HUD Housing Notice § 2012-03

                          U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                                              WASHINGTON, DC 20410-8000


ASSISTANT SECRETARY FOR HOUSING-
FEDERAL HOUSING COMMISSIONER




Special Attention of

All Multifamily Hub Directors                                   Notice H 2012-3
All Multifamily Program Center Directors                        Issued: February 24, 2012
All Multifamily Operations Officers
All Directors of Project Management                             Expires: February 28, 2013
All Field Counsel
All Public Housing Directors
                                                                Cross References: PIH Notice 01-41
                                                                              Housing Notice 10-14



SUBJECT: Guidance on Eligibility for Tenant Protection Vouchers Following Certain
           Housing Conversion Actions


I. Purpose

The Office of Multifamily Housing oversees thousands of properties supported by a range of
insured and Direct Loans, including Section 236, Section 221(d)(3), Section 202, and Section
221(d)(4) mortgages. In addition, the Office of Multifamily Housing has oversight of rental
assistance provided under rental assistance contracts, including the project-based Section 8 Housing
Assistance Payments (HAP) Program, the Rent Supplement Payments Program (Rent Supplement)
and the Rental Assistance Program (RAP). Many properties are reaching the end of their original
mortgage term, and rental assistance contracts are also reaching expiration. Residents may be
eligible for Tenant Protection Vouchers (TPVs) in certain scenarios related to mortgage
prepayment, contract termination or expiration.

Many Owners, tenants, and other stakeholders seek updated information from HUD on the
applicability of TPVs for residents of HUD-assisted or HUD-insured properties following various
actions related to the mortgage or rental assistance contract. This Notice supplements the Office of
Public and Indian Housing (PIH) Notice 2001-41. It describes the features of TPVs and the
eligibility criteria for households to receive TPVs in different scenarios. The Notice implements
certain authorities set forth in the Department of Housing and Urban Development Appropriations
Act, Fiscal Year 2012 (―2012 Appropriations Act‖) (P.L. 112-55, 125 Stat. 552).1 Please note that,

 Th e relevan t section of th e 2012 Appr opr ia t ion s Act states: ―$75,000,000 sh all be for section 8 ren tal
1


assistan ce for r elocation an d r eplacem en t of h ou sin g un its th at are dem olish ed or disposed of pu rsu an t
to section 18 of th e Act, con ver sion of section 23 projects to assistan ce u n der section 8, th e fam ily
u n ification pr ogr am u n der section 8(x) of th e Act, relocation of witn esses in con n ection with efforts to
com bat crim e in pu blic an d assist ed h ou sin g pursu an t to a re qu est from a law en forcem en t or
prosecu tion agen cy, en h anced vou ch er s un der any provision of law au th orizing su ch assistan ce u n der
section 8(t) of th e Act, HOPE VI vou ch er s, m an datory an d volu n tary conversion s, an d ten an t protection
assistan ce in clu din g r eplacem en t an d r elocation assistan ce or for project -based assistan ce t o preven t th e

                                         www.hud.gov           espanol.hud.gov
by law, the provision of TPVs is subject to the availability of appropriations. While provision of
certain TPVs issued following a qualifying mortgage prepayment or Opt-Out are mandatory, subject
to the availability of appropriations, HUD also has discretionary authority to provide TPVs in other
circumstances, such as Rent Supplement or Rental Assistance Payment (RAP) contract terminations
and Section 202 Direct Loan prepayments. HUD reserves the right to prioritize provision of
discretionary vouchers in a particular fiscal year to protect tenants deemed most at risk of
displacement due to an eligibility event. This Notice does not implement the new language in the
2012 Appropriations Act which sets aside $10 million from the $75 million appropriation for
provision of TPVs to new categories of eligible households, including households impacted by
maturing mortgages.2 The provision related to the new TPVs to be issued under the $10 million set-
aside will be implemented through distinct guidance separate from this Notice.

