Guidance
The
final rule for Section 32 Homeownership was published March 11, 2003, and became
effective April 10, 2003. Previously
approved homeownership programs will continue to operate under the existing Section
5(h) rule. Please note that both regulations have the same number, 24
CFR 906, and are accessible from this site.
Overview
The Quality Housing and Work Responsibility Act
(QHWRA) permits PHAs, through Section 32 of the U.S. Housing Act of 1937, to make
public housing dwelling units available for purchase by low-income families as
their principal residence. Under Section 32, a PHA may:
- Sell
all or a portion of a public housing development to eligible public or non-public
housing residents;
- Provide Capital Fund assistance to public
housing families to purchase homes; or,
- Provide Capital Fund
assistance to acquire homes that will be sold to low-income families. Section
32 generates an exception, allowing the Public Housing Capital Fund
to be used to acquire units for sale that will not be put under public housing
ACC contracts. This does not apply to the useof the Capital Fund by the PHA to
build or substantially rehabilitate units that are not public housing for sale
under Section 32. Although public housing units that are newly constructed or
substantially rehabilitated may be sold under Section 32, such construction and
rehabilitation by the PHA is not covered under this section, but rather is governed
by the public housing development and modernization regulations. Nonetheless,
the final Section 32 rule replaces the Section 5(h) rule.
Section
32 Homeownership Plans
The specific requirements for preparing a homeownership
plan under Section 32 are set out in the Section 32 Desk Guide, the Homeownership
Term Sheet, and the tools available for download below. The Homeownership Term
Sheet must be completed to show program compliance and due diligence and must
be attached to and incorporated into a PHA’s approved Homeownership Plan. All
other documents are optional and should be used at discretion of the PHA.
In
order to assist PHAs in completing a Homeownership Term Sheet that meets HUD’s
requirements, a sample term sheet is also attached. Note that this term sheet
is being provided as a sample only and PHAs should modify it in accordance with
the specific conditions of each application.
PHAs
should submit the Plan to the HUD Special Applications Center (SAC) in Chicago
via PIC as previously noted elsewhere on this site. For those plans covering units
not in PIC, contact SAC management for concurrence to submit hard copy applications.
Non high-performing PHAs must state their intent to submit a homeownership
plan to HUD in the Annual Plan. HUD will not review any homeownership plan not
addressed in the PHA Agency Plan. (High-performing PHAs are exempt from this rule.)
The required components of the Homeownership Plan, as outlined in 24 CFR Part
906.39, must include at a minimum:
Method of Sale - The PHA must
indicate how units will be sold, including a description of the exact method of
sale (i.e., fee simple, lease-purchase, condominium, etc). Additionally, the PHA
must indicate whether it, or a Purchase and Resale Entity (PRE) will sell the
units to families directly or via a lease-purchase method.
Property
Description - The PHA must describe in detail the property/properties to be
included in the homeownership program. The specificity of description will vary
according to the type of property the PHA wishes to implement.
Repair
or Rehabilitation - The PHA must provide an assessment of the physical condition
of the property/properties proposed under the Section 32 Homeownership program.
If required improvements and upgrades are anticipated for the proposed homeownership
units, the PHA must:
- Describe the process of assessing and implementing
the repairs/upgrades;
- Identify the code violations and description of
plans to address each code violation;
- Provide cost estimate(s) to rehabilitate
each development/unit;
- Describe obligation to make proposed units 504
compliant; and,
- Provide projected repair cost estimates over the next
5 years.
Additionally, before the PHA rehabilitates or repairs
the properties for homeownership occupancy, or expends or commits HUD or local
funds for such activities, HUD must have completed any 24 CFR Part 50 environmental
review and notified the PHA of its approval of the property.
Purchaser
Eligibility and Selection - The PHA must provide information on purchaser
requirements relative to eligibility, selection criteria, and restrictions (including
Recapture, Resale and Anti-Speculation Restrictions). Additionally, the PHA must
describe the process for purchaser eligibility, priorities for selecting purchasers
(e.g., residency), income tiering structure for eligible program purchasers, if
applicable, and any additional requirements (including housing quality standards
for soft second mortgage or acquisition sale programs). If a PHA intends to allow
application for purchase of homeownership units from families not currently residing
in public housing or receiving Section 8 assistance, an Affirmative Fair Housing
Marketing Strategy Plan is required. This Plan should include steps to inform
such families of their eligibility to apply, and to solicit applications from
those in the housing market that are least likely to apply for the program without
special outreach, including persons with disabilities.
