12 U.S.C. § 1735f — Assistance for troubled multifamily housing projects

**(a) Purpose** The purposes of this section are to provide assistance to restore or maintain the financial soundness, to assist in the improvement of the management, to permit capital improvements to be made to maintain certain projects as decent, safe, and sanitary housing, and to maintain the low- to moderate-income character of certain projects assisted or approved for assistance under the National Housing Act [[12 U.S.C. 1701](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section1701&num=0&edition=prelim) et seq.], the United States Housing Act of 1937 [[42 U.S.C. 1437](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title42-section1437&num=0&edition=prelim) et seq.], the Housing Act of 1959, or the Housing and Urban Development Act of 1965, without regard to whether such projects are insured under the National Housing Act. **(b) Availability of financial assistance** The Secretary of Housing and Urban Development (hereinafter referred to in this section as the “Secretary”) may make available, and contract to make available, to such extent and in such amounts as may be approved in appropriation Acts, financial assistance to owners of rental or cooperative housing projects meeting the requirements of this section. Such assistance shall be made on an annual basis and in accordance with the provisions of this section, without regard to whether such projects are insured under the National Housing Act [[12 U.S.C. 1701](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section1701&num=0&edition=prelim) et seq.]. **(c) Eligibility for financial assistance** A rental or cooperative housing project is eligible for assistance under this section only if such project— (1) (A) is assisted under section 236 [[12 U.S.C. 1715z–1](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section1715z-1&num=0&edition=prelim)] or the proviso of section 221(d)(5) of the National Housing Act [[12 U.S.C. 1715](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section1715&num=0&edition=prelim)l(d)(5)], or under section 101 of the Housing and Urban Development Act of 1965 [[12 U.S.C. 1701s](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section1701s&num=0&edition=prelim)], or received a loan under section 202 of the Housing Act of 1959 [[12 U.S.C. 1701q](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section1701q&num=0&edition=prelim)] more than 15 years before the date on which assistance is made available under this section; (B) is assisted under section 23 of the United States Housing Act of 1937 [[42 U.S.C. 1421b](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title42-section1421b&num=0&edition=prelim)], as in effect immediately before January 1, 1975, section 8 of the United States Housing Act of 1937 [[42 U.S.C. 1437f](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title42-section1437f&num=0&edition=prelim)] following conversion to such assistance from assistance under section 236 of the National Housing Act [[12 U.S.C. 1715z–1](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section1715z-1&num=0&edition=prelim)] or section 101 of the Housing and Urban Development Act of 1965 [[12 U.S.C. 1701s](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section1701s&num=0&edition=prelim)]; or (C) met the criteria specified in subparagraph (A) of this paragraph before the acquisition of such project by the Secretary and has been sold by the Secretary, subject to a mortgage insured or held by the Secretary and subject to an agreement (in effect during the period of assistance under this section) which provides that the low- and moderate-income character of the project will be maintained; except that, with respect to projects sold after October 1, 1978, assistance shall be available for a period not to exceed three years; and (2) meets such other requirements consistent with the purposes of this section as the Secretary may prescribe. **(d) Criteria for granting financial assistance** No assistance may be made available under this section unless the Secretary has determined that— (1) such assistance, when considered with other resources available to the project, is necessary and, in the determination of the Secretary, will restore or maintain the financial or physical soundness of the project and maintain the low- and moderate-income character of the project, and the owner has agreed to maintain the low- and moderate-income character of such project for a period at least equal to the remaining term of the project mortgage; (2) the assistance which could reasonably be expected to be provided over the useful life of the project will be less costly to the Federal Government than other reasonable alternatives by which the Secretary could maintain the low- and moderate-income character of the project; (3) the owner of the project, together with the mortgagee in the case of a project not insured under the National Housing Act [[12 U.S.C. 1701](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section1701&num=0&edition=prelim) et seq.], has provided or has agreed to provide assistance to the project in such manner as the Secretary may determine; (4) the project is or can reasonably be made structurally sound, as determined on the basis of information obtained as a result of an onsite inspection of the project; (5) the management of the project is being conducted by persons who meet minimum levels of competency and experience prescribed by the Secretary; (6) the project is being operated and managed in accordance with a management-improvement-and-operating plan which is designed to reduce the operating costs of the project, which has been approved by the