II. Types of Tenant Protection Vouchers

TPVs provided in connection with Housing Conversion Actions consist of two types of housing
choice vouchers: Enhanced Vouchers (EVs) and Non-enhanced, or Regular Housing Choice
Vouchers (―regular vouchers‖). The specific triggering event determines which type of TPVs HUD
must offer. Enhanced Vouchers are provided in response to an ―eligibility event,‖ as defined in
section 8(t)(2) of the United States Housing Act of 1937 and discussed below. HUD makes regular
vouchers available in response to certain contract terminations or mortgage prepayments described
in this Notice, subject to the availability of funds.

Enhanced Vouchers and regular vouchers differ in several important aspects. A family that receives
an EV has the right to remain in a Multifamily housing project in which the family was residing on
the date of the eligibility event, as long as the housing is offered as rental housing and is otherwise
eligible for Housing Choice Voucher assistance (e.g., the rent is reasonable, the unit meets Housing
Quality Standards, etc.). If the family chooses to remain at the property, an ―enhanced‖ payment
standard applies if the gross rent for the unit exceeds the otherwise applicable payment standard

displacem en t of u n assisted elder ly ten an ts cu rren tly residin g in section 202 properties fin an ced between
1959 an d 1974 th at ar e r efin an ced pu r su an t to Pu blic Law 106 –569, as am en ded, or u n der th e au th ority
as provided un der th is Act: Pr ovided, Th at wh en a public h ou sin g developm en t is su bm itted for
dem olition or disposition u n der section 18 of th e Act, th e Secretary m ay provide section 8 ren tal
assistan ce wh en th e u n its pose an im m in en t h ealth an d safety risk to residen ts: Provided furth er, Th at
th e Secretary m ay on ly pr ovide r eplacem en t vou ch ers for u n its th at were occu pied with in th e previou s
24 m on th s th at cease t o be available as assisted h ou sin g, su bject on ly to th e avail ability of fun ds…‖
  Th e relevan t 2012 Appr opr ia t ion s Act lan gu age stat es: ―Provided fu rth er, Th at of th e am ou n ts m ade
2


available u n der th is par agraph , $10,000,000 m ay be available to provide ten an t protection assistan ce,
n ot oth erwise pr ovided u n der th is p ar agr aph , to residen ts residin g in low-vacan cy areas an d wh o m ay
h ave to pay r en ts gr eater th an 30 per cen t of h ou seh old in com e, as th e resu lt of (1) th e m atu rity of a
HUD-in sured, HUD h eld or section 202 loan th at requ ires th e perm ission of th e Secretary p rior to loan
prepaym en t; (2) th e expir ation of a r en tal assistan ce con tract for wh ich th e ten ants are n ot eligible for
en h an ced vou ch er or ten ant pr otection assistan ce u n der existin g law; or (3) th e expiration of
affordability r estr iction s accom pan ying a m ortgage or preservation program admin istered by th e
Secretary: Pr ovided fur th er , Th at su ch ten an t protection assistan ce m ade availa ble u n der th e previou s
proviso m ay be pr ovided un der th e au th ority of section 8(t) or section 8(o)(13) of th e Un ited States
Hou sin g Act of 1937 (42 U.S.C. H. R. 2112—127 1437f(t)): Provided fu rth er, Th at th e Secretary sh all
issu e gu idan ce to im plem en t th e pr eviou s provisos, inclu ding, bu t n ot lim ited to, requ irem en ts for
defin ing eligible at -r isk h ou seh olds with in 120 days of th e en actm en t of th is Act…‖
established by the Public Housing Authority (PHA) and the PHA determines that the rent charged
for the unit, although higher than the otherwise applicable PHA payment standard, is nevertheless
reasonable in comparison to rent for other comparable unassisted units. The initial rent
reasonableness determination is based on the current condition of the units at the time of the
eligibility event and is not based on future planned rehabilitation of the units.

