the income eligibility requirements of [§ 5.657](/cfr/24/5.657.md) of this title and housing assistance is available for the unit under the terms of the HAP contract. The family will not be required to establish its eligibility for admission to the project under the remaining requirements of [paragraph (c)](#c) of this section.
    - (ii) A family's eligibility for housing assistance payments may be terminated in accordance with HUD requirements for such reasons as failure to submit requested verification information, including information related to disclosure and verification of Social Security Numbers, or failure to sign and submit consent forms for the obtaining of wage and claim information from State wage information collection agencies, as provided by [24 CFR part 5](/cfr/24/part5.md), subpart B.
  - (4) **Streamlined income determination.** An owner may elect to follow the provisions of [24 CFR 5.657(d)](/cfr/24/5.657.md?p=d).

# §891.615. Obligations of the family.


The obligations of the family are provided in [§ 891.415](/cfr/24/891.415.md).


# §891.620. Overcrowded and underoccupied units.


If the Borrower determines that because of change in family size, an assisted unit is smaller than appropriate for the eligible family to which it is leased, or that the assisted unit is larger than appropriate, housing assistance payments or project assistance payments (as applicable) with respect to the unit will not be reduced or terminated until the eligible family has been relocated to an appropriate alternate unit. If possible, the Borrower will, as promptly as possible, offer the family an appropriate alternate unit. The Borrower may receive vacancy payments for the vacated unit if the Borrower complies with the requirements of [§ 891.650](/cfr/24/891.650.md).


# §891.625. Lease requirements.


The lease requirements are provided in [§ 891.425](/cfr/24/891.425.md).


# §891.630. Denial of admission, termination of tenancy, and modification of lease.

- (a) **The provisions of part 5, subpart I, of this title apply to Section 202 direct loan projects.**
- (b) The provisions of [part 247 of this title](/cfr/24/part247.md) apply to all decisions by a Borrower to terminate the tenancy or modify the lease of a family residing in a unit.
- (c) In actions or potential actions to terminate tenancy, the owner shall follow [24 CFR part 5](/cfr/24/part5.md), [subpart L](/cfr/24/subpartL.md) (Protection for Victims of Domestic Violence, Dating Violence, Sexual Assault, or Stalking).

# §891.635. Security deposits.


The general requirements for security deposits on assisted units are provided in [§ 891.435](/cfr/24/891.435.md). For purposes of [subpart E](/cfr/24/subpartE.md) of this part, the additional requirements apply:

- (a) The Borrower may require each family occupying an unassisted unit (or residential space in a group home) to pay a security deposit equal to one month's rent payable by the family.
- (b) The Borrower shall maintain a record of the amount in the segregated interest-bearing account that is attributable to each family in residence in the project. Annually for all families, and when computing the amount available for disbursement under [§ 891.435(b)(3)](/cfr/24/891.435.md?p=b-3), the Borrower shall allocate to the family's balance the interest accrued on the balance during the year. Unless prohibited by State or local law, the Borrower may deduct for the family, from the accrued interest for the year, the administrative cost of computing the allocation to the family's balance. The amount of the administrative cost adjustment shall not exceed the accrued interest allocated to the family's balance for the year.

# §891.640. Adjustment of rents.

- (a) **Contract rents—**
  - (1) **Adjustment based on approved budget.** If the HAP contract provides, or has been amended to provide, that contract rents will be adjusted based upon a HUD-approved budget, HUD will calculate contract rent adjustments based on the sum of the project's operating costs and debt service (as calculated by HUD), with adjustments for vacancies, the project's nonrental income, and other factors that HUD deems appropriate. The calculation will be made on the basis of information provided by the Borrower on a form acceptable to the Secretary. The automatic adjustment factor described in [part 888](/cfr/24/part888.md) of this chapter is not used to adjust contract rents under [paragraph (a)(1)](#a-1) of this section, except to the extent that the amount of the replacement reserve deposit is adjusted under [§ 880.602](/cfr/24/880.602.md) of this chapter.
  - (2) **Annual and special adjustments.** If the HAP contract provides that contract rents will be adjusted based on the application of an automatic adjustment factor and by special additional adjustments:
    - (i) Consistent with the HAP contract, contract rents may be adjusted in accordance with [part 888](/cfr/24/part888.md) of this chapter;
    - (ii) Special additional adjustments will be granted, to the extent determined necessary by HUD, to reflect increases in the actual and necessary expenses of owning and maintaining the assisted units that have resulted from substantial general increases in real property taxes, assessments, utility rates or similar costs (i.e., assessments and utilities not covered by regulated rates), and that are not adequately compensated for by an annual adjustment. The Borrower must submit to HUD required supporting data, financial statements, and certifications for the special additional adjustment.
- (b) **Rent for unassisted units.** The rent payable by families occupying units that are not assisted under the HAP contract shall be equal to the contract rent computed under [paragraph (a)](#a) of this section.

