12 U.S.C. § 1701z–11 — Management and disposition of multifamily housing projects

(a) The Secretary must manage or dispose of multifamily housing projects owned by the Secretary or subject to a Secretary-held mortgage in a way that (1) follows the National Housing Act and this section, (2) protects the Federal Government’s financial interests, and (3) uses the least costly reasonable alternative while addressing these goals: (A) preserve housing so it remains available and affordable to low-income people; (B) preserve and revitalize neighborhoods; (C) keep existing housing decent, safe, and sanitary; (D) minimize involuntary tenant displacement; (E) keep housing available for low-income renters, cooperative residents, and homeowners; (F) minimize demolition; (G) support fair-housing strategies; and (H) dispose of projects consistently with local market conditions. For an individual project, the Secretary may balance competing goals to advance this section.

(b) Definitions. (1) “Multifamily housing project” means a multifamily rental project that is or, before the Secretary acquired it, was assisted or insured under the National Housing Act, or was subject to a section 1701q loan. (2) “Subsidized project” means one that, immediately before its mortgage was assigned to or acquired by the Secretary, received: (A) below-market-interest-rate mortgage insurance under section 221(d)(5); (B) interest-reduction payments for a section 236-insured mortgage; (C) a direct section 1701q loan; or (D) assistance consisting of rent supplements under the 1965 Act, additional section 236(f)(2) payments, pre-1975 section 23 payments, or section 8 payments excluding tenant-based assistance, when those payments cover more than half the units, subject to the stated exception for section 183(c) of the 1987 Act. (3) “Formerly subsidized project” means a Secretary-owned project that was subsidized immediately before acquisition. (4) “Unsubsidized project” means a Secretary-owned project that is neither subsidized nor formerly subsidized. (5) A unit is “affordable” if, for a very-low-income family, rent is no more than 30 percent of 50 percent of area median income, adjusted for family size; for another low-income family, rent is no more than 30 percent of 80 percent of area median income, adjusted for family size; or the unit or family receives section 8 assistance. (6) “Low-income families” and “very low-income families” have the meanings in section 3(b) of the United States Housing Act of 1937. (7) “Preexisting tenant” means, for a project acquired by a purchaser other than the Secretary at foreclosure or after a Secretary sale, a family living in a project unit immediately before the purchaser acquired it. (8) “Market area” means one determined by the Secretary. (9) “Secretary” means the Secretary of Housing and Urban Development.

(c)(1) The Secretary may sell a Secretary-owned project by negotiation, competitive bid, or another method, on appropriate terms consistent with its low-income character and subsection (a), only to a purchaser able to: (A) satisfy the project disposition plan; (B) run sound financial and physical management that meets operating and repair costs and keeps the project decent, safe, sanitary, and compliant with applicable State^*, local, and Secretary standards; (C) respond to tenants and cooperate with tenant organizations; (D) provide adequate organizational, staff, and financial resources; and (E) meet other Secretary requirements.

(2)(A) Before selling a Secretary-owned project, the Secretary must create an initial disposition plan stating minimum terms and conditions, an acceptable initial price, and planned assistance for a prospective purchaser. (B) If another Secretary-owned project is in the same market area, the Secretary may coordinate disposition of all such projects as appropriate for subsection (a)’s goals. (C) The initial price must reasonably relate to intended post-sale use, rehabilitation needs, market-supported rents, available section 8 assistance, the project’s occupancy profile including family size and incomes, and other appropriate factors. (D) The Secretary must establish procedures to obtain timely input from affected local-government officials, the community, and tenants, and, when feasible and appropriate, facilitate sales to capable tenant organizations, public or nonprofit entities representing or affiliated with them, or other public or nonprofit entities. (E) To carry out those procedures, the Secretary may provide technical assistance directly or indirectly and use funds available under the listed preservation and housing laws or this section. A recipient of such funds may provide assistance to the extent funded under any listed authority or this subparagraph, regardless of the funding source.

(3)(A) Before foreclosing a Secretary-held mortgage on a project, the Secretary must notify the affected local government and tenants of the proposed foreclosure sale. (B) A foreclosure sale may be made only to a purchaser able to operate and repair the project so it remains decent, safe, sanitary, and compliant with applicable State, local, and Secretary standards.

(d)(1) The Secretary may contract for management of a Secretary-owned project, or one for which the Secretary is mortgagee in possession, with for-profit or nonprofit entities or public agencies, including public housing authorities, by negotiation, competitive bid, or another method at a reasonable price. The manager must be able to: (i) run sound financial and physical management that meets operating and maintenance costs and preserves the project’s condition and compliance; (ii) respond to tenants and cooperate with tenant organizations; (iii) provide adequate organizational, staff, and financial resources; and (iv) meet other Secretary requirements. The Secretary may require the owner of a project subject to a Secretary-held mortgage to contract for management in that manner. (2) For projects owned by the Secretary or for which the Secretary is mortgagee in possession, the Secretary must, as far as possible, (A) keep occupied projects decent, safe, sanitary, and compliant, (B) keep them fully occupied, and (C) maintain them as rental or cooperative housing. (3) For a project subject to a Secretary-held mortgage, the Secretary must require its owner to meet paragraph (2).