In cases where a regular voucher is provided, the rent subsidy paid on behalf of the family to the
Owner is capped at the ―payment standard‖ established by the administering PHA for each bedroom
size, based on the Fair Market Rent published annually by HUD. The gross rent for regular
vouchers must also be reasonable, as determined by the PHA, in comparison with other comparable
unassisted units. A tenant may utilize a regular TPV to stay in the unit, or to move elsewhere – but
the tenant does not have the ―right to remain‖ in the unit, and the owner is not required to enter into
a voucher tenancy with the tenant. In all cases, tenants receiving regular TPVs must meet the
Housing Choice Voucher income and other eligibility criteria as described below.

III. Mortgage Prepayment Eligibility Events Under Section 8(t)

Many Owners of HUD properties are prepaying mortgages to refinance, lower interest rates and/or
complete repairs. Others are prepaying mortgages to sell properties and transfer them to a new
Owner. In some cases, the act of prepayment constitutes an ―eligibility event,‖ as defined in Section
8(t)(2) of the United States Housing Act of 1937. Under Section 8(t)(2), these various ―eligibility
events‖ make certain populations of tenants eligible for EVs.

When an Owner prepays an FHA-insured loan, EVs may be provided to tenants in units not covered
by rental assistance contracts under certain conditions. Hub/PC Directors are strongly encouraged
to contact Owners in their regions that meet the below criteria, and to advise Owners that EVs may
be provided to eligible tenants at mortgage prepayment, and that EVs are not provided to unassisted
residents if the mortgage matures. Enhanced Vouchers may be provided at mortgage prepayment if
one or more of the following conditions are met:

    1) If Section 229(1) of the Low-Income Housing Preservation and Resident Homeownership
       Act of 1990 (LIHPRHA) is satisfied – meaning that the mortgage is among those
       enumerated in Section 229(1)(A) and may be prepaid without prior HUD approval – then
       EVs must be offered to eligible tenants residing in units not covered by rental assistance
       contracts. In practice, this includes some, but not all, profit-motivated mortgagors.
       Nonprofit-owned properties generally require HUD permission to prepay the mortgage
       and, therefore, any prepayment by a nonprofit mortgagor does not meet the requirements
       of Section 229(1) of LIHPRHA and the unassisted residents at the property are not
       eligible to receive EV. To receive EVs, families must meet the eligibility criteria in
       Section 223(f) of LIHPRHA.3

    2) If the mortgage prepayment is on a property that also has or has had a Flexible Subsidy
       note, HUD may provide EVs to project tenants not currently receiving rental assistance,

3
 Fam ilies are eligible for E V assistan ce u n der th is provision of LIHPRHA if th e fam ily is a low -in com e
fam ily, or is a m oder ate-in com e fam ily th at is: an elderly fam ily, a disabled fam ily, or residin g in a low -
vacan cy area. Fam ilies m u st be r esidin g in th e eligible project on th e date of th e prepaym en t of th e
m ortgage.
       if the project is the subject of a transaction under which the project is preserved as
       affordable housing. The Office of Multifamily Housing, HUD Headquarters, determines
       on a case-by-case basis if the proposed transaction triggers EVs. To be eligible to receive
       EVs, tenants must meet the eligibility requirements of 223(f) of LIHPRHA.

Owners must comply with prepayment notification requirements that require the Owner to notify
residents of the intent to prepay the mortgage at least 150 days prior to the mortgage prepayment.
However, the Department understands that an Owner may decide to prepay the mortgage in the
final year prior to the mortgage maturity, in part out of a desire to protect tenants through the
provision of EVs. In such a case, the 150-day tenant notification may not be a possibility. The
Owner may instead execute and record a Use Agreement that will require the property to continue
to operate as affordable housing at the same affordability level until the date the mortgage would
have matured.

Those properties that received preservation assistance under the Emergency Low-Income Housing
Preservation Act (ELIHPA) may have mortgages in place that meet the criteria under Section
229(1) of LIHPRHA. However, for these properties, the mortgage prepayment does not result in a
termination of the underlying affordability Use Agreement. HUD may provide EVs to eligible
residents not currently assisted by a rental assistance contract at prepayment of a qualifying
mortgage of an ELIHPA property. HUD does not have authority to provide EVs to residents at the
time of expiration of the Use Agreement if such expiration occurs after the mortgage prepayment.

