Rule2022-26726
Multi-Family Housing Simple Transfer Pilot Program
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
December 9, 2022
Effective
December 9, 2022
Issuing agencies
Agriculture DepartmentRural Housing Service
Abstract
The Rural Housing Service (RHS or the Agency), a Rural Development (RD) agency of the United States Department of Agriculture (USDA), is announcing the implementation of a pilot program for simple transfers of USDA Section 515 Rural Rental Housing properties. The Agency's intention is to evaluate the existing regulations and remove regulatory barriers to reduce application requirements for certain types of transfers, resulting in lower transaction-related costs for applicants and improved processing times.
Full Text
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<title>Federal Register, Volume 87 Issue 236 (Friday, December 9, 2022)</title>
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[Federal Register Volume 87, Number 236 (Friday, December 9, 2022)]
[Rules and Regulations]
[Pages 75457-75459]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-26726]
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Rules and Regulations
Federal Register
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having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
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Federal Register / Vol. 87, No. 236 / Friday, December 9, 2022 /
Rules and Regulations
[[Page 75457]]
DEPARTMENT OF AGRICULTURE
Rural Housing Service
7 CFR Part 3560
[Docket No. RHS-22-MFH-0020]
Multi-Family Housing Simple Transfer Pilot Program
AGENCY: Rural Housing Service, USDA.
ACTION: Notification of pilot program.
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SUMMARY: The Rural Housing Service (RHS or the Agency), a Rural
Development (RD) agency of the United States Department of Agriculture
(USDA), is announcing the implementation of a pilot program for simple
transfers of USDA Section 515 Rural Rental Housing properties. The
Agency's intention is to evaluate the existing regulations and remove
regulatory barriers to reduce application requirements for certain
types of transfers, resulting in lower transaction-related costs for
applicants and improved processing times.
DATES: The effective date of the Simple Transfer Pilot Program is
December 9, 2022. The duration of the pilot program is anticipated to
continue until December 9, 2024, at which time the RHS may extend the
pilot program (with or without modifications) or terminate it depending
on the workload and resources needed to administer the program,
feedback from the public, and the effectiveness of the program. If the
pilot program is extended or terminated, the RHS will notify the
public.
FOR FURTHER INFORMATION CONTACT: For general information about the
pilot program, contact Stephanie Vergin, MFH Production and
Preservation Division at <a href="/cdn-cgi/l/email-protection#e5969180958d848b8c80cb938097828c8ba590968184cb828a93"><span class="__cf_email__" data-cfemail="12616677627a737c7b773c647760757b7c52676176733c757d64">[email protected]</span></a> or David Willis,
Asset Management Division at <a href="/cdn-cgi/l/email-protection#452124332c216b322c29292c367705303621246b222a33"><span class="__cf_email__" data-cfemail="3c585d4a5558124b555050554f0e7c494f585d125b534a">[email protected]</span></a>. Owners that are
interested in participating in the pilot program should contact the
project's assigned servicing specialist in the Field Operations
Division. The assigned specialist can be found on the Agency's website
at <a href="https://www.sc.egov.usda.gov/data/MFH.html">https://www.sc.egov.usda.gov/data/MFH.html</a>. Select the file under
the heading Multifamily Housing 514 & 515 Property Assignments. The
servicing specialist is listed in the column labeled ``Assigned To''
and their email is in the column ``Assigned To Email.''
SUPPLEMENTARY INFORMATION:
Authority
Title V, Section 506(b) of the Housing Act of 1949, as amended; 42
U.S.C. Section 1476(b).
Background
RHS is committed to helping improve the economy and quality of life
in rural areas by offering a variety of programs such as loans, grants,
and loan guarantees to help create jobs, expand economic development,
and provide critical infrastructure investments. RHS also provides
technical assistance, loans, and grants by partnering with agricultural
producers, cooperatives, Indian tribes, non-profits, and other local,
state, and federal agencies.
The Multi-family Housing Program (MFH), an RHS program, assists
rural property owners through loans, loan guarantees, and grants that
enable owners to develop and rehabilitate properties for low-income,
elderly, and disabled individuals and families as well as domestic farm
laborers. MFH works with the owners of its direct and farm labor
housing loan properties to subsidize rents for low-income tenants who
cannot afford to pay their full rent. These programs assist qualified
applicants that cannot obtain commercial credit on terms that will
allow them to charge rents that are affordable to low-income tenants.
