Homeownership

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:

1. Sell all or a portion of a public housing development to eligible public or non-public housing residents;
   
   
2. Provide Capital Fund assistance to public housing families to purchase homes; or,
   
   
3. 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.

	Section 32 Desk Guide [20 pages]
	Homeownership Term Sheet [9 pages]
	Sample Homeownership Term Sheet [53 pages]
	Appendix 1: Completeness Review Checklist [7 pages]
	Appendix 2: Definitions of Terms [1 page]
	Appendix 3: Sources and Uses Budget Instructions and Definitions [5 pages]
	Appendix 4: Sources and Uses Budget Tool
	Appendix 5: Feasibility Tool Instructions [2 pages]
	Appendix 6: Feasibility Tool
	Appendix 7: Attorney's Certification [1 page]

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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.

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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.

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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.

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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.

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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.

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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

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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:

Monitoring Review Checklist [MS-WORD]

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.

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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.

• 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