Sale and Financing
- The PHA must demonstrate the practical workability of the Homeownership plan,
based on analysis of data on such elements as purchase prices, costs of repair
or rehabilitation, homeownership costs, family incomes, closing costs, availability
of financing and the extent to which there are eligible residents who are expected
to be interested in the purchase of these units. Additionally, the PHA must provide
types and amounts of assistance/subsidy to be provided to eligible families, including
source of funds, terms of loan(s), including second mortgages, description of
any grant(s), subsidy limits for second mortgages, if any, Fair Market Value (FMV)
and any discount the PHA may offer, and resale/recapture restrictions as established
by the PHA.
Resident and Purchaser Consultation - If the PHA intends
to sell existing public housing, the PHA must describe in its application the
resident input obtained during the resident consultation planning process, and
provide a plan for consultation with purchasers during the implementation stage.
The BGHA must meet with the Authority's Resident Advisory Board (RAB) to discuss
and develop a mechanism to ensure resident involvement in implementing the Section
32 Homeownership program, and provide supporting documentation regarding the meetings
held with the RAB to discuss the Homeownership program. Copies of meeting announcements,
notices, sign-in-sheets and minutes of meetings are required.
Counseling
- The PHA must describe its plans and requirements regarding homeownership counseling
for eligible purchasers. Additionally, the PHA must provide qualifications of
the counseling provider(s), if applicable, that will provide homeownership counseling,
training and technical assistance provisions for eligible families, including
duration of counseling and training, and curriculum/scope of services for the
agency under the homeownership proposal.
Sale via Purchase and Resale
Entity (PRE) - If plans are to use a PRE for the sale of units, the PHA must
provide the firm's qualifications, marketing plan, and a description of that entity's
responsibilities as well as information demonstrating that the written agreement
between the PRE and PHA contains or will contain the rights and responsibilities
of parties; assurances of compliance with program requirements; assurances of
deed restrictions on acquisition and resale of units; description of how the net
proceeds will be determined and used; protections against fraud and misuse; limitations
on overhead and profit; record keeping/reporting requirements; assurances of non-discrimination
against eligible purchasers; adequate legal remedies; assurances of sale only
to low-income households; a five-year limit on sale to eligible buyers; and the
notification process to households (relocation, environmental review).
Non-Purchasing
Residents - The PHA must provide a relocation plan for non-purchasing public
housing residents for purposes of transferring possession of the unit. The PHA
must provide a notice 90 days before displacing the resident, provide for payment
of actual costs and reasonable relocation expenses, ensure that the resident is
offered comparable housing and counseling.
Section 32 Sales Proceeds
Guidance - A PHA may realize gross sales proceeds in connection with selling
homes under a Section 32 homeownership program. As part of the homeownership plan
submitted to HUD, the PHA must describe the sources from which it will likely
realize gross sale proceeds, along with its intended use of those proceeds. Gross
sales proceeds will likely derive from the two primary sources: (1) payments made
by homebuyers for credit to the purchase price (e.g. earnest money, down payments,
payments out of the proceeds of mortgage loans, payments made under a lease-purchase
arrangement, principal and interest payments under a purchase-money mortgage,
etc.); and (2) payments made to the PHA upon resale of the homeownership units,
including any earned interest.
A PHA may use gross sale proceeds to
pay for the costs related to the sale of the homeownership units (costs may include
payments of construction costs, developer fees, counseling agency fees, etc).
If any net proceeds remain after these costs have been paid, a PHA may use those
remaining net sale proceeds as provided in its HUD-approved homeownership plan.
HUD will approve the use of proceeds in a homeownership plan if the PHA evidences
that the proceeds will be used for purposes related to low-income housing, as
defined by the Act. The Act defines low-income housing as decent, safe, and sanitary
dwellings assisted under the Act. Therefore, PHAs are only permitted to use Section
32 homeownership program proceeds in connection with public housing units under
an ACC, housing assisted by the Housing Choice Voucher Program, or to fund a homeownership
plan under the Act.