Secretary, and which includes the following: (A) a detailed maintenance schedule; (B) a schedule for correcting past deficiencies in maintenance, repairs, and replacements; (C) a plan to upgrade the project to meet cost-effective energy efficiency standards prescribed by the Secretary; (D) a plan to improve financial and management control systems; (E) a detailed annual operating budget taking into account such standards for operating costs in the area as may be determined by the Secretary; and (F) such other requirements as the Secretary may determine; except that the Secretary may excuse an owner from compliance with the plan requirement set forth in this paragraph in any case in which such owner seeks only assistance for capital improvements under this section; and except that the Secretary shall review and approve or disapprove each plan not later than the expiration of the 30-day period beginning upon the date of submission of the plan to the Secretary by the owner, but if the Secretary fails to inform the owner of approval or disapproval of the plan within such period the plan shall be considered to have been approved; (7) all reasonable attempts have been made to take all appropriate actions and provide suitable housing for project residents; (8) the project has a feasible plan to involve the residents in project decisions; (9) the affirmative fair housing marketing plan meets applicable requirements; and (10) the owner certifies that it will comply with various equal opportunity statutes. **(e) Consultation with local officials** Prior to making assistance available to a proj­ect, the Secretary shall consult with the appropriate officials of the unit of local government in which such project is located and seek assurances that— (1) the community in which the project is located is or will provide essential services to the project in keeping with the community’s general level of such services; (2) the real estate taxes on the project are or will be no greater than would be the case if the property were assessed in a manner consistent with normal property assessment procedures for the community; and (3) assistance to the project under this section would not be inconsistent with local plans and priorities. **(f) Amount of financial assistance** (1) The Secretary may, with respect to any year, provide assistance under this section, and make commitments to provide such assistance, with respect to any project (except a project assisted only for capital improvements) in any amount which the Secretary determines is consistent with the project’s management-improvement-and-operating plan described in subsection (d)(6) and which does not exceed the sum of— (A) an amount determined by the Secretary to be necessary to correct deficiencies in the project which exist at the beginning of the first year with respect to which assistance is made available for the project under this section, which were caused by the deferral of regularly scheduled maintenance and repairs or the failure to make necessary and timely replacements of equipment and other components of the project, and for which payment has not previously been made; (B) an amount determined by the Secretary to be necessary to maintain the low- and moderate-income character of the project by reducing deficiencies, which exist at the beginning of the first year with respect to which assistance is made available for the project under this section and for which payment has not previously been made, in the reserve funds established by the project owner for the purpose of replacing capital items; (C) an amount not greater than the amount by which the estimated operating expenses (as described in paragraph (2) of this subsection) for the year with respect to which such assistance is made available exceeds the estimated revenues to be received (as described in paragraph (2) of this subsection) by the proj­ect during such year; and (D) an amount determined by the Secretary to be necessary to carry out a plan to upgrade the project to meet cost-effective energy efficiency standards prescribed by the Secretary. (2) The estimated revenues for any project under paragraph (1)(C) of this subsection with respect to any year shall be equal to the sum of— (A) the estimated amount of rent which is to be expended by the tenants of such project during such year, as determined by the Secretary without regard to section 236(f)(1) of the National Housing Act [[12 U.S.C. 1715z–1(f)(1)](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section1715z–1/f/1&num=0&edition=prelim)]; (B) the estimated amount of rental assistance payments to be made on behalf of such tenants during such year, other than assistance made under this section; (C) the estimated amount of assistance payments to be made on behalf of the owner of such project under section 221(d)(5) or section 236 of the National Housing Act [[12 U.S.C. 1715](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section1715&num=0&edition=prelim)l(d)(5) or 1715z–1] during such year; and (D) other income attributable to the project as determined by the Secretary; except that— (E) in computing the estimated amount of rent to be expended by tenants, the Secretary shall provide that (i) at least 25 percent (or such lesser percentage as is provided for under any other Federal housing assistance program in which such tenant is participating) of the income of each such tenant is included, or (ii) in the case of a tenant paying his or her own utilities, a percentage of income which is less than 25 percent and which takes into account the reasonable costs of such utilities; except that no amount shall be provided for any tenant under clause (i) or (ii) which exceeds the fair market