The chart below provides an overview of eligibility for EVs at mortgage prepayment.

Ownership       No Flexible Subsidy Loan on          Flexible Subsidy Loan on Property
                Property
Profit-         EVs provided to eligible tenants     EVs provided to eligible tenants residing in units not
Motivated       residing in units not covered by a   covered by a rental assistance contract under two
                rental assistance contract if the    possible scenarios:
                prepayment meets the                     1) The prepayment meets the requirements
                requirements of Section 229(1)                 of Section 229(1) of LIHPRHA; or
                of LIHPRHA.                              2) A qualifying Flexible Subsidy transaction
                                                               at the property under Section 201(p) of
                                                               the Housing and Community
                                                               Development Amendments of 1978.
Nonprofit       EVs not provided because the         EVs provided to eligible tenants residing in units not
                prepayment does not meet the         covered by a rental assistance contract if a
                requirements of Section 229(1)       qualifying Flexible Subsidy transaction at the
                of LIHPRHA.                          property meets criteria under Section 201(p) of the
                                                     Housing and Community Development
                                                     Amendments of 1978.



IV. Provision of Vouchers to Residents of Section 8, Rent Supplement or RAP Units

In certain cases, HUD may provide TPVs, either EVs or regular vouchers, to residents of housing
supported by project-based rental assistance contracts including Section 8 HAP contracts, Rent
Supplement and RAP contracts.
A. Enhanced Vouchers

   1. Section 8 HAP Contract Terminations due to Opt-Out

      HUD provides EVs to residents of units covered by a Section 8 HAP contract when that
      contract terminates due to an Owner Opt-Out of the contract. Tenants must meet eligibility
      criteria set forth in Section 524(d) of the Multifamily Assisted Housing Reform and
      Affordability Act (MAHRA).

   2. Rent Supplement and RAP Contract Terminations due to expiration or prepayment

      In certain cases, HUD also provides EVs to residents of units covered by Rent Supplement
      and RAP contracts:

       a) EVs are provided to eligible low-income Rent Supplement residents if a project is
          subject to both a Section 8 HAP contract and a Rent Supplement contract, and both
          contracts expire on the same day.

       b) In limited circumstances, EVs are provided to eligible tenants in RAP units when the
          property’s mortgage is prepaid, provided that the note allows prepayment without prior
          HUD approval and satisfies Section 229(1)(A) of LIHPRHA. To receive EVs, families
          must meet the eligibility criteria in Section 223(f) of LIHPRHA.

B. Regular Vouchers

Pursuant to the 2012 Appropriations Act, HUD also has authority, subject to appropriations, to
provide regular vouchers to eligible families when a Rent Supplement or RAP contract terminates
due to expiration, prepayment of the underlying mortgage, or enforcement action; and therefore, the
Rent Supplement or RAP contract units at the property cease to be available as assisted housing.
HUD provides TPVs to the administering PHA for all units on the original Rent Supplement or
RAP contract that were occupied within 24 months of the contract termination.

To receive regular voucher assistance as the result of the Rent Supplement or RAP contract
termination, tenants must be low-income families. The provision of these regular vouchers is
subject to the availability of appropriations.
The chart below summarizes the provision of TPVs to Section 8, Rent Supplement and RAP units
when contracts terminate.



         Form of Rental     Eligible for Enhanced   Eligible for           Eligible for       Eligible for
         Assistance         Vouchers when           Enhanced               Regular Vouchers   Regular Vouchers
                            contract terminates     Vouchers when          when contract      when contract
                            upon mortgage           contract expires?      terminates at      expires?
                            prepayment?                                    mortgage
                                                                           prepayment?