A non-exhaustive list of some of the acceptable
HUD-approved uses of net sale proceeds from a Section 32 homeownership program
include: (1) repair or rehabilitation of existing ACC units; (2) development and/or
acquisition of new ACC units; (3) provision of social services for PHA residents;
(4) implementation of a preventative and routine maintenance strategy for specific
ACC units; and (5) modernization of a portion of a residential building in the
PHA's inventory to develop a recreation room, laundry room, or day-care facility
for PHA residents; (5) modernization of a portion of a residential building in
the PHA's inventory to develop a recreation room, laundry room, or day-care facility
for PHA residents; and (6) funding of another HUD-approved homeownership program
authorized under Section 32, 9, 24 or any other Section of the Act, for assistance
to purchasers, for reasonable planning and implementation costs, and for acquisition
and/or development of homeownership units; (7) in connection with the homeownership
plan from which the proceeds are derived, for purposes that are justified to ensure
the success of the plan and to protect the interests of the homeowners, the PHA,
and any other entity with responsibility for carrying out the plan (e.g. a reserve
for the PHA to repurchase, repair and resell the homes in the event of defaults)
(8) leveraging of proceeds in order to partner with a private entity for the purpose
of developing mixed-finance housing (that will include ACC units) under 24 CFR
941 (Subpart F).
If the homeownership plan utilizes a PRE, the PHA may
opt to have the PRE return sale proceeds to the PHA or may permit the PRE to use
them for low-income housing purposes.
Sale Proceeds and Asset Management
(Section 32 Homeownership Proceeds) - In its written approval of a Section
32 homeownership plan, the SAC will restrict the use of any proceeds that a PHA
may realize from Section 32 homeownership proceeds to a specific low-income housing
purpose (e.g. ACC, Section 32, or Section 8). Accordingly, under asset management,
Section 32 homeownership proceeds will always be restricted program assets and
will always maintain their federalized identity.
When a PHA realizes
net proceeds from Section 32 homeownership plan, it should recognize any gain
or loss on sale on the income statement associated with the balance sheet where
that asset is recorded. If approval has been obtained to use the sales proceeds
for activities outside the original AMP, the PHA should then, when the time is
appropriate, transfer those proceeds to the other project or program where the
use has been permitted. For example, if the SAC approves the use of Section 32
proceeds for the modernization of a certain AMP, the PHA should, first, recognize
the gain on the income statement of the original project but then transfer the
funds to the project where the modernization work will occur. Any retained sales
proceeds should be reflected as a “restricted” asset on the balance sheet (restricted
for the uses specifically approved by the SAC). A PHA must use net proceeds in
accordance with the spending and financial reporting requirements under the revised
24 CFR Part 990. Please consult a HUD financial manager for additional guidance
and/or clarification of these reporting requirements.
Records, Accounts
and Reports - The PHA must provide a description of its record keeping, accounting,
and reporting procedures that will be used under the Homeownership Program relative
to administrative, purchase and financial records, and include a plan for annual
reporting on sales to HUD/PIC and in the Annual Plan.
Budget - The
PHA must submit a budget for the proposed Homeownership program. The budget should
itemize rehabilitation or repair costs, any financing assistance, specific program
administrative costs to implement the program (i.e., management, relocation, counseling,
legal, etc.), and the sources of funds that will be used to implement the Homeownership
program even if paid from the Operating Reserves. The PHA should use the sources
and uses budget format similar to Appendix 3 and 4.
Additionally,
the PHA must consider sale price, income, and subsidy contributions when discussing
budget assumptions under the Section 32 Homeownership program. If financial commitments
are being considered from other fund providers as part of the Homeownership Program,
the PHA must provide firm written commitments that such funds are in place, including
their source, type and amount.
Timetable - The PHA must provide
an estimated timeframe for program performance, progress and completion relative
to the major steps required to implement the Homeownership program.
PHA
and PRE Performance in Homeownership - The PHA must provide a statement describing
its capability to successfully implement a homeownership program. The statement
must describe the PHA's and its partners', if applicable, experience in implementing
homeownership programs for low-income families. If the PHA has not previously
implemented a homeownership program, a description of the PHA's experience in
implementing public housing modernization and development projects is required.
