HUD Handbook 4350.3 § 3-7

A.       Post-1981 Universe

                  On October 1, 1981, a law became effective limiting income eligibility for Section
                  8 assistance. At properties with Section 8 contracts effective on or after that date,
                  only families at or below the very low-income limit are eligible for assistance.
                  Under certain circumstances, the owner may request an exception to the very
                  low-income limits. For this universe of properties, HUD has 15% exception
                  authority, which it allocates on a nationwide basis. Exceptions are described in
                  subparagraph D below.

         B.       Pre-1981 Universe

                  In this universe of properties, the law restricts occupancy by families that are
                  other than very low-income to 25% of overall occupancy. Properties with Section
                  8 contracts effective prior to October 1, 1981, may admit applicants with incomes
                  up to the low-income limit. HUD Headquarters is tracking the 25% restriction on a
                  nationwide basis. The owner does not need to request an exception to admit low-
                  income families to these properties.

         C.       Eligible In-Place Tenants
                  (Exceptions to the income limits that do not require HUD approval)

                  In Section 8 properties where fewer than 100% of the units have Section 8
                  subsidy, some in-place, low-income tenants not receiving Section 8 may be
                  eligible for assistance without HUD approval for an exception to the very low-
                  income limit. This policy is permitted so that families will not be displaced when
                  the circumstances are not the fault of the tenant. Owners may allocate Section 8
                  assistance to in-place, low-income families only under any of these conditions:

                  1.      The tenant is being converted from RAP or Rent Supplement to Section 8.

                  2.      The tenant is eligible to receive Section 8 in conjunction with the sale of a
                          HUD-owned project,

                  3.      The tenant is paying more than 30% of income toward rent, and is at or
                          below the low-income limit (80% of median income).

         D.       Exceptions to the Income Limits for Post-1981 Properties Requiring HUD
                  Approval

                  1.      Conditions for exceptions. HUD will consider exceptions to the very low-
                          income limit in a post-1981 property only under certain conditions.

a.       If very low-income applicants on the waiting list are substantially
                                   fewer than the number of units in the project, the owner must
                                   market the units to attract very low-income families.

                          b.       Requests for exceptions may fall into two categories: individual
                                   tenant exceptions for an individual family and project or unit
                                   exceptions for a specific number of units or for an entire property.

                  2.      Individual tenant exceptions. HUD will consider approving owner requests
                          for individual tenant exceptions under the following circumstances:

                          a.       An in-place tenant would be displaced as a result of substantial
                                   rehabilitation under the Section 8 program; or

                          b.       A family is displaced by a Rental Rehabilitation Demonstration
                                   project or by rehabilitation or development assisted under Section
                                   17 of the Housing Act of 1937.

                  3.      Project or unit exceptions. HUD will consider approving owner requests
                          under the following circumstances:

                          a.       A project is financed by a State housing finance agency (HFA).
                                   The HFA published a policy before October 1, 1981, requiring
                                   some of the Section 8 units to be leased to families whose
                                   incomes exceed the very low-income limit; the HFA has enforced,
                                   and will continue to enforce, that policy.

                          b.       The project is financed under Section 11(b) of the Housing Act of
                                   1937 or under Section 103 of the Internal Revenue Code, and the
                                   very low-income limit would make it impossible for the owner to
                                   comply with financing documents. The bondholders or mortgage
                                   must have been enforcing, and must intend to continue enforcing,
                                   the income mix requirements of those documents.

                          c.       During development processing, a local government approved a
                                   project on the condition that some of the Section 8 units be leased
                                   to low-income families with incomes above the very low-income
                                   limit. The local government must have submitted this requirement
                                   in writing to HUD, and the owner must have been enforcing it since
                                   the date of initial occupancy.

                          d.       All or some of the units in the project were intended for a particular
                                   occupant group (e.g., persons with disabilities or elderly persons),
                                   and there are not enough very low-income applicants in that
                                   group.

                          e.       A project's current waiting list and the owner's marketing efforts
                                   will not provide enough very low-income applicants to fill current or
                                   imminent vacancies, and at least one of the following conditions
                                   exists:

(1)      A mortgage default is likely if HUD does not grant an
                                            exception because rental income and any Section 8
                                            vacancy payments do not cover the project’s essential
                                            operating costs and mortgage payments.

                                   (2)      Market studies and rental history show that the very low-
                                            income population is too small to provide enough
                                            applicants to sustain project occupancy.

                  4.      The existence of one of these situations does not entitle an owner to an
                          exception. HUD has no obligation to grant any exceptions.

                  5.      HUD will review exceptions granted to owners at regular intervals. HUD
                          may withdraw permission to exercise those exceptions for program
                          applicants any time that exceptions are not being used or after a periodic
                          review, based on the findings of the review.

         E.       Procedures for Requesting and Using Exceptions to the Very Low-Income
                  Limit in Post-1981 Section 8 Properties

                  1.      Owners of post-1981 properties must submit a written request for an
                          exception to the very low-income limit, with certification and
                          documentation as specified in Exhibit 3-1, to the HUD Field Office.

                          a.       The HUD Field Office makes the final decision on requests for
                                   exceptions.

                          b.       In cases where HUD is not the Contract Administrator, the
                                   Contract Administrator must gather and submit all documentation
                                   with its recommendation to the HUD Field Office. The HUD Field
                                   Office makes the final decision on requests for exceptions.

                          c.       If HUD determines that the criterion for any permitted exception
                                   has not been met, its letter to the owner will specify the reasons for
                                   its decision and advise the owner that an appeal may be
                                   considered if additional documentation is submitted to the HUD
                                   Multifamily HUB Director within 30 days. If the request is denied
                                   after submission of additional information, there are no further
                                   avenues of appeal.

                  2.      When using exceptions, owners must adhere to the following:

                          a.       Owners may not reuse individual tenant exceptions if the tenant for
                                   whom the exception was granted moves out or stops receiving
                                   Section 8 assistance.

                          b.       Owners may reuse project or unit exceptions, however, until the
                                   HUD Field Office recalls them, or the timeframe permitting
                                   exceptions expires.

F.       Exceptions to Section 8 Income Targeting Requirements

                  1.      As discussed in paragraph 4-5, owners with Section 8 units are required
                          to ensure that during a fiscal year at least 40% of the units that become
                          available, together with initial certifications of in-place tenants, serve
                          extremely low-income families. If an owner has actively marketed
                          available units to extremely low-income families and has been unable to
                          achieve the 40% target for admissions and initial certifications, the owner
                          is permitted to rent to other eligible families after a reasonable marketing
                          period has expired.

                  2.      The owner must maintain complete records of the marketing efforts
                          targeted to extremely low-income families, and must demonstrate that
                          reasonable efforts were made to fill available units with extremely low-
                          income families. The owner must also demonstrate that an ongoing effort
                          to meet the 40% requirement is being made.

                  3.      HUD and/or the Contract Administrator will monitor compliance with this
                          requirement.