12 U.S.C. § 4103 — Appraisal and preservation value of eligi-

Page 1596 TITLE 12—BANKS AND BANKING § 4103 for any losses sustained by the Fund as a re- sult of any work-out or other arrangement agreed to by the Secretary and the owner with respect to the defaulted mortgage. The Secretary shall carry out this subsection in a manner consistent with the provisions of sec- tion 1701z–11 of this title. (Pub. L. 100–242, title II, § 212, as added Pub. L. 101–625, title VI, § 601(a), Nov. 28, 1990, 104 Stat. 4249.) § 4103. Appraisal and preservation value of eligi- ble low-income housing (a) Appraisal Upon receiving notice of intent regarding an eligible low-income housing project indicating an intent to extend the low-income affordability restrictions under section 4109 of this title or transfer the housing under section 4110 of this title, the Secretary shall provide for determina- tion of the preservation value of the housing, as follows: (1) Appraisers The preservation value shall be determined by 2 independent appraisers, one of whom shall be selected by the Secretary and one of whom shall be selected by the owner. The appraisals shall be conducted not later than 4 months after filing the notice of intent under section 4102 of this title, and the owner shall submit to the Secretary the appraisal made by the owner’s selected appraiser not later than 90 days after receipt of the notice under para- graph (2). If the 2 appraisers fail to agree on the preservation value, and the Secretary and the owner also fail to agree on the preserva- tion value, the Secretary and the owner shall jointly select and jointly compensate a third appraiser, whose appraisal shall be binding on the parties. (2) Notice Not later than 30 days after the filing of a notice of intent to seek incentives under sec- tion 4109 of this title or transfer the property under section 4110 of this title, the Secretary shall provide written notice to the owner fil- ing the notice of intent of— (A) the need for the owner to acquire an appraisal of the property under paragraph (1); (B) the rules and guidelines for such ap- praisals; (C) the filing deadline for submission of the appraisal under paragraph (1); (D) the need for an appraiser retained by the Secretary to inspect the housing and project financial records; and (E) any delegation to the appropriate State agency by the Secretary of respon- sibilities regarding the appraisal. (3) Timeliness The Secretary may approve a plan of action to receive incentives under section 4109 or 4110 of this title only based upon an appraisal con- ducted in accordance with this subsection that is not more than 30 months old. (b) Preservation value For purposes of this subchapter, the preserva- tion value of eligible low-income housing ap- praised under this section shall be— (1) for purposes of extending the low-income affordability restrictions and receiving incen- tives under section 4109 of this title, the fair market value of the property based on the highest and best use of the property as resi- dential rental housing; and (2) for purposes of transferring the property under section 4110 or 4111 of this title, the fair market value of the housing based on the highest and best use of the property. (c) Guidelines The Secretary shall provide written guidelines for appraisals of preservation value, which shall assume repayment of the existing federally as- sisted mortgage, termination of the existing low-income affordability restrictions, simulta- neous termination of any Federal rental assist- ance, and costs of compliance with any State or local laws of general applicability. The guide- lines may permit reliance upon assessments of rehabilitation needs and other conversion costs determined by an appropriate State agency, as determined by the Secretary. The guidelines shall instruct the appraiser to use the greater of actual project operating expenses at the time of the appraisal (based on the average of the actual project operating expenses during the preceding 3 years) or projected operating expenses after conversion in determining preservation value. The guidelines established by the Secretary shall not be inconsistent with customary ap- praisal standards. The guidelines shall also meet the following requirements: (1) Residential rental value In the case of preservation value determined under subsection (b)(1), the guidelines shall as- sume conversion of the housing to market- rate rental housing and shall establish meth- ods for (A) determining rehabilitation expendi- tures that would be necessary to bring the housing up to quality standards required to at- tract and sustain a market rate tenancy upon conversion, and (B) assessing other costs that the owner could reasonably be expected to incur if the owner converted the property to market-rate multifamily rental housing. (2) Highest and best use value In the case of preservation value determined under subsection (b)(2), the guidelines shall as- sume conversion of the housing to highest and best use for the property and shall establish methods for (A) determining any rehabilita- tion expenditures that would be necessary to convert the housing to such use, and (B) as- sessing other costs that the owner could rea- sonably be expected to incur if the owner con- verted the property to its highest and best use. (Pub. L. 100–242, title II, § 213, as added Pub. L. 