Transfer Types: Simple and Standard Transfers
MFH utilizes a variety of tools to revitalize and preserve the
physical and financial health of more than 13,000 properties currently
in USDA's rural rental portfolio. The Agency may authorize limited
demonstration programs to test new approaches to offering housing under
the statutory authority granted to the Secretary, as set forth in 42
U.S.C. 1476(b) and 7 CFR 3560.53(t). Such demonstration programs may
authorize procedures and requirements that differ from those set forth
in statute or regulation. However, any program requirements that are
not expressly waived, whether statutory or regulatory, remain in
effect.
There are two primary types of ownership changes that require
approval by MFH which are (1) a change in the borrower entity's
organizational structure or (2) a transfer of ownership to a new
entity. Organizational changes that include changes in a borrower's
current ownership entity structure are addressed in 42 U.S.C. 1485(h)
and 7 CFR 3560.405. Transfers, which are sales of projects to new
owners that continue to operate the projects in the 515 program, are
detailed in 42 U.S.C. 1485(h) and 7 CFR 3560.406.
MFH has identified the need to simplify the transfer of ownership
for certain types of transactions. The current process places the same
submission requirements on applicants regardless of the complexity of
the transaction, resulting in undue burdens for relatively
uncomplicated transfers, thereby reducing potential transfer and
preservation activity in the portfolio. To address this issue, MFH is
implementing the Simple Transfer Pilot Program which will offer three
additional transfer options as a way to encourage preservation and
revitalize its portfolio. MFH expects that by reducing application
requirements for certain types of transfers, the result will be lower
transaction-related costs for applicants and improved processing times.
At the end of the pilot program, MFH will evaluate the findings with
consideration towards, if successful, future regulatory changes that
could be codified into 7 CFR part 3560 and applied program wide.
Discussion of the New Transfer Pilot Program
(1) Simple Transfer Pilot Program: For a simple transfer, under
certain conditions the Agency will process an application for an
ownership change without requiring full rehabilitation financing and/or
reserve account funding typically needed to approve a standard
transfer. Simple transfers include restrictions on new debt, equity
payouts, and other limitations that are not included for standard
transfers.
The Agency must determine that the new owner can operate the
property successfully and that the ownership change will benefit the
government and tenants even if there are remaining rehabilitation needs
post-transfer. The
[[Page 75458]]
property must meet the required conditions to be processed as a simple
transfer. The Asset Management Division (AMD) will process simple
transfers.
(2) Standard Transfer: All transfers that do not meet the
requirements for a simple transfer are considered standard transfers.
Standard transfers often include third-party financing, such as Low-
Income Housing Tax Credits (LIHTC), and may include one property or
multiple properties in a portfolio. Standard transfers follow the
guidance in 7 CFR 3560.406. The Production and Preservation Division
(P2) will continue to process standard transfers.
Implementation of the Simple Transfer Pilot Program
Eligibility for the pilot program will be based on property
conditions and the ability and willingness of the buyer and seller to
meet required simple transfer conditions. Buyers must meet the
eligibility criteria in 7 CFR 3560.406. Applicants must be able to
clearly demonstrate that the property can operate successfully under
new ownership. Applicants must abide by the regulatory requirements set
forth in 7 CFR part 3560 and the requirements set forth in applicable
statutes, except for the exceptions made available through this pilot
program, as detailed in this Notice.
Under the pilot program, three simple transfer options are
available to address different property circumstances, which are
outlined below:
Option 1: Simple Transfer With Expedited Ownership Change Required
Option 1 is the most streamlined transfer process. It is available
in circumstances where the Agency determines that an expedited
ownership change is in the best interest of the Government, property,
and tenants.
(1) Requirements:
(i) Property is in acceptable physical condition as determined by
the Agency based on information submitted by the applicant, available
in Agency files, or available from third parties, AND
(ii) Conditions exist that require an expedited transfer, including
but not limited to: deceased borrower or general partner, hardship,
insolvency, receivership, imminent loan maturity, or sale to nonprofit
under prepayment, AND
(iii) No additional debt will be incurred by the Buyer or secured
by the property as part of the transfer, AND
(iv) New owner (nonprofit or for-profit) will provide a plan for
the long-term viability of the property, which may include
recapitalization/rehabilitation or resetting of reserves. The Agency
must determine that the proposed viability plan demonstrates the
continued physical and financial viability of the property.
(2) Pilot Program Modification to Current Standard Transfer
Requirements in 7 CFR 3560:
(i) No Capital Needs Assessment (CNA) is required with the transfer
application (the CNA requirement in 7 CFR 3560.406(d)(5) is waived for
transfers qualifying for Option 1).
(ii) No new valuation of the property is required with the transfer
application (the requirement in 7 CFR 3560.406(d)(3)(i) and (ii) that
the security value of the housing project be determined at the time of
transfer is waived for transfers qualifying for Option 1).
