24 C.F.R. § 891.405
§ 891.405 Replacement reserve. (24 CFR Part 891)
Operative Text
(a) Establishment of reserve. The Owner shall establish and maintain a replacement reserve to aid in funding extraordinary maintenance and repair and replacement of capital items. (b) Deposits to reserve. The Owner shall make monthly deposits to the replacement reserve in an amount determined by HUD. (c) Level of reserve. The reserve must be built up to and maintained at a level determined by HUD to be sufficient to meet projected requirements. Should the reserve reach that level, the amount of the deposit to the reserve may be reduced with the approval of HUD. (d) Administration of reserve. Replacement reserve funds must be deposited with HUD or in a Federally-insured depository in an interest-bearing account(s) whose balances(s) are fully insured at all times. All earnings including interest on the reserve must be added to the reserve. Funds may be drawn from the reserve and used only in accordance with HUD guidelines and with the approval of, or as directed by, HUD. With HUD approval, reserves may be used to reduce the number of dwelling units, provided that the purpose for the reduction is the retrofitting of obsolete or unmarketable units.
Under 24 CFR Part 891 § 891.405, owners of HUD-assisted housing projects are required to set up and sustain a dedicated replacement reserve fund intended to cover major maintenance, repairs, and capital item replacements. Monthly contributions to this fund are set by HUD, and the fund must be held in a fully insured, interest-bearing account—either with HUD directly or at a federally insured institution—with all interest earnings rolled back into the reserve. HUD controls how and when funds may be withdrawn, and any reduction in deposit amounts or use of funds for purposes such as reducing the number of dwelling units requires explicit HUD approval.
Plain English — not legal advice.
Operators subject to 24 CFR Part 891 § 891.405 generally establish the replacement reserve account at project inception and ensure it is held in a fully insured, interest-bearing depository that meets HUD's requirements. Compliant owners make monthly deposits in the HUD-determined amount, track interest earnings as part of the reserve balance, and seek HUD approval before drawing funds or adjusting deposit levels. Owners who wish to use reserve funds to retrofit or reduce obsolete dwelling units document and submit that request through HUD's approval process before taking action.
General guidance for property managers — not legal advice for your specific situation. Consult an attorney for advice on your case.
Under 24 CFR Part 891 § 891.405, tenants living in HUD-assisted properties have an interest in knowing that a properly maintained replacement reserve is meant to ensure the long-term upkeep of the building's major systems and capital components. If residents observe that significant repairs or replacements are being deferred in ways that may suggest the reserve is not being properly maintained, they can raise concerns with HUD's local field office or a HUD-approved housing counseling agency. Tenant-rights organizations familiar with HUD-assisted housing can help residents understand how this provision interacts with other project oversight mechanisms.
General guidance for tenants — not legal advice for your specific situation. Consult a tenant-rights organization or attorney for advice on your case.
Generated September 4, 2026 — auto-generated, not yet human-reviewed. See /transparency for methodology.
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