HUD PIH Notice § 2012-03

        [pic]                                U.S. Department of Housing and
Urban Development
                                                   Public and Indian Housing
_________________________________________________________________________
Special Attention of:                                    Notice PIH 2012-3
(HA)
Office Directors of Public Housing;
Regional Directors; Public Housing                       Issued:   January
                                  27, 2012
Agencies
                                             This notice remains in effect
                                  until
                                             amended, revoked or superseded

                                             Cross References:
_________________________________________________________________________
Subject:  Housing Choice Voucher – Homeownership Option 10 Year Asset
Exclusion

1. Purpose

The purpose of this Notice is to remind Public Housing Agencies (PHA) of
the regulatory provision regarding how the value of a home purchased under
the Housing Choice Voucher (HCV) homeownership option (24 CFR 982 Subpart
M) is treated for the purpose of determining the family’s annual income.
The rule (24 CFR 5.603(b) Net Family Assets. (4)) exempts the home
purchased with voucher assistance from being counted as an asset for the
first 10 years after the closing date.  HUD issued the final rule on
September 12, 2000.  PHAs and industry professionals need to be aware that
the exemption terminates after a family’s 10th year of participation in the
program.  The Notice provides guidance on including the value of the home
in “net family assets” starting in the eleventh year following the purchase
of the home.  The Notice also establishes safe harbors that a PHA may rely
upon to determine the cash value of real estate purchased under the
homeownership option.

2. Applicability

This Notice applies to recipients of HCV homeownership assistance who have
reached the 10 year anniversary of their closing, as well as all PHAs that
provide homeownership assistance to the above participants.

3. Background

A component of calculating a family’s annual income requires the PHA to
determine net family assets.  Normally, the amount of equity in a home
would be counted in the calculation of net family assets and subject to 24
CFR 5.609(b)(3).  The regulation requires that annual income include either
the actual income derived from net family assets, or a percentage of the
value of such assets based on the current passbook savings rate.

As a result of the notice and comment period for the original proposed
homeownership rule (65 FR 55163), comments identified the fact that
immediate inclusion of the asset value of the newly purchased home could
become a serious detriment to the family’s success in the program if the
home value realized rapid appreciation.  In response to this, HUD revised
the definition of ‘‘net family assets’’ found in 24 CFR 5.603(b).  The
revised definition excluded the value of a home currently being purchased
with Section 8 homeownership assistance for the first 10 years after the
purchase date of the home.

4. Calculating Net Family Assets from Equity in Real Property

The method for calculating income from assets applies to income from all
net family assets, which for families in the eleventh year of their
participation in the homeownership option, will include income from equity
from the home they purchased with homeownership assistance.

Equity in Real Property

Equity in real property must be included in the total assets of a family.
Real Property includes land and real estate owned by the applicant or
participant household, but excludes personal property owned by an
individual, including equipment, furniture and fixtures.  Equity is the
estimated current market value of the asset less the unpaid balance on all
loans secured by the assets.

Calculate equity in real property as follows:
      Market Value - Loan (Mortgage) = Equity

Determining Market Value

Market value is the price a buyer would pay to a seller for a property in
its present condition.  A number of factors may affect a residential
property's market value, some examples of factors include, home condition,
lot size, size and number of rooms, construction quality, how quickly homes
in the area are selling, and location.
One way to determine the market value of a residential property is to use
the sales comparison approach. The comparison approach involves examining
recent sales of at least three properties in the surrounding (or similar)
neighborhood that possess comparable factors that affect market value.
Local assessors' offices should be able to provide lists of recent sales
that one can browse and compare.  Some municipalities and private companies
including some internet-based companies provide local sales information
online at little or no cost.  Many local newspapers often publish sales
reports in the real estate or business sections.  The PHA may conduct a
sales comparison, or the PHA may rely on an independent sales comparison to
assess market value.
As an alternative, in most jurisdictions, properties in cities, towns, or
villages must be assessed at market value for local tax purposes.  The
assessor will use appraisal techniques, such as the sales comparison, as
well as other approaches, to arrive at a property's estimated market value.
 This market value can be easily obtained by reviewing the local assessment
roll or the owner’s most recent property tax liability bill.  The PHA may
rely on value derived from the most recent tax assessor’s determination of
market value.
Any of these methods of determining market value are acceptable.  PHAs
should determine what method(s) they would use to determine market value
and include such information in their Administrative Plan.  It is important
that the PHA should use a consistent method for all units if practical.
Loan (Mortgage) Balance

The monthly mortgage statement of the participant will usually contain
information relative to the loan balance remaining on the mortgage.  The
statement may also include a payoff amount for the loan, which refers to
the amount of money, including any prepayment penalty, which it will take
to pay a loan off in full.  The payoff amount will differ from the loan
balance because the payoff amount often changes on a daily basis, depending
on how the interest is compounded.  The PHA should first try to use the
payoff amount for the loan, if that information is available.  However, if
the PHA only has loan balance information, the PHA may deduct that amount
from the market value.

Cash Value of the Asset

The PHA must also deduct from the equity the reasonable costs for
converting the asset to cash.

Calculate the net cash value of real property as follows:

      Equity - Expenses to Convert to Cash = Net Cash Value

or, incorporating the Equity formula from above:

      Market Value – Loan (Mortgage) - Expenses to Convert to Cash = Net
Cash Value

If the Net Cash Value is a negative number, the PHA should not make an
adjustment to net family assets for this asset.

Expense to convert to cash

Expenses to convert to cash may include costs such as sales commissions,
settlement costs, and transfer taxes.  Realtor expenses traditionally range
approximately 4 to 6 percent of the sales price.  Taxes, both transfer
taxes and property taxes, and any legal fees associated with the closing
and finalizing of homes sale range between approximately 2 to 4 percent of
the sales price.  Some mortgages may also contain a prepayment penalty,
which could be deducted from the proceeds of the sale of the home.
Obtaining actual costs is not possible since there is not an actual
transaction taking place.  Therefore, for purposes of calculating expenses
to convert to cash for real property the Department is establishing a safe
harbor of up to 10 percent of the market value of the home.  PHA’s should
have policies that address the methodology for determining the net cash
value of real property (and other assets) in their Administrative Plan,
including the PHA’s reliance on HUD’s safe harbor, if applicable.

5. Additional Information


For Further Information:  Contact Brian Gage, or Christopher Bailey, Office
of Housing Voucher Management and Operations Division, Room 4210,
Department of Housing and Urban Development, 451 7th Street, SW,
Washington, DC 20410, at (202) 708-0477.



                                                         /s/

                                        Sandra B. Henriquez, Assistant
Secretary                                            for Public and Indian
Housing