(iii) The maturity date and amortization period of the loan will
not be changed or extended.
(iv) No equity payout can be included as part of the transaction.
Equity payout to transferor shall not be paid for by project funds and
shall not be secured by the property. If agreed to by both parties,
equity may be paid outside of the transaction.
(v) The project must meet minimum reserve account requirements as
determined by the Agency. The Agency may require a post-transfer
analysis to reset annual reserve deposits as a condition of the
approved viability plan, which could include completion of a property
conditions survey, a CNA, or another analysis acceptable to the Agency.
Option 2: Simple Transfer With Rehabilitation
Option 2 is designed for properties that require rehabilitation
and/or resetting of the annual deposit to the reserve account.
(1) Requirements:
(i) Property is or will be fully subsidized post-transfer OR rents
can be increased without adversely impacting occupancy and without a
term extension, AND
(ii) No additional amortizing debt will be incurred by the Buyer or
secured by the property as part of the transfer, AND
(iii) One of the following conditions applies:
(a) Based on a CNA, rehabilitation is needed now that cannot be
funded by the current reserve account, OR
(b) Property is in acceptable condition, with only minor upfront
rehabilitation or repairs needed, as determined by the Agency based on
information submitted by the applicant, available in Agency files, or
available from third parties. Reserves are sufficient to meet any
upfront rehabilitation needs but are inadequate to address future
rehabilitation needs, OR
(c) Property requires upfront rehabilitation that cannot be funded
by the current reserve account, as well as resetting of reserve
balances to adequately address future rehabilitation needs.
(2) Pilot Program Modification to Current Standard Transfer
Requirements in 7 CFR 3560:
(i) No new valuation of the property is required with the transfer
application (the requirement in 7 CFR 3560.406(d)(3)(i) and (ii) that
the security value of the housing project be determined at the time of
transfer is waived for transfers qualifying for Option 2).
(ii) The Agency may approve a junior lien for deferred financing as
provided in 3560.409, except that: (a) deferred financing must at a
minimum be coterminous with the Agency's loan(s), and (b) the Agency
may set a maximum per unit limit on rehabilitation that can be approved
under Option 2.
(iii) The maturity date and amortization period of the loan will
not be changed or extended, except that a term extension may be
permitted in accordance with 7 CFR 3560.409(j) if required by the
deferred lender to preserve affordability for a longer period.
(iv) No equity payout can be included as part of the transaction.
Equity payout to transferor shall not be paid for by project funds and
shall not be secured by the property. If agreed to by both parties,
equity may be paid outside of the transaction.
Option 3: Simple Transfer With Future Rehabilitation/Recapitalization
Plan
Option 3 provides flexibility to nonprofits and government agencies
to complete an acquisition of a preservation-worthy property even if
resources for rehabilitation of the property are not available at the
time of the transfer. An appraisal and CNA are required as part of the
transfer application.
(1) Requirements:
(i) Based on a CNA, rehabilitation is needed that cannot be fully
funded by the current reserve account or resetting of the existing
reserve deposits, AND
(ii) The purchaser is a nonprofit organization or government
agency, AND
(iii) The new nonprofit or government agency owner will pursue a
strategy to rehabilitate/recapitalize the property with Agency and/or
third-party funds within two years of the transfer closing
[[Page 75459]]
date. The Agency must determine that the recapitalization plan will
meet the physical and financial needs of the property the new owner is
likely to obtain the Agency and/or third-party funds, and the property
can function successfully until rehabilitation/recapitalization is
complete.
(2) Pilot Program Modification to Current Standard Transfer
Requirements in 7 CFR 3560:
(i) The Agency will waive the necessary reserve requirement
adjustment under 7 CFR 3560.406(d)(5). The new owner must address the
rehabilitation needs identified in the CNA over a period not to exceed
two years after the closing date of the transfer. RD must approve the
new owner's proposed rehabilitation plan and the new owner's plan to
obtain funding for the rehabilitation prior to approval of the
transfer.
(ii) The Agency will monitor the progress and implementation of the
approved plan as part of routine project servicing. The new owner may
propose changes to the approved plan; however, RD must authorize in
writing any changes before they are implemented.
For all simple transfer options, health, safety, environmental,
civil rights, and applicable accessibility requirements must be
resolved at the time of transfer. The property must be rated
``performing'' in the internal risk rating tool unless an exception is
approved by the Agency.
In cases where MFH determines that none of the simple transfer
options are viable for a project, the property owner should follow the
standard transfer requirements in 7 CFR 3560.406. The Agency may also
determine that other servicing actions are more appropriate based on
the property's circumstances.