         Rent               No4                     No, except where       Yes                Yes
         Supplement                                 there is a Section 8
         contract units                             HAP contract
                                                    expiring the same
                                                    day
         RAP contract       Yes, if the mortgage    No                     Yes5               Yes
         units             prepayment constitutes
                           an ―eligibility event‖
                           under Section 8(t)
         Section 8 units    No6                     Yes (this is           No7                Yes, if the contract
                                                    considered an                             terminates due to
                                                    Owner Opt-Out)                            certain enforcement
                                                                                              actions




The Multifamily Hub/PC must work closely with the Owner of a Rent Supplement or RAP assisted
property prior to expiration of the contract to ensure that the tenants are notified of the impending
contract expiration, and that the TPVs are requested following the process detailed in PIH Notice
01-41 with sufficient time for tenants to receive them prior to the contract expiration date. Tenants
should be notified in writing at least 60 days prior to the contract expiration to provide sufficient
time to secure other housing if a move is necessary. All notifications should be sent in a manner
that is effective for persons with hearing, visual, and other communications-related disabilities and
appropriate translations should be provided to Limited English Proficient (LEP) individuals.

V. Provision of Regular Vouchers to Residents of Certain Section 202 Direct Loan
   Properties

The 2012 Appropriations Act also authorizes HUD to provide TPVs to prevent the displacement of
unassisted elderly tenants currently residing in section 202 properties financed between 1959 and

4
  Wh en a Ren t Su pplem en t n ote is pr epaid, ten an ts are n ot eligible to r eceive EVs. Th e u n derlying
m ortgages for Ren t Su pplem en t pr oper ties do n ot satisfy Section 229(1)(B) of LIHPRHA – all n otes
lin ked to Ren t Su pplem en t con tr acts r equ ire prior HUD approval for th e m ortgagor to prepay th e
m ortgage.
  Note: if a RAP con tr act ter m in ates du e to prepaym ent an d th e prepaym en t con stitu tes an ―eligibility
5


even t‖ u n der Section 8(t), residen ts of th e RAP con tra ct u n its will receive EVs rath er th an regu lar
vou ch ers.
6
  Th e prepaym en t of an FHA-in su r ed m ortgage does n ot trigger th e term in ation of a Section 8 HAP
con tract. Sin ce th e con tr act is n ot ter m in ated, TPVs a re n ot is su ed.
7
  Th e prepaym en t of an FHA-in su r ed m ortgage does n ot trigger th e term in ation of a Section 8 HAP
con tract. Sin ce th e con tr act is n ot ter m in ated, TPVs a re n ot issu ed.
1974 that are refinanced under Section 811 of the American Homeownership Economic
Opportunity Act of 2000, as amended. If the mortgage prepayment is a qualifying Section 202
mortgage prepayment, then residents of the Section 202 project being refinanced that are not
currently receiving rental assistance may be eligible to receive regular vouchers at the time of the
mortgage prepayment. The provision of regular vouchers is discretionary and is subject to the
availability of appropriations. Qualifying prepayments include the approved prepayment of a
Section 202 mortgage with an interest rate of 6 percent or below, for a property built between 1959
and 1974, where the prepayment involves substantial rehabilitation and where HUD determines that
unassisted elderly residents would face rent increases absent the TPV assistance. HUD prepayment
approval is required in these cases.8 Guidance for review and approval of these Section 202 Direct
Loan prepayments is provided in Housing Notice 10-14 and may be updated through subsequent
Notice.


VI. Procedural Requirements

This Notice does not alter the required process for requesting and administering TPVs. In the case
that TPVs are authorized following a prepayment or contract Opt-out, expiration or other
termination, the Hub/PC Director will work with the HUD Office of Public Housing Director to
request tenant protection funding. This process is currently described in detail in PIH Notice 01-41.

If you have questions, please contact your Desk Officer in Headquarters, Office of Asset
Management.




                                                     ________________________________
                                                     Carol J. Galante
                                                     Acting Assistant Secretary for Housing –
                                                       Federal Housing Commissioner




8
  Please n ote: su bject to th e availability of appropriation s, HUD m ay provide Sen ior Preservation Ren tal
Assistan ce Con tr acts (SPRACs) to th ese u n assisted Section 202 h ou seh olds, rat h er th an regu lar
vou ch ers. SPRACs ar e au th or ized by th e Su pportive Hou sin g for th e Elderly Act of 2010. HUD will
issu e separat e gu idan ce r elated to th e pr ovision of su ch con tracts.