SUBPART E - REPLACEMENT HOUSING PAYMENTS

Non-Regulatory Supplement

OPI: HEPR

1. RELOCATION ASSISTANCE - INCIDENTAL EXPENSES AND MORTGAGE FINANCING (49 CFR 24.401(b)(3) AND 24.401(e)). When a displaced 180-day owner occupant purchases a replacement dwelling, the incidental expenses to be paid under 49 CFR 401(b)(3) shall be those costs necessary and reasonable and those that are actually incurred by the displaced person incident to the purchase of a replacement dwelling. In cases where there is no mortgage on the acquired property, costs incurred in connection with securing mortgage financing are not considered necessary to enable the displaced person to relocate to comparable housing and should not be considered as an eligible incidental expense. Any additional costs in securing a larger mortgage on the replacement dwelling than would be required on a comparable dwelling would not be considered a necessary expense. However, if the displacing agency determines that the displacee needs to obtain a loan in order to relocate, e.g., in the case of an owner-occupant with a partial interest who must obtain a loan to purchase a replacement property, the cost of obtaining the loan could be considered "necessary," and would be an eligible incidental expense.

2. REPLACEMENT HOUSING PAYMENT COMPUTATION FOR OWNER-OCCUPANTS WITH PARTIAL INTERESTS (49 CFR 24.2(a)(20)(iv) and 401(c)(1)). The replacement housing payment for an owner-occupant with partial interest in the property being acquired is computed using the full acquisition cost of the displacement dwelling. To receive the maximum payment, an owner-occupant with a partial interest must spend his/her share of the acquisition payment plus the amount of the computed replacement housing payment in order to receive the maximum computed replacement housing payment. Owner occupants with partial interests who cannot secure financing or who cannot afford to purchase comparable replacement housing may be treated as tenants and receive a rental assistance payment in accordance with Section 24.401(f). A direct loan under Section 24.404(c)(iv) may be provided if the displaced person requires last resort housing in order to relocate. The agency may provide additional assistance but is not required to provide owner occupants with partial interests a greater level of assistance to purchase a replacement dwelling than the agency would be required to provide such persons if they owned fee-simple title to the displacement dwelling.

3. REIMBURSEMENT OF "SWEAT EQUITY" IN NEW CONSTRUCTION (49 CFR 24.401(c)(1) and 49 CFR 24.403(c)(4) and (c)(5)). The value of the displacee's labor can be considered part of the actual cost of construction when he/she builds his/her own replacement dwelling. This could also include time and expenses involved in supervising the construction in cases where the displacee acts as his/her own general contractor. The expenses must be actual and reasonable and the profit factor should be deducted, for this is not an incurred expense.

4. REIMBURSEMENT OF LUMP SUM PAYMENTS FOR MORTGAGE INSURANCE (49 CFR 24.401(d) and 24.401(e)(6)). Payments for mortgage insurance may be included as a part of the mortgage interest differential payment, or, if they are paid in advance, they could be reimbursed as an incidental expense. If they are paid as an incidental expense, any payment made should be based upon the unpaid mortgage balance on the displacement dwelling or the new mortgage amount, whichever is less.

5. COMPUTING AN INTEREST DIFFERENTIAL PAYMENT BASED ON A HOME EQUITY LOAN (49 CFR 24.401(d)(1)). To compute an interest differential payment when the displaced person has a 100 percent home equity loan on the property being acquired, the loan balance is the lesser of the present unpaid mortgage balance on the date of acquisition or the unpaid balance that existed 180 days prior to the initiation of negotiations. This is important because a home equity loan mortgage instrument could allow the borrower to increase the mortgage balance at will. The interest rate is the prevailing interest rate for the same kind of home equity mortgage instrument. If the home equity mortgage encumbering the acquired property has no set amortization of principal, use the prevailing amortization period of the current market.

6. COMPUTING AN INTEREST DIFFERENTIAL PAYMENT BASED ON A GOVERNMENT SUBSIDIZED LOAN (49 CFR 24.401(d)). When a displaced person has a loan with a government subsidized interest rate that produces a reduced payment on the dwelling to be acquired, the terms of the loan usually require that the interest subsidy (the cumulative difference between what the displaced person paid with the subsidized rate and would have paid without it) be paid upon the sale or other conveyance of the dwelling. Thus, while the subsidy creates an accumulating debt for the mortgagor, the mortgagor is not required to make monthly or other periodic payments against that debt prior to conveyance. The interest subsidy, therefore, is not a "mortgage" within the meaning of the Uniform Act and, as such, should not be a part of an interest differential computation. The interest subsidy is a liability to the owner and paying it out of the proceeds of the sale of the displacement property is no different from paying back a mechanic's lien or other similar liability. To compute an interest differential payment when a subsidized loan is present, (1) the loan balance is the balance without the subsidy, (2) the term is the remaining term on the loan without additional time for repaying the subsidy, and (3) the interest rate is the subsidized interest rate. The displacing agency must look at each displaced person's situation. If, after a closeout of the displacement dwelling mortgage, the displaced person cannot afford comparable replacement housing, the agency may have to use last resort housing payments or procedures to ensure that it is made available to the displaced person.

