Option 1 – Chapter 15

Mark-up-to Market (MU2M)

One of HUD’s primary goals is the long-term preservation of affordable housing. Chapter 15 of the Section 8 Renewal Guide encourages the rehabilitation, known as “Capital Repairs”, and/or the acquisition, known as “Transfer”.

Owners must first qualify under either Option 1 (Option 1a or Option 1b), or Option 2, to utilize Chapter 15.

To first qualify for Option 1a or 1b

The Owner must have:

  • Aggregate current rent levels under the expiring contract must be less than the comparable market rents (this is determined with a Rent Comparability Study)
  • The property must have received a “Satisfactory” score or higher on their most recent Management Occupancy Review
  • A physical inspection score from the Real Estate Assessment Center (REAC) of 60 or above, with no Exigent Health & Safety (EH&S) violations
  • All Financial Assistance Subsystem (FASS) findings need to be closed or under a HUD-approved corrective action plan, if applicable.

To further qualify for Option 1a, Entitlement

Property owner must be:

  • A profit motivated entity, or
  • A housing authority occupying the status of a “public body corporate and politic” under the stat legislation under which it was created, or
  • A limited partnership with one or more nonprofit general partners or a sole general partner that is wholly owned and controlled by one or more nonprofit entities, or
  • A limited liability company with one or more nonprofit managers or nonprofit managing members or a sole manager or managing member that is wholly owned or controlled by one or more nonprofit entities

Or, to further qualify for Option 1b, Discretionary

Property owner must meet one or more of the following characteristics:
Vulnerable populations – At least 50% of the population of the assisted units are rented to elderly families, disabled families, or large families (5 or more persons). The 50% can be met with an individual referenced population or inclusive of all categories

Vacancy Rates (Verified by HUD) – The project is in a low-vacancy market area (or in a rural area with no comparable rental housing) where there is a lack of affordable housing and where Housing Choice Vouchers (HCV) would be difficult to use

Community Support – The project is a high priority for the local community as demonstrated by a contribution of State and/or local funds to the project. Evidence of support may be in the form of tax credits, tax abatements, capital improvement funds, etc. that have been provided to the property within the last 5 years.

*Please read Chapter 3 of the Section 8 Renewal Guide for further specifics on requirements & qualifications

In addition to the Option qualifications

Owner/Purchaser must agree to the following:

A Use Agreement – The Owner must agree to accept a 20-year recorded Use Agreement requiring the current or future owners to accept any Section 8 contract offered by HUD for the next 20 years. If the property already has a Use Agreement, the Owner must agree to extend the term an additional 20 years.

20-year Contract – The Owner/Purchaser must agree to accept a twenty-year Section 8 Contract, subject to annual appropriations. If the Owner/Purchaser is terminating a current contract, the Owner/Purchaser must agree that at the end of the 20-year contract, the contract will be renewed for the remaining term of the original contract.

Combine Multiple Contracts or Stages – Where applicable, and if possible, the Owner/Purchase must combine multiple contracts or stages.

Utility Allowance Analysis

A Full Baseline Utility Allowance with all supporting data collected from utility companies or tenants is required at minimum every 3 years but can be prepared and submitted annually.
Download the Baseline Utility Allowance Worksheet

For the two years following the most recent Baseline Utility Allowance, owners and agents have the option to again obtain data from utilities or tenants to determine utility allowances, or to perform a Factor-Based Utility Analysis, adjusting the allowance using a state-specific increase factor called the Utility Allowance Factor (UAF) provided by HUD.
Download the UAF Calculation Worksheet

What is required for your submission?

Access our Option 1 Chapter 15 Checklist here for a detailed list of submission requirements or download it along with our Option 1 Chapter 15 Resource Bundle below.

Available Downloads:

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