rental charge as determined pursuant to section 236(f)(1) of the National Housing Act [[12 U.S.C. 1715z–1(f)(1)](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section1715z–1/f/1&num=0&edition=prelim)] for such tenant; and (F) in computing the estimated amount of rent to be expended by tenants and the estimated amount of rental assistance payments to be made on behalf of such tenants, the Secretary may permit a delinquency-and-vacancy allowance of not more than 6 per centum of the estimated amount of such rent and payments computed without regard to such allowance; except that, with respect to the first three years in which assistance is provided to a project under this section, the Secretary may permit such allowance for such project to exceed such 6 percent by an amount which the Secretary determines is appropriate to carry out the purposes of this section. For purposes of computing estimated operating expenses of any such project with respect to any year, the Secretary shall include all estimated operating costs which the Secretary determines to be necessary and consistent with the management-improvement-and-operating plan for the project for such year, including, but not limited to, taxes, utilities, maintenance and repairs (except for maintenance and repairs which should have been performed in previous years), management, insurance, debt service, and payments made by the owner for the purpose of establishing or maintaining a reserve fund for replacement costs. The Secretary may not include in such estimated operating expenses any return on the equity investment of the owner in such project. (3) In order to carry out the purposes of this section, the Secretary may, notwithstanding the provisions of section 236(f)(1) of the National Housing Act [[12 U.S.C. 1715z–1(f)(1)](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section1715z–1/f/1&num=0&edition=prelim)], provide that, for purposes of establishing a rental charge under such section, there may be excluded from the computation of the cost of operating a project an amount equivalent to the amount of assistance payments made for the project under this section. (4) Any assistance payments made pursuant to this section with respect to any project shall be made on an annual basis, payable at such intervals, but at least quarterly, as the Secretary may determine, and may be in any amount (which the Secretary determines to be consistent with the purpose of this section), except that the sum of such assistance payments for any year for a project (other than a project receiving assistance only for capital improvements) may not exceed the amount computed pursuant to paragraph (1) of this subsection. The Secretary shall review the operations of the project at the time of such payments to determine that such operations are consistent with the management-improvement-and-operating plan. **(g) Rules and regulations** The Secretary is authorized to issue such rules and regulations as may be necessary to carry out the provisions and purposes of this section, including regulations requiring the establishment of a project reserve or such other safeguards as the Secretary determines to be necessary for the financial soundness of any project for which assistance payments are provided, to the extent applicable. **(h) Limitation on use of financial assistance** The Secretary may not use any of the assistance available under this section during any fiscal year beginning on or after October 1, 1981, to supplement any contract to make rental assistance payments which was made pursuant to section 101 of the Housing and Urban Development Act of 1965 [[12 U.S.C. 1701s](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section1701s&num=0&edition=prelim)]. **(i) Repealed. Pub. L. 103–233, title I, § 103(b)(1), Apr. 11, 1994, 108 Stat. 359** **(j) Flexible Subsidy Fund** (1) For purposes of carrying out the provisions of this section, there is hereby established in the Treasury of the United States a revolving fund, to be known as the Flexible Subsidy Fund. The Fund shall, to the extent approved in appropriation Acts, be available to the Secretary to provide assistance under this section (including assistance for capital improvements) and shall not (except as provided in Public Law 100–4–4 11 See References in Text note below. (102 Stat. 1018), as in effect on October 1, 1988) be available for any other purpose. (2) The Fund shall consist of (A) any amount appropriated to carry out the purposes of this section; (B) any amount repaid on any assistance provided under this section; (C) any amounts credited to the reserve fund described in section 236(g) of the National Housing Act [[12 U.S.C. 1715z–1(g)](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section1715z–1/g&num=0&edition=prelim)]; (D) any other amount received by the Secretary under this section (including any amount realized under paragraph (3)),22 So in original. The comma probably should be a semicolon. and (E) any amount received by the Secretary pursuant to section 537 of the National Housing Act [[12 U.S.C. 1735f–15](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section1735f-15&num=0&edition=prelim)] and section 202a of the Housing Act of 1959 [[12 U.S.C. 1701q–1](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section1701q-1&num=0&edition=prelim)]. (3) Any amounts in the Fund determined by the Secretary to be in excess of the amounts currently required to carry out the provisions of this section shall be invested by the Secretary in obligations of, or obligations guaranteed as to both principal and interest by, the United States or any agency of the United States. (4) The Secretary shall, to the extent of approvable applications