7. WAIVER OF PREVAILING INTEREST RATE REQUIREMENT (49 CFR 24.401(d)(3)). New mortgage interest rates may not exceed the prevailing interest rate currently charged by mortgage lending institutions in the area in which the replacement dwelling is located. If a displaced person is required to pay an interest rate that is higher than the prevailing rate due to his or her unique circumstances (e.g., poor credit risk) and the displacing agency determines that the additional cost would prevent the displaced person from obtaining comparable housing, the agency could request a waiver of the prevailing interest requirement in accordance with the provisions of Section 49 CFR 24.7.

8. NO AGENCY LIMITATIONS ON REIMBURSEMENTS FOR INCIDENTAL EXPENSES (49 CFR 24.401(e)). Agencies may not limit the reimbursement for incidental expenses to those expenses that would have been incurred incident to the purchase of a comparable replacement dwelling. The only limitation based on the comparable property would be for revenue or documentary stamps, sales or transfer taxes, and evidence of title, e.g., title insurance.

9. FOOD STAMPS NOT CONSIDERED AS HOUSEHOLD INCOME WHEN COMPUTING REPLACEMENT HOUSING PAYMENTS (49 CFR 24.2(a)(14)). 7 U.S.C. 2017(b) prevents food stamps from being considered as income and states that: "The value of the allotment provided any eligible household shall not be considered income or resources for any purpose under any Federal, State, or local laws, including but not limited to, laws relating to taxation, welfare, and public assistance programs, and no participating State or political subdivision thereof shall decrease any assistance otherwise provided an individual or individuals because of the receipt of an allotment under this chapter."

10. DISBURSING A RENTAL ASSISTANCE PAYMENT TO A DISPLACED PERSON (49 CFR 24.402(b)(3)). Either a lump sum or installment distribution of a rental assistance payment is permissible. To reduce the potential for misuse, most States control rental assistance payments by one or more of the following methods: (1) Making installment payments to the landlord; (2) requiring an annual certification from the tenant that he/she occupies Decent, Safe and Sanitary (DSS) housing; (3) establishing a dollar threshold (suggested $5,250) above which installment payments are required; and (4) making installment payments on a monthly, quarterly, semiannual, or annual basis. If there is a question of the displaced person's competence or ability to handle financial matters, additional safeguards include: (1) With the displaced person as co-signee, make payment to a relative, legal guardian, friend, or landlord; or (2) making installment payments through an annuity or escrow account. States that have not adopted alternate means of payment should consider using the above options. States may also want to consider using the disbursement services of a financial institution when installment payments are warranted to reduce an administrative burden.

11. DOWN PAYMENT ASSISTANCE AND INCIDENTAL EXPENSES REIMBURSEMENT FOR A TENANT (49 CFR 24.402(c)). An eligible tenant who purchases replacement housing is entitled to down payment assistance, including incidental expenses, as listed under 49 CFR 24.401(e). For example, loan origination fees that do not represent prepaid interest or Federal Housing Administration (FHA) mortgage insurance premiums that are required as an expense incidental to obtaining a mortgage are eligible for reimbursement within the limits of down payment assistance. The total payment for a tenant may not exceed $5,250 (except under certain conditions in last resort housing cases).

12. USE OF PROPERTIES THAT ARE NOT DECENT, SAFE, AND SANITARY AS A BASIS FOR A REPLACEMENT HOUSING PAYMENT (49 CFR 24.403(a) and (c)(2)). In situations where there are limited comparable replacement properties, displacing agencies may base a replacement housing payment on an available property having minor DSS deficiencies, provided that the deficiencies can be easily corrected for a nominal amount. Use of non-DSS properties with minor deficiencies should be primarily limited to situations where a windfall or excessive expenditure can be avoided and/or in situations where housing of last resort would otherwise be needed to relocate the displaced person into comparable housing. The payment computation should reflect the cost to correct the deficiency. Such housing should not be used to meet the "make available" requirement of Section 24.204(b) in the case of a forced displacement.

