Preparing for Your Contract Renewal

Find information below to learn how to prepare for your Contract Renewal depending on your option.

General Eligibility:

  • Aggregate current rent levels under the expiring or terminating contract MUST be less than comparable market rents
  • The project MUST have a “Satisfactory” rating, or above, on the most recent Management Occupancy Review
  • A physical inspection score (From REAC), of 60 or above with no uncorrected Exigent Health & Safety violations
  • All Financial Assistance Subsystem (FASS) findings need to be closed or under a HUD-approved corrective action plan

Option 1a Entitlement Mark-up-to-Market Eligibility

  • The Owner’s Rent Comparability Study must show that the comparable market rents are at or above 100% of the Fair Market Rent (FMR) potential
  • The project does not have a low- and moderate-income use restriction that cannot be eliminated by unilateral action by the Owner.
  • The project is not subject to a contract for moderate rehabilitation assistance under section 8(e)(2) of the United States Housing Act of 1937, as in effect before October 1, 1991
  • The project is not one for which a public housing agency provided voucher assistance to one or more of the tenants after the Owner has provided notice of termination of the contract covering the tenant’s unit
  • The project Owner MUST be:
    • A profit motivated entity (including a limited distribution entity)
    • A Housing Authority occupying that status of a “public body corporate and politic” under the state legislation under which it was created, or
    • A limited partnership with one or more non-profit general partners or a sole general partner that is wholly owned and controlled by one or more non-profit entities; or
    • A limited Liability company with one or more non-profit managers or non-profit managing members or a sole manager or managing member that is wholly owned or controlled by one or more non-profit entities

Option 1b Discretionary Mark-up-to-Market Eligibility

*Non-Profit owned projects that meet one of the three (3) criteria below can qualify for Option 1b and have the projects’ rents marked up to market, assuming they otherwise qualify* 

  • The project MUST meet at least one of the following three (3) characteristics:
    • Vulnerable populations (At least 50% of the assisted units are rented to elderly families, disabled families, or large families of 5 or more persons)
    • Vacancy Rates (A market with a rental vacancy rate of 3% or less is considered a low vacancy area. This will be confirmed by the property’s HUD Account Executive)
    • Community Support (Evidence of community support may be in the form of tax credits, tax abatements, capital improvement funds, etc, that have been provided to the project within the last five (5) years)

Option 2 General Eligibility

  • Owners can both include non-profit and for-profit entities
  • Rent Comparability Study MUST show:
    • The contract’s aggregate current rents are at or below comparable market rents, OR
    • The contract’s aggregate current rents exceed comparable market rents, BUT the project is exempt from Mark-to-Market restricting and the Owner is willing to cut the rent to comparable market rents prior to renewal of the contract

Option 3 General Eligibility 

  • “Exception Projects” as defined in Chapter 6, (which includes Section 542(c) Risk Sharing projects), are ineligible for referral to Recap, and once identified, will not be retained by Recap for renewal. However, once the condition(s) qualifying a project as an Exception Project no longer exists, the project is eligible for referral to Recap for restructuring
  • A project owner who is suspended or debarred is ineligible for a full debt restructuring (“Full”). However, even if the project is ineligible for a Full, the project may remain eligible as a project that is financially viable without a debt restructuring after the rents are reduced to comparable market rents (“Lite”). This kind of project should be referred to Recap for a rent determination. Eligibility for a Lite will be determined on a case by case basis by Recap after a review of the project’s underwriting, which will include the results of the Rent Comparability Study and an analysis of the project’s expenses. If the project is determined to be ineligible for a Lite, the Account Executive/Contract Administrator must renew the HAP contract using a Watch List Contract (HUD-9643) at Recap-determined comparable Market Rents. The project should be designated, monitored, and entered into the Integrated Real Estate Management System (iREMS) as a project with a loan that failed Mark-to-Market restructuring and is therefore operating under a Watch List Contract.
  • Projects financed under Section 202 Elderly and Disabled Housing Direct Loan Program are eligible for restructuring if:
    • The project has been refinanced at least two times if the second refinance using a loan insured under the National Housing Act
    • The project refinanced with an FHA insured loan at the time of the 202 refinancing but did not refinance under the terms in Notice 13-17. All other projects refinanced under Section 202 are ineligible for restructuring under Mark-to-Market.

Option 4 General Eligibility

  • The project is exempt from debt-restructuring under Section 514(h) of MAHRA
    • Projects for which the primary financing or mortgage insurance was provided by a unit of State government or a unit of general local government (or an agency or instrumentality of either) and is insured under the National Housing Act and the implementation of a Mark-to-Market Restructuring Plan would conflict with applicable law or agreements governing such financing
    • Projects currently financed under Section 202 of the Housing Act of 1959 or Section 515 if the Housing Act of 1949. However, these projects CAN be eligible for restructuring if refinanced with FHA mortgage insurance
    • Refinance Section 202 project: the project was refinanced pursuant to Section 811 of the American Home Ownership and Economic Opportunity Act of 2000
    • SRO Mod Rehab: Projects that have an expiring contract under Section 8 of the United States Housing Act of 1937 pursuant to Section 441 of the Stewart B. McKinney Homeless Assistance Act
  • The project does not meet the definition of an “Eligible Multifamily Housing Project” under Section 512(2) of MAHRA
    • Projects that are not subject to an FHA-insured or HUD-held mortgage and
    • Projects that are subject to an FHA-insured or HUD-held mortgage with rents at or below comparable market rents

Option 5 General Eligibility

  • A Portfolio Reengineering Demonstration (“Demo”) Program Project is any project that completed the Demo Program as evidenced by a recorded Demo Program Use Agreement. If the Owner entered into the Demo Program but did not execute and record a Demo Program Use Agreement, it is not eligible for renewal under Option 5.
  • Preservation projects primarily consist of Section 236 and 221(d)(3) BMIR projects whose owners entered into long-term Use Agreements with HUD under either Title II, Emergency Low Income Housing Preservation Ave of 1987 (ELIHPA) or Title VI, Low Income Housing Preservation and Resident Homeownership Act of 1990 (LIHPRHA)
July 12, 2020In News, Training9 Minutes