and subject to paragraph (1), use not less than $30,000,000 or 40 percent (whichever is less) of the amounts available from the Fund in any fiscal year for purposes of providing assistance for capital improvements in accordance with this section. Any amount reserved under this paragraph for assistance for capital improvements that is not used before the last 60 days of a fiscal year shall become available for other assistance under this section. (5) There is authorized to be appropriated for assistance under the flexible subsidy fund not to exceed $52,200,000 for fiscal year 1993 and $54,392,400 for fiscal year 1994. **(k) Assistance for capital improvements; loans as medium of assistance; owner contributions; priority of projects** (1) Assistance for capital improvements under this section shall include assistance for any major repair or replacement of a capital item in a multifamily housing project, including any such repair or replacement required as a result of deferred or inadequate maintenance. Capital improvements do not include maintenance of any such item. Assistance for capital improvements under this section shall be in the form of a loan. (2) The owner of a project receiving assistance for capital improvements shall agree to contribute assistance to such project in such amounts, from such sources, and in such manner as the Secretary determines to be appropriate. (3) The Secretary may provide assistance for capital improvements under this section if the Secretary finds that the reserve funds established by the owner of a project for the purpose of making capital improvements are insufficient to finance both the capital improvements for which such assistance is to be used and other capital improvements that are reasonably expected to be required in the near future, and such insufficiency is not the result of the failure of such owner to comply with any standard established by the Secretary for management of such reserve funds. **(l) Amount of assistance for capital improvements; term of loan; rate of interest; allowance for administrative costs and probable program losses; nondischargeable liability; other forms for loans** (1) The principal amount of any assistance for capital improvements under this section that is provided to the owner of a project shall not exceed the difference between the contribution made by the owner in accordance with subsection (k)(2) and the sum of— (A) the amount determined by the Secretary to be necessary for such owner to make capital improvements with respect to capital items that have failed, or are likely to deteriorate seriously or fail in the near future, in such projects; (B) the amount determined by the Secretary to be necessary to carry out a plan to upgrade the capital items being improved, and any other capital items determined by the Secretary to be associated with such capital items being improved and to require upgrading, to meet cost-effective energy efficiency standards prescribed by the Secretary; and (C) the amount determined by the Secretary to be necessary to comply with the requirements of [section 794 of title 29](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title29-section794&num=0&edition=prelim). (2) (A) The term of any assistance for capital improvements in the form of a loan under this section shall not exceed the remaining term of the mortgage of the project with respect to which such loan is provided. (B) Each loan for capital improvements provided under this section shall bear interest at a rate determined by the Secretary to be appropriate, except that— (i) such rate shall not be more than 3 percentage points below a rate determined by the Secretary of the Treasury taking into consideration the average interest rate on all interest bearing obligations of the United States then forming a part of the public debt, computed at the end of the fiscal year next preceding date on which the loan is made, adjusted to the nearest 1/8 of 1 percent, plus an allowance adequate in the judgment of the Secretary of Housing and Urban Development to cover administrative costs and probable losses under the program; and (ii) such interest rate plus such allowance shall not exceed 6 percent per annum nor be less than 3 percent per annum. (C) Each loan for capital improvements provided under this section shall be considered to be a liability of the project involved, and shall not be dischargeable in any bankruptcy proceeding under section 727, 1141, or 1328(b) of title 11. (D) The Secretary may establish such additional conditions on loans provided under this section as the Secretary determines to be appropriate. The Secretary may require owners receiving assistance for capital improvements under this section to retain the housing 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 the housing. For purposes of this section, the term “remaining useful life” means, with respect to housing assisted under this section, 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. (E) The Secretary may provide more than one loan or assistance in any other form to any project under this section, if each loan or other assistance complies with the provisions of this section. **(m) Rental payment increases; minimization of increases** (1) Increases in rental payments that may occur as a result of the debt service and other expenses of a loan for capital improvements provided under this section for a project subject to a plan of action approved under subtitle B of the Emergency Low Income Housing Preservation Act of 1987 shall be governed by the rent agreements entered into under such subtitle. (2) In order to minimize any increases in rental payments that may occur as a result of the debt service and