12 U.S.C. § 4112 — Criteria for approval of plan of action involving incentives

**(a) In general** The Secretary may approve a plan of action for extension of the low-income affordability restrictions on any eligible low-income housing or transfer the housing to a qualified purchaser (other than a resident council) only upon finding that— (1) due diligence has been given to ensuring that the package of incentives is, for the Federal Government, the least costly alternative that is consistent with the full achievement of the purposes of this title; 11 See References in Text note below. (2) binding commitments have been made to ensure that— (A) the housing will be retained as housing affordable for very low-income families or persons, low-income families or persons, and moderate-income families or persons for the remaining useful life of such housing (as determined under subsection (c)); (B) throughout such period, adequate expenditures will be made for maintenance and operation of the housing and that the project meets housing standards established by the Secretary under subsection (d), as determined by inspections conducted under such subsection by the Secretary; (C) current tenants will not be involuntarily displaced (except for good cause); (D) any increase in rent contributions for current tenants will be to a level that does not exceed 30 percent of the adjusted income of the tenant or the published existing fair market rent for comparable housing established under [section 1437f(c) of title 42](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title42-section1437f/c&num=0&edition=prelim), whichever is lower, except that the rent contributions of any tenants occupying the housing at the time of any increase may not be reduced by reason of this subparagraph (except with respect to tenants receiving section 8 [[42 U.S.C. 1437f](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title42-section1437f&num=0&edition=prelim)] assistance in accordance with subparagraph (E)(ii) of this paragraph); (E) (i) any resulting increase in rents for current tenants (except for increases made necessary by increased operating costs)— (I) shall be phased in equally over a period of not less than 3 years, if such increase is 30 percent or more; and (II) shall be limited to not more than 10 percent per year if such increase is more than 10 percent but less than 30 percent; and (ii) assistance under [section 1437f of title 42](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title42-section1437f&num=0&edition=prelim) shall be provided, to the extent available under appropriation Acts, if necessary to mitigate any adverse effect on current income-eligible very low- and low-income tenants; and 22 So in original. The word “and” probably should not appear. (F) (i) rents for units becoming available to new tenants shall be at levels approved by the Secretary that will ensure, to the extent practicable, that the units will be available and affordable to the same proportions of very low-income families or persons, low-income families or persons, and moderate-income families or persons (including families or persons whose incomes are 95 percent or more of area median income) as resided in the housing as of January 1, 1987 (based on the area median income limits established by the Secretary in February 1987), or the date the plan of action is approved, whichever date results in the highest proportion of very low-income families, except that this limitation shall not prohibit a higher proportion of very low-income families from occupying the housing; and (ii) in approving rents under this paragraph, the Secretary shall take into account any additional incentives provided under this subchapter; (G) future rent adjustments shall be— (i) made by applying an annual factor (to be determined by the Secretary) to the portion of rent attributable to operating expenses for the housing and, where the owner is a priority purchaser, to the portion of rent attributable to project oversight costs; and (ii) subject to a procedure, established by the Secretary, for owners to apply for rent increases not adequately compensated by annual adjustment under clause (i), under which the Secretary may increase rents in excess of the amount determined under clause (i) only if the Secretary determines such increases are necessary to reflect extraordinary necessary expenses of owning and maintaining the housing; and (H) any savings from reductions in operating expenses due to management efficiencies shall be deposited in project reserves for replacement and the owner shall have periodic access to such reserves, to the extent the Secretary determines that the level of reserves is adequate and that the housing is maintained in accordance with the standards established under subsection (d); and (3) no incentives under [section 4109 of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section4109&num=0&edition=prelim) (other than to purchasers under [section 4110 of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section4110&num=0&edition=prelim)) may be provided until the Secretary determines the project meets housing standards under subsection (d), except that incentives under such section and other incentives designed to correct deficiencies in the project may be provided. **(b) Implementation** Any agreement to maintain the low-income affordability restrictions for the remaining useful life of the housing may be made through execution of a new regulatory agreement, modifications to the existing regulatory agreement or mortgage, or, in the case of the prepayment of a mortgage or voluntary termination of mortgage insurance, a recorded instrument. **(c) Determination of remaining useful life** (1) **“Remaining useful life” defined** — For purposes of this title,1 the term “remaining useful life” means, with respect to eligible low-income housing, the period during which the physical characteristics of the housing remain in a condition suitable for occupancy, assuming normal maintenance and repairs are made and major systems and capital components are replaced as becomes necessary. (2) **Standards** — The Secretary shall, by