13. MAJOR EXTERIOR ATTRIBUTES (49 CFR 24.403(a)(2)). Alternate methods of determining the replacement housing payment cannot be used in cases where the comparable replacement dwelling lacks the major exterior attribute of the displacement dwelling. Section 24.403(a)(2) requires that the value of the attribute be subtracted from the acquisition price of the displacement dwelling for purposes of computing the payment if the comparable replacement dwelling lacks the major exterior attribute.

14. REPLACEMENT HOUSING PAYMENT (RHP) COMPUTATIONS OF PARTIAL ACQUISITIONS: UNECONOMIC REMNANT VS. A REMAINING BUILDABLE LOT (49 CFR 24.403(a)(3)). The requirements for computing a replacement housing payment of a partial acquisition with a remaining uneconomic remnant differs from a partial acquisition with a remaining buildable lot.

    1. Uneconomic remnant - Section 301(9) of the Uniform Act requires the agency to offer to acquire the uneconomic remnant. The value of the remnant cannot be used in the RHP computation if the owner does not elect to sell it to the agency. However, if the owner does elect to sell the uneconomic remnant to the agency, its value may be included.

    2. Remaining buildable lot - 49 CFR 24.403(a)(3) is permissive on a uniform statewide basis regarding the offer to purchase this type of remainder. If an agency offers to purchase the remaining buildable lot, its value may be included in the computation, regardless of the owner's acceptance or rejection. However, if the agency does not offer to purchase, the value of the remainder may not be used in the computation.

15. TWO OR MORE HOUSEHOLDS WITHIN THE SAME DWELLING (49 CFR 24.403(a)(5)). When two or more occupants maintain separate households within the same dwelling, they have separate entitlements to relocation payments. The decision as to whether two separate households were maintained within the same dwelling is a judgment determination for which the displacing agency is responsible. The record should be sufficiently documented to support the decision reached.

16. COMPUTING A REPLACEMENT HOUSING PAYMENT FOR A DISPLACED PERSON WHO RELOCATES TO A PREVIOUSLY OWNED PROPERTY (49 CFR 24.401(c)(4) and 49 CFR 24.403 (c)(6)). When a displaced person relocates to a previously owned dwelling or retains the displacement dwelling and moves it to the remainder or to a previously owned site, "current fair market value for residential use" will be used as the basis for determining the cost of the replacement property, rather than "historical cost." It is not expected that an expensive or sophisticated appraisal report be secured to determine the current fair market value of the pre-owned property. The agency should ensure that its valuation is reasonable and supportable, as its determination could be appealed under 49 CFR 24.10.

17. REPLACEMENT HOUSING ASSISTANCE FOR TENANTS WHO DO NOT MEET LENGTH-OF-OCCUPANCY REQUIREMENTS (49 CFR 24.404(c)(3)). Displaced persons failing to meet the length of occupancy requirements continue to be eligible for relocation benefits under last resort housing. What has changed is how the benefit is calculated. Benefits for low-income tenants will be calculated using the 30% of income rule contained in 49 CFR 24.402(b)(2)(ii). For others, the calculation will be rent-to-rent. The reason for the change, as noted in the Preamble to the final rule, is to insure consistent treatment of displacees. Across an agency’s programs, the net effect of the change in the 30% rule is expected to be a reduction in financial liability. However, with respect to some individual displacees who do not meet the length of occupancy requirements, the calculation of benefits may result in a higher payment under the Final Rule than under the former rule. Agencies may wish to consider using loss-of-rent agreements to limit and manage financial liability when they believe that there is substantial risk that a subsequent occupant situation will occur.

18. USING A DIRECT LOAN TO FINANCE LAST RESORT HOUSING (49 CFR 24.404(c)(1)(iv)). A direct loan may be used for purposes of financing last resort housing in those situations where financing is not available to the displaced person. The direct loan shall not be considered or used as a substitute for a replacement housing payment.

19. REGULATORY STANDARD FOR FINANCIAL MEANS CRITERION (49 CFR 24.402(b)(2)(ii); 49 CFR 24.404(c)(3) and 49 CFR 24.2(a)(6)(viii)(C)). When displaced persons fail to meet the length of occupancy requirements and comparable replacement housing is not available at rates within their financial means, displacees are still eligible to be considered for replacement housing under 49 CFR 24.404(c)(3). The computation will be in accordance with 49 CFR 24.402(b)(1) and (2)(i) or (ii). There is also an alternate standard for displaced renters who receive a welfare assistance payment from a program that designates an amount for shelter and utilities. In such cases, that amount may be the standard if it is less than both the actual rent at the displacement dwelling and the 30% standard. See 49 CFR 24.402(b)(2)(iii).