# §891.645. Adjustment of utility allowances.


In connection with adjustments of contract rents as provided in [§ 891.640(a)](/cfr/24/891.640.md?p=a), the requirements for the adjustment of utility allowances provided in [§ 891.440](/cfr/24/891.440.md) apply.


# §891.650. Conditions for receipt of vacancy payments for assisted units.

- (a) **General.** Vacancy payments under the HAP contract will not be made unless the conditions for receipt of these housing assistance payments set forth in this section are fulfilled.
- (b) **Vacancies during rent-up.** For each unit that is not leased as of the effective date of the HAP contract, the Borrower is entitled to vacancy payments in the amount of 80 percent of the contract rent for the first 60 days of vacancy, if the Borrower:
  - (1) Complied with [§ 891.600](/cfr/24/891.600.md);
  - (2) Has taken and continues to take all feasible actions to fill the vacancy; and
  - (3) **Has not rejected any eligible applicant except for good cause acceptable to HUD.**
- (c) **Vacancies after rent-up.** If an eligible family vacates a unit, the Borrower is entitled to vacancy payments in the amount of 80 percent of the contract rent for the first 60 days of vacancy if the Borrower:
  - (1) Certifies that it did not cause the vacancy by violating the lease, the HAP contract, or any applicable law;
  - (2) Notified HUD of the vacancy or prospective vacancy and the reasons for the vacancy immediately upon learning of the vacancy or prospective vacancy;
  - (3) Has fulfilled and continues to fulfill the requirements specified in § [891.600(a)(2)](/cfr/24/891.600.md?p=a-2) and [(3)](/cfr/24/891.600.md?p=a-3), and in paragraphs [(b)(2)](#b-2) and [(3)](#b-3) of this section; and
  - (4) For any vacancy resulting from the Borrower's eviction of an eligible family, certifies that it has complied with [§ 891.630](/cfr/24/891.630.md).
- (d) **Vacancies for longer than 60 days.** If a unit continues to be vacant after the 60-day period specified in paragraph [(b)](#b) or [(c)](#c) of this section, the Borrower may apply to receive additional vacancy payments in an amount equal to the principal and interest payments required to amortize that portion of the debt service attributable to the vacant unit for up to 12 additional months for the unit if:
  - (1) The unit was in decent, safe, and sanitary condition during the vacancy period for which payment is claimed;
  - (2) The Borrower has fulfilled and continues to fulfill the requirements specified in paragraph [(b)](#b) or [(c)](#c) of this section, as appropriate; and
  - (3) **The Borrower has demonstrated to the satisfaction of HUD that—**
    - (i) For the period of vacancy, the project is not providing the Borrower with revenues at least equal to project expenses (exclusive of depreciation) and the amount of payments requested is not more than the portion of the deficiency attributable to the vacant unit; and
    - (ii) **The project can achieve financial soundness within a reasonable time.**
- (e) **Prohibition of double compensation for vacancies.** If the Borrower collects payments for vacancies from other sources (tenant rent, security deposits, payments under [§ 891.435(c)](/cfr/24/891.435.md?p=c), or governmental payments under other programs), the Borrower shall not be entitled to collect vacancy payments to the extent these collections from other sources plus the vacancy payment exceed contract rent.