Standard transfer requirements have not changed and are outlined in
7 CFR 3560.406 (<a href="https://ecfr.federalregister.gov/current/title-7/subtitle-B/chapter-XXXV/part-3560/subpart-I/section-3560.406">https://ecfr.federalregister.gov/current/title-7/subtitle-B/chapter-XXXV/part-3560/subpart-I/section-3560.406</a>) and are
available on the Agency's website at: <a href="https://www.rd.usda.gov/sites/default/files/3560-3chapter07.pdf">https://www.rd.usda.gov/sites/default/files/3560-3chapter07.pdf</a>.
For simple transfers, a checklist and other information have been
developed and are available by: (1) going to the MFH website at <a href="https://www.rd.usda.gov/programs-services/multifamily-housing-programs/multifamily-housing-direct-loans">https://www.rd.usda.gov/programs-services/multifamily-housing-programs/multifamily-housing-direct-loans</a> (click on the To Apply tab), (2)
contacting the assigned servicing specialist, which can be found at
USDA Service Center Agencies Online Services; or (3) refer to the FOR
FURTHER INFORMATION CONTACT section in this Notice.
Transfer Processing Steps
A property owner should contact the assigned Field Operations
Division (FOD) servicing specialist if interested in a transfer under
the pilot program. The FOD servicing specialist will meet with the
owner to discuss their goals for the transfer, timelines, prospective
buyer(s), possible funding sources, etc. The specialist will review
options with the borrower, including prepayment (if applicable), and
determine if other servicing actions are needed. If a simple transfer
appears possible and the owner is interested, FOD will refer the
customer to the Servicing Support Branch in AMD for a consultation. AMD
will review simple transfer options with the prospective buyer and
seller, along with the streamlined revised checklist. If a standard
transfer appears to be the best option, FOD will refer the owner to the
appropriate Processing and Report Review Branch in P2 for a
consultation.
Paperwork Reduction Act
The regulatory waivers for this pilot contain no new reporting or
recordkeeping burdens under OMB control number 0575-0179 that would
require approval under the Paperwork Reduction Act of 1995 (44 U.S.C.
Chapter 35).
Non-Discrimination Statement
In accordance with Federal civil rights laws and USDA civil rights
regulations and policies, the USDA, its Mission Areas, agencies, staff
offices, employees, and institutions participating in or administering
USDA programs are prohibited from discriminating based on race, color,
national origin, religion, sex, gender identity (including gender
expression), sexual orientation, disability, age, marital status,
family/parental status, income derived from a public assistance
program, political beliefs, or reprisal or retaliation for prior civil
rights activity, in any program or activity conducted or funded by USDA
(not all bases apply to all programs). Remedies and complaint filing
deadlines vary by program or incident.
Program information may be made available in languages other than
English. Persons with disabilities who require alternative means of
communication to obtain program information (e.g., Braille, large
print, audiotape, American Sign Language) should contact the
responsible Mission Area, agency, or staff office; the USDA TARGET
Center at (202) 720-2600 (voice and TTY); or the Federal Relay Service
at (800) 877-8339.
To file a program discrimination complaint, a complainant should
complete a Form AD-3027, USDA Program Discrimination Complaint Form,
which can be obtained online at <a href="http://www.ascr.usda.gov/complaint_filing_cust.html">http://www.ascr.usda.gov/complaint_filing_cust.html</a>, from any USDA office, by calling (866) 632-
9992, or by writing a letter addressed to USDA. The letter must contain
the complainant's name, address, telephone number, and a written
description of the alleged discriminatory action in sufficient detail
to inform the Assistant Secretary for Civil Rights (ASCR) about the
nature and date of an alleged civil rights violation. The completed AD-
3027 form or letter must be submitted to USDA by:
(1) Mail: U.S. Department of Agriculture, Office of the Assistant
Secretary for Civil Rights, 1400 Independence Avenue SW, Washington, DC
20250-9410; or
(2) Fax: (833) 256-1665 or (202) 690-7442; or
(3) Email: <a href="/cdn-cgi/l/email-protection#5000223f3722313d7e193e24313b3510252334317e373f26"><span class="__cf_email__" data-cfemail="d080a2bfb7a2b1bdfe99bea4b1bbb590a5a3b4b1feb7bfa6">[email protected]</span></a>.
Joaquin Altoro,
Administrator, Rural Housing Service.
[FR Doc. 2022-26726 Filed 12-8-22; 8:45 am]
BILLING CODE 3410-XV-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.