(e) When disposing of multifamily property, consistent with the preservation goal in subsection (a)(3)(A), the Secretary must take one or more actions under this subsection or subsection (f). (1) The Secretary may, when budget authority exists, contract with the owner of a project acquired by another purchaser at foreclosure or after a Secretary sale for section 8 project-based assistance. (A) For a subsidized or formerly subsidized project described in subsection (b)(2)(A)–(C), the contract must assist at least all units covered before acquisition or foreclosure by an assistance contract listed in subsection (b)(2)(D), unless subparagraph (C) is used. When an assisted unit becomes vacant and its current family is not section 8-eligible, the owner must lease it to a section 8-eligible family. The Secretary must ensure that other units remain available and affordable for the project’s remaining useful life^*, as defined by the Secretary, and may require use or rent restrictions. (B) For a subsidized or formerly subsidized project described in subsection (b)(2)(D) but not subparagraph (A), the contract must assist at least all units covered, or covered immediately before foreclosure or acquisition, by the listed assistance contract, unless subparagraph (C) is used. A vacancy occupied by a noneligible family must be leased to a section 8-eligible family. (C)(i) Instead of project-based assistance under (A)(i) or (B)(i), the Secretary may, for certain units in unsubsidized projects in the same market area, require use and rent restrictions making them available and affordable to very-low-income families for the project’s remaining useful life, or provide section 8 project-based assistance limited to very-low-income occupants. (ii) That option requires the Secretary, when disposing of the project otherwise needing project-based assistance, to make section 8 tenant-based assistance available to low-income families in the units otherwise covered, and to subject to restrictions or assist at least as many units as would otherwise receive project-based assistance. (D) Despite subparagraph (C), for an unsubsidized project the contract must provide (i) project-based assistance for units covered, or covered immediately before foreclosure or acquisition, by the seven listed programs (including pre-1983 new construction and substantial rehabilitation, property disposition, project-based certificates, moderate rehabilitation, pre-1975 section 23, rent supplements, and section 8 after conversion from rent supplements), and (ii) section 8 tenant-based assistance for preexisting tenants in units formerly covered by the loan-management set-aside program.

(2) For a project acquired by another purchaser at foreclosure or after a Secretary sale, the Secretary may enter annual-contribution contracts with public housing agencies for section 8 tenant-based assistance for all low-income families otherwise eligible under paragraph (1)(A), (B), or (D) when the purchaser acquires the project. The Secretary may do this only if the area has enough habitable, affordable housing for those families using tenant-based assistance. For subsidized or formerly subsidized projects, this option may cover no more than 10 percent of the aggregate units disposed of by the Secretary in a fiscal year.

(3)(A) Under National Housing Act authority, the Secretary may give other assistance under subsection (f) to owners of projects acquired by another purchaser at foreclosure or after a Secretary sale, on terms ensuring that the units otherwise required to receive paragraph (1)(A), (B), or (D) project-based assistance are available and affordable to low-income people and that Secretary-prescribed use or rent restrictions last for the project’s remaining useful life. (B) If this causes rent for a very-low-income family that otherwise must receive project-based assistance to exceed the rent allowed under section 3(a) of the 1937 Act, the Secretary must provide that family section 8 tenant-based assistance.

(f) In addition to subsection (e), for a subsidized, formerly subsidized, or unsubsidized project, the Secretary may take these actions under the disposition plan and subsection (a): (1) reduce the sale price under National Housing Act authority, using the same intended-use, rehabilitation, rent, assistance, occupancy, and other factors listed for the initial price; (2) require use or rent restrictions keeping specified units available and affordable to low- and very-low-income people for the property’s remaining useful life; (3) make a short-term loan to facilitate a sale only if an appropriation Act previously authorizes it, the term is no more than five years, the borrower has documented permanent replacement financing from a lender meeting Secretary standards, and the terms follow market practice or cost the Government nothing as defined in title 2; (4) if more cost-effective than setting rents under subsection (h)(2), use section 8 contract budget authority for up-front rehabilitation and related development grants in addition to project-based assistance, but only during fiscal years 2006–2010 and only with advance appropriation authority; (5) make section 8 tenant-based assistance available to families living in a project who do not otherwise qualify for project-based assistance; (6)(A) after notice and an opportunity for preexisting tenants to comment, allow no more than 10 percent of units disposed of in a fiscal year to be used for purposes other than rental or cooperative use, including low-income homeownership, or, in a particular project, community or office space for tenant or housing-service providers or security programs, or small businesses that benefit tenants; and allow no more than 5 percent of units disposed of in a fiscal year to be used in any manner if the Secretary and the affected local government or area-wide body find the use advances fair housing, community development, or neighborhood revitalization. (B) The Secretary may do this only if tenant-based section 8 rental assistance is available to every eligible family displaced by the action and the Secretary finds enough habitable, affordable rental housing in the market area to make that assistance usable. (7)(A) Despite subsection (e), by agreement under (B) the Secretary may transfer a project to a public housing agency for public housing or to an eligible entity for supportive housing under section 1701q or section 811 of the Cranston-Gonzalez Act. (B) The agreement must have appropriate terms, conditions, and limits ensuring the applicable public or supportive-housing use and ensuring that no tenant is displaced. (8) Despite section 8, the Secretary may provide subsection (e) project-based assistance for rebuilding a project, in whole or part and on-site, off-site, or both, if the project is not decently, safely, and sanitarily maintained, rebuilding costs less than substantial rehabilitation, the local government approves and financially contributes or otherwise commits, and rebuilding is part of a locally approved neighborhood-revitalization plan. Subsection (j)(2) protects displaced tenants. (9) The Secretary may arrange with State agencies and local governments in States receiving emergency assistance under the cited Social Security Act to provide that Act’s assistance for eligible families who would live in such projects.