The required homeownership plan components above, along with the required
supporting documentation contained at 24 CFR Part 906.40, are intended to provide
HUD with all the necessary information to assess the workability and legality
of the proposed program and the PHA's capacity to implement it. Generally, the
homeownership plan should serve as a roadmap for the program's implementation.
Essential
Criteria of a Homeownership Plan
HUD will use four key criteria to evaluate
Section 32 homeownership plans as explained on the Homeownership Term Sheet:
Feasibility:
The program must be practically workable, with sound potential for long-term success.
Simply put, the plan should make sense for the PHA to implement in its community.
All the necessary components including sufficient demand for the proposed housing
and adequate funding to cover program costs should be in place.
Legality:
The program must be consistent with all applicable federal, state, and local statutes
and regulations and existing contracts law. The PHA must include a letter from
the housing authority's legal counsel attesting to the legality of the proposed
homeownership plan to HUD.
Documentation: The program must be complete
and clear enough to serve as a working document for implementation, and have sufficient
basis for HUD review. The plan should be internally consistent and reflect the
PHA's careful consideration of its elements.
PHA track record in implementing
homeownership programs: The PHA (and any other entity with substantial responsibility
for implementing the homeownership program) must demonstrate its commitment and
capability to successfully implement the homeownership program. PHAs should describe
successes in related activities including similar homeownership programs or modernization
and development projects.
Eligibility
Requirements
Eligible purchasers may earn up to, but not exceed 80%
of Area Median Family Income (AMI). Except in the case of a PHA's offer of
first refusal to a resident occupying the unit, a PHA must certify that the applicants'
income is not over 80% of AMI at the time the contract to purchase the property
is executed.
The PHA may sell units to a Purchase and Resale Entity
(PRE). The PHA must demonstrate that the PRE has the necessary legal capacity
and practical capability to carry out its responsibilities under the program and
sell the units within five (5) years from the date of acquisition; otherwise the
PRE must transfer ownership of the units back to the PHA. The PHA's homeownership
program also must contain a written agreement and the applicable legal documentation
that specifies the respective rights and obligations of the PHA and the PRE.
Affordability
standards must be met for the purchaser. On an average monthly basis, the
estimate of the sum of the applicant's payments for mortgage principal and interest,
insurance, real estate taxes, utilities, maintenance and other recurring homeownership
costs will not exceed the sum of 35% of the applicant's adjusted income and any
subsidy that will be available for such payments.
Principal residence
requirement. The dwelling unit sold to an eligible family must be used as
the principal residence of the family.
PHAs must require purchasers
to pay a minimum down payment. Each household purchasing housing must use
its own resources to contribute an amount of the down payment that is not less
than one percent of the purchase price of the housing.
Other eligibility
restrictions. A PHA may establish additional limitations for households to
purchase housing. Such requirements may include employment, no past criminal activity,
participation in homeownership counseling programs, or other requirements.
Recapture
and Anti-Speculation Restrictions
Anti-speculation. A PHA must have
a policy that provides for retaining all or a portion of the gain from appreciation
generated by the resale of the property to the extent that there are net proceeds
if the house is sold within five years after purchase. The PHA may not recapture
gains from appreciation if the home is resold over five years from the initial
purchase. Gains from appreciation is defined as financial gain solely attributable
to the home's appreciation over time and not attributable to below-market financing
or government-provided assistance (recapture of that subsidy is discussed in recapture
below). The anti-speculation provision must be recorded as a deed restriction
or a restrictive covenant. The recapture amount can be one that the PHA considers
appropriate under the guidelines in this section.
Recapture of subsidy.
The PHA must implement a stated policy to recapture upon resale government-provided
assistance and/or below-market financing made to the purchaser to the extent that
there are net proceeds. This includes the PHA down payment, closing cost assistance,
subordinate mortgage financing, or below-market financing (i.e., sale the unit
for less than appraised value of the home). The PHA may recapture a portion or
entire subsidy provided to the purchaser even for a period of longer than five
years. [PHAs that elect to take back none of the subsidy must include that in
a stated recapture policy.] This provision must be recorded in the appropriate
form of title restriction(s).
Resale. Section 32 regulations do
not require a PHA to implement a resale provision limiting resale to low-income
buyers.