rule under [section 553 of title 5](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title5-section553&num=0&edition=prelim), establish standards for determining when the useful life of an eligible low-income housing project has expired. The determination shall be made on the record after opportunity for a hearing. (3) **Owner petition** — The Secretary shall establish a procedure under which owners of eligible low-income housing may petition the Secretary for a determination that the useful life of such housing has expired. The procedure shall not permit such a petition before the expiration of the 50-year period beginning upon the approval of a plan of action under this subchapter with respect to such housing. In making a determination pursuant to a petition under this paragraph, the Secretary shall presume that the useful life of the housing has not expired, and the owner shall have the burden of proof in establishing such expiration. The Secretary may not determine that the useful life of any housing has expired if such determination results primarily from failure to make regular and reasonable repairs and replacement, as became necessary. (4) **Tenant and community comment and appeal** — In making a determination regarding the useful life of any housing pursuant to a petition submitted under paragraph (3), the Secretary shall provide for comment by tenants of the housing and interested persons and organizations with respect to the petition. The Secretary shall also provide the tenants and interested persons and organizations with an opportunity to appeal a determination under this subsection. **(d) Housing standards** (1) **Establishment and inspection** — The Secretary shall, by regulation, establish standards regarding the physical condition in which any eligible low income housing project receiving incentives under this subchapter shall be maintained. The Secretary shall inspect each such project not less than annually to ensure that the project is in compliance with such standards. (2) **Sanctions** (A) *In general* — The Secretary shall take any action appropriate to require the owner of any housing not in compliance with such standards to bring such housing into compliance with the standards, including— (i) directing the mortgagee, with respect to an equity take-out loan under section 1715z–6(f) 1 of this title, to withhold the disbursement to the owner of any escrowed loan proceeds and requiring that such proceeds be used for repair of the housing; and (ii) reduce the amount of the annual authorized return, as determined by the Secretary, for the period ending upon a determination by the Secretary that the project is in compliance with the standards and requiring that such amounts be used for repair. (B) *Continued compliance* — To ensure continued compliance with the standards for a project subject to any action under subparagraph (A), the Secretary may also limit access of the owner to such amounts and use of such amounts for not more than the 2-year period beginning upon the determination that the project is in compliance with the standards. (C) *Removal of assistance* — If, upon inspection, the Secretary determines that any eligible low income housing project has failed to comply with the standards established under this subsection for 2 consecutive years, the Secretary may take 1 or more of the following actions: (i) Subject to availability of amounts provided in appropriations Acts, provide assistance under sections 1437f(b) and 1437f(o) of title 42 (other than project-based assistance attached to the housing) for any tenant eligible for such assistance who desires to terminate occupancy in the housing. For each unit in the housing vacated pursuant to the provision of assistance under this clause, the Secretary may, notwithstanding any other law or contract for assistance, cancel the provision of project-based assistance attached to the housing for 1 dwelling unit, if the housing is receiving such assistance. (ii) In the case of housing for which an equity take-out loan has been made under section 1715z–6(f) 1 of this title, declare such loan to be in default and accelerate the maturity date of the loan. (iii) Declare any rehabilitation loan insured or provided by the Secretary (with respect to the housing) to be in default and accelerate the maturity date of the loan. (iv) Suspend payments under or terminate any contract for project-based rental assistance under [section 1437f of title 42](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title42-section1437f&num=0&edition=prelim). (v) Take any other action authorized by law or the project regulatory agreement to ensure that the housing will be brought into compliance with the standards established under this subsection. **(e) Distribution and residual receipts** (1) **Authority** — After December 4, 2015, the owner of a property subject to a plan of action or use agreement pursuant to this section shall be entitled to distribute— (A) annually, all surplus cash generated by the property, but only if the owner is in material compliance with such use agreement including compliance with prevailing physical condition standards established by the Secretary; and (B) notwithstanding any conflicting provision in such use agreement, any funds accumulated in a residual receipts account, but only if the owner is in material compliance with such use agreement and has completed, or set aside sufficient funds for completion of, any capital repairs identified by the most recent third party capital needs assessment. (2) **Operation of property** — An owner that distributes any amounts pursuant to paragraph (1) shall— (A) continue to operate the property in accordance with the affordability provisions of the use agreement for the property for the remaining useful life of the property; (B) as required by the plan of action for the property, continue to renew or extend any project-based rental assistance contract for a term of not less than 20 years; and (C) if the owner has an existing multi-year project-based rental assistance contract for less than 20 years, have the option to extend the contract to a 20-year term.