(g) For every disposed project, the Secretary must protect a preexisting very-low-income tenant who would, upon disposition, have to pay more than 30 percent of adjusted income in rent. (1) For two years after the purchaser acquires the project, rent may not exceed the amount charged immediately before acquisition. (2) The family counts as displaced for preference systems under the listed provisions of the 1937 Act. (3) By acquisition, the family must receive notice of these protections and that rent may increase after the two-year period.

(h) Section 8 project-based contracts under this section must meet these requirements. (1) The term is 15 years, except it may be shorter if the Secretary finds the project financially viable for that term based on rents and financing, but tenants’ rent for assisted units must remain no more than the section 3(a) amount for at least 15 years, or if assistance is under section 6 of the HUD Demonstration Act of 1993 and the project otherwise complies with this section. (2) The Secretary must set contract rents that, with other purchaser resources, cover necessary rehabilitation and operating costs and do not exceed the Secretary’s percentage of existing fair-market rents for the market area under section 8(c) of the 1937 Act.

(i)(1) Within 30 days after acquiring title, the Secretary must notify the affected local government, including public housing agencies, and the State agency or agencies designated by the State’s chief executive. For a period beginning with notice and lasting no more than 90 days, those government bodies have the exclusive right to make bona fide purchase offers. (2) During that period, the Secretary may not sell or offer the project to anyone else unless those bodies say they will not offer. The Secretary must accept a bona fide offer made during the period if it follows the disposition plan or is otherwise acceptable. (3) The Secretary must establish procedures for this subsection.

(j)(1) If demolition, repairs, or a change in use of a Secretary-owned project or one for which the Secretary is mortgagee in possession will displace tenants, the Secretary must identify and notify them of the displacement and available relocation assistance. For a project subject to a Secretary-held mortgage, the Secretary must require the owner to do this when the Secretary authorized the action. (2) A displaced tenant who continues to meet applicable qualifications must have the right, whenever possible, to return to a repaired or rebuilt unit; occupy a unit in another Secretary-owned project; obtain assistance under the 1937 Act; or receive other similar relocation assistance the Secretary finds appropriate.

(k)(1) The Secretary may not approve sale of a loan or mortgage held by the Secretary, including one owned by the Government National Mortgage Association, on a subsidized or formerly subsidized project unless the transaction ensures the project operates at least until loan or mortgage maturity with rental terms at least as favorable to existing and future tenants as the prior program required. (2) The Secretary may not approve sale of a subsidized project that is subject to a Secretary-held mortgage, or whose sale includes new Secretary subsidy funds or mortgage recasting, unless the transaction provides the same protection through at least maturity. (3) Despite competitive-sale laws, the Secretary may negotiate mortgage sales without competitive selection to local governments, State agencies, or investor groups including one, if negotiations are with those agencies. The buyer must agree to act as mortgagee or beneficial-interest owner consistently with preserving occupancy by the intended tenant group and, when appropriate, may enforce regulatory agreements and program requirements. The price must be the best the Secretary can obtain from such a government or agency consistent with retaining the project under the mortgage-insurance program for the initial insurance contract’s life. (4) The Secretary may sell mortgages on projects that are neither subsidized nor formerly subsidized, on terms and conditions the Secretary prescribes. (5) The Secretary may demonstrate restructuring and disposing of troubled Secretary-held multifamily mortgages through public, private, and nonprofit partnerships. (6) The Secretary may likewise demonstrate disposing of troubled Secretary-owned projects through such partnerships.

(l) By June 1 each year, the Secretary must report the aggregate status of Secretary-owned projects and projects subject to Secretary-held mortgages, highlighting differences between subsidized and unsubsidized inventory. The report must state: (1) average and median project size; (2) geographic locations by State and region; (3) project assignment years and average and median time in HUD-held inventory; (4) HUD-held mortgage status; (5) physical condition of HUD-held and HUD-owned inventory; (6) occupancy profile, including current tenants’ income, family size, race, ethnic origin, and rents; (7) proportion of vacant units; (8) number of projects for which the Secretary is mortgagee in possession; (9) number sold in foreclosure; (10) number of HUD-owned projects sold; (11) actions under this section, their effectiveness, and obstacles to disposition or management; (12) how far this section and its actions displaced tenants; (13) functions under this section contracted to public or private entities or States; and (14) activities under subsection (i) during the preceding year.