101–625, title VI, § 601(a), Nov. 28, 1990, 104 Stat. 4250; amended Pub. L. 102–550, title III, § 302, Oct. 28, 1992, 106 Stat. 3763.) Page 1597 TITLE 12—BANKS AND BANKING § 4105 Editorial Notes AMENDMENTS 1992—Subsec. (c). Pub. L. 102–550 inserted ‘‘simulta- neous termination of any Federal rental assistance,’’ before ‘‘and costs’’ in first sentence. § 4104. Annual authorized return and preserva- tion rents (a) Annual authorized return Pursuant to an appraisal under section 4103 of this title, the Secretary shall determine the an- nual authorized return on the appraised housing, which shall be equal to 8 percent of the preser- vation equity (as such term is defined in section 4119(8) of this title). (b) Preservation rents The Secretary shall also determine the aggre- gate preservation rents under this subsection for each project appraised under section 4103 of this title. The aggregate preservation rents shall be used solely for the purposes of comparison with Federal cost limits under section 4105 of this title. Actual rents received by an owner (or a qualified purchaser) shall be determined pursu- ant to section 4109, 4110, or 4111 of this title. The aggregate preservation rents shall be estab- lished as follows: (1) Extension of affordability limits The aggregate preservation rent for purposes of receiving incentives pursuant to extension of the low-income affordability restrictions under section 4109 of this title shall be the gross potential income for the project, deter- mined by the Secretary, that would be re- quired to support the following costs: (A) The annual authorized return deter- mined under subsection (a). (B) Debt service on any rehabilitation loan for the housing. (C) Debt service on the federally-assisted mortgage for the housing. (D) Project operating expenses. (E) Adequate reserves. (2) Sale The aggregate preservation rent for purposes of receiving incentives pursuant to sale under section 4110 or 4111 of this title shall be the gross income for the project determined by the Secretary, that would be required to support the following costs: (A) Debt service on the loan for acquisi- tion of the housing. (B) Debt service on any rehabilitation loan for the housing. (C) Debt service on the federally-assisted mortgage for the housing. (D) Project operating expenses. (E) Adequate reserves. (c) Future financing Neither this section, nor any plan of action or use agreement implementing this section, shall restrict an owner from obtaining a new loan or refinancing an existing loan secured by the project, or from distributing the proceeds of such a loan; except that, in conjunction with such refinancing— (1) the owner shall provide for adequate re- habilitation pursuant to a capital needs as- sessment to ensure long-term sustainability of the property satisfactory to the lender or bond issuance agency; (2) any resulting budget-based rent increase shall include debt service on the new financ- ing, commercially reasonable debt service cov- erage, and replacement reserves as required by the lender; and (3) for tenants of dwelling units not covered by a project- or tenant-based rental subsidy, any rent increases resulting from the refi- nancing transaction may not exceed 10 percent per year, except that— (A) any tenant occupying a dwelling unit as of time of the refinancing may not be re- quired to pay for rent and utilities, for the duration of such tenancy, an amount that exceeds the greater of— (i) 30 percent of the tenant’s income; or (ii) the amount paid by the tenant for rent and utilities immediately before such refinancing; and (B) this paragraph shall not apply to any tenant who does not provide the owner with proof of income. Paragraph (3) may not be construed to limit any rent increases resulting from increased oper- ating costs for a project. (Pub. L. 100–242, title II, § 214, as added Pub. L. 101–625, title VI, § 601(a), Nov. 28, 1990, 104 Stat. 4251; amended Pub. L. 114–94, div. G, title LXXVII, § 77002, Dec. 4, 2015, 129 Stat. 1790.) Editorial Notes AMENDMENTS 2015—Subsec. (c). Pub. L. 114–94 added subsec. (c). Statutory Notes and Related Subsidiaries IMPLEMENTATION Pub. L. 114–94, div. G, title LXXVII, § 77003, Dec. 4, 2015, 129 Stat. 1791, provided that: ‘‘The Secretary of Housing and Urban Development shall issue any guid- ance that the Secretary considers necessary to carry out the provisions added by the amendments made by this title [amending this section and section 4112 of this title] not later than the expiration of the 120-day period beginning on the date of the enactment of this Act [Dec. 4, 2015].’’ § 4105. Federal cost limits and limitations on plans of action (a) Determination of relationship to Federal cost limits (1) Initial determination For each eligible low-income housing project appraised under section 4103(a) of this title, the Secretary shall determine whether the ag- gregate preservation rents for the project de- termined under paragraph (1) or (2) of section 4104(b) of this title exceed the amount deter- mined by multiplying 120 percent of the fair market rental (established under section 1437f(c) of title 42) for the market area in which the housing is located by the number of dwelling units in the project (according to ap- propriate unit sizes). (2) Relevant local markets If the aggregate preservation rents for a project exceeds the amount determined under