Eligible
Program Activities
PHAs implementing a Section 32 program may use their
funds to provide the following services:
- Subsidy to public housing
residents (using Capital Funds or program income) or other low-income families
(using only program income) in the forms of (a) down payment or closing cost assistance,
(b) subordinate mortgages, and/or (c) below-market financing;
- Acquisition
of existing homes (or homes built for the PHA by a third party 24 CFR 906.41(2))
using Capital Funds for the purpose of sale to income-eligible purchasers without
adding these units to the Annual Contributions Contract (ACC);
- Sale of
public housing rental (ACC) units to income-eligible purchasers; and,
- Operation
of a lease-purchase program.
Key
Program Features
PHAs must use Davis-Bacon wages for all construction
activity. Except in specific cases of non-routine maintenance, Davis-Bacon
prevailing wage rates apply to all construction activities under the program.
Section 32 can be implemented in conjunction with the Section 8(y) program.
The Section 8(y) program is described separately in the PHA's Section 8 Administration
Plan, if applicable to the PHA. See the Housing Choice Voucher (Section 8) homeownership
program summary below for details regarding implementation of a voucher homeownership
program. 8(y) can only be used in connection with units that are not currently
under ACC or that are released from the ACC as a result of the sale of the unit.
Lease to purchase programs would not be eligible for 8(y) during the lease phase.
Nonpurchasing public housing residents may be displaced. In selling
a public housing unit under a homeownership program, the PHA or Purchase and Resale
Entity (PRE) must initially offer the unit to the resident occupying the unit
if they meet the eligibility requirements. The current residents of the public
housing units have the option of applying to the program in order to purchase
their unit, relocating to another comparable unit, or receiving tenant-based assistance.
PHAs must provide the resident with notice 90 days prior to the date of the sale
of their unit, counseling, relocation expenses, and comparable replacement housing
options. The right of first refusal does not extend to residents in non-public
housing units
Plan
Implementation
After a homeownership plan has been approved, the local
HUD office having jurisdiction for the PHA will monitor the plan's implementation
using the format below:
The
Homeownership Plan
The specific requirements for the preparation of a
homeownership plan under Section 32 are set out in the Desk Guide. PHAs should
submit the Plan to the HUD Special Applications Center (SAC) in Chicago. Non high-performing
PHAs must state their intent to submit a homeownership plan to HUD in the Annual
Plan. HUD will not review any homeownership plan not addressed in the PHA Agency
Plan. (High-performing PHAs are exempt from this rule.) The required items, along
with supporting documentation outlined in 24 CFR Part 906.39, are intended to
provide HUD with all the necessary information to assess the workability and legality
of the proposed program and the PHA's capacity to implement it. Generally, the
homeownership plan should also serve as a roadmap for the program's implementation.
Submission
Requirement
The Special Applications Center (SAC) will accept only
electronic submissions made via the PIC Inventory Removals module. To make a paper
submission, contact SAC management for clearance. The Executive Director's signature
on the certification page may be FAXed or scanned and attached electronically
to the rest of the application.
Note: When attaching
supporting documents to the application, PIC users can attach documents with filenames
with spaces provided filenames are no longer than 25 characters (including file
type ending, e.g., ".doc"), and as long as filenames conform to Windows Explorer
file naming rules: filenames with spaces must be enclosed in quotation marks.
Example: - Filename as shown in MS Word: PIC FAQ
Ideas.doc
- Filename to attach to PIC application: "PIC FAQ
Ideas.doc"
For applicants who must submit attachments on
paper because of equipment problems, please send the original to SAC, with a copy
to the local Public Housing servicing office referring to the PIC application
number (DDA*********).
Applicants who have gotten clearance from SAC management
to submit the application on paper should submit one original and two copies of
the application to the SAC and a copy to their local Public Housing servicing
office. If the homeownership plan is for a HOPE VI site, and the HA's grant administrator
is not located in the servicing office, please provide a copy to the HOPE VI grant
administrator also. The address for the SAC is listed below:
Special Applications Center
US Department of Housing and Urban Development
77 West Jackson Boulevard
Room 2401
Chicago, IL 60604-3507
Telephone:
(312) 886-9754
Fax: (312) 886-6413