other expenses of a loan for capital improvements provided under this section for a project and that would be incurred by lower income residents of the project involved whose rental payments are, or would as a result of such expenses be, in excess of the amount allowable if section 3(a) of the United States Housing Act of 1937 [[42 U.S.C. 1437a(a)](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title42-section1437a/a&num=0&edition=prelim)] were applicable to such residents, or where appropriate to implement a plan of action under subtitle B of the Emergency Low Income Housing Preservation Act of 1987, the Secretary may take any or all of the following actions: (A) Provide assistance with respect to such project under section 8 of the United States Housing Act of 1937 [[42 U.S.C. 1437f](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title42-section1437f&num=0&edition=prelim)], to the extent amounts are available for such assistance and without regard to section 16 of such Act [[42 U.S.C. 1437n](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title42-section1437n&num=0&edition=prelim)]. (B) Notwithstanding subsection (l)(2)(B), reduce the rate of interest charged on such loan to a rate of not less than 1 percent. (C) Increase the term of such loan to a term that does not exceed the remaining term of the mortgage on such project. (D) Increase the amount of assistance to be provided by the owner of such project under subsection (k)(2), if applicable, to an amount not to exceed 30 percent of the total estimated cost of the capital improvements involved. (E) Permit repayment of the debt service to be deferred as long as the low and moderate income character of the project is maintained in accordance with subsection (d). **(n) Allocation of assistance** (1) **Set-aside** — In providing, and contracting to provide, assistance for capital improvements under this section, in each fiscal year the Secretary shall set aside an amount, as determined by the Secretary, for projects that are eligible for incentives under section 224(b) of the Emergency Low Income Housing Preservation Act of 1987, as such section existed before November 28, 1990. The Secretary may make such assistance available on a noncompetitive basis. (2) **General rules for allocation** — Except as provided in paragraph (3), with respect to assistance under this section not set aside for projects under paragraph (1), the Secretary— (A) may award assistance on a noncompetitive basis; and (B) shall award assistance to eligible projects on the basis of— (i) the extent to which the project is physically or financially troubled, as evidenced by the comprehensive needs assessment submitted in accordance with title IV of the Housing and Community Development Act of 1992; and (ii) the extent to which such assistance is necessary and reasonable to prevent the default of federally insured mortgages. (3) **Exceptions** — The Secretary may make exceptions to selection criteria set forth in paragraph (2)(B) to permit the provision of assistance to eligible projects based upon— (A) the extent to which such assistance is necessary to prevent the imminent foreclosure or default of a project whose owner has not submitted a comprehensive needs assessment pursuant to title IV of the Housing and Community Development Act of 1992; (B) the extent to which the project presents an imminent threat to the life, health, and safety of project residents; or (C) such other criteria as the Secretary may specify by regulation or by notice printed in the Federal Register. (4) **Considerations** — In providing assistance under this section, the Secretary shall take into consideration— (A) the extent to which there is evidence that there will be significant opportunities for residents (including a resident council or resident management corporation, as appropriate) to be involved in the management of the project (except that this paragraph shall have no application to projects that are owned as cooperatives); and (B) the extent to which there is evidence that the project owner has provided competent management and complied with all regulatory and administrative requirements. **(o) Coordination of assistance** The Secretary shall coordinate the allocation of assistance under this section with assistance made available under section 8(v) of the United States Housing Act of 1937 [[42 U.S.C. 1437f(v)](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title42-section1437f/v&num=0&edition=prelim)] and [section 1701z–11 of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section1701z-11&num=0&edition=prelim) to enhance the cost effectiveness of the Federal response to troubled multifamily housing. **(p) Enhanced voucher eligibility** Notwithstanding any other provision of law, any project that receives or has received assistance under this section and which is the subject of a transaction under which the project is preserved as affordable housing, as determined by the Secretary, shall be considered eligible low-income housing under section 229 of the Low-Income Housing Preservation and Resident Homeownership Act of 1990 ([12 U.S.C. 4119](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section4119&num=0&edition=prelim)) for purposes of eligibility of residents of such project for enhanced voucher assistance provided under section 8(t) of the United States Housing Act of 1937 ([42 U.S.C. 1437f(t)](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title42-section1437f/t&num=0&edition=prelim)) (pursuant to section 223(f) of the Low-Income Housing Preservation and Resident Homeownership Act of 1990 ([12 U.S.C. 4113(f)](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section4113/f&num=0&edition=prelim))).