HUD Clarifies Sale Proceeds Issue for FHA-Insured Properties

In November, HUD issued a policy notice designed to encourage long-term preservation of properties with upcoming maturity dates on FHA-insured mortgages, primarily, but not exclusively, Section 236 or Section 221(d)(3). Marking a change from previous limitations, nonprofit owners of such properties can now retain sale proceeds if meeting certain conditions, such as requiring the buyer to agree to use restrictions that extend the property’s affordability for at least 20 years beyond the original mortgage maturity date. Especially in situations where the current nonprofit owner does not desire to remain the owner or cannot attract the capital needed for adequate improvements to the property, HUD believes the incentive of being able to sell at a market price will steer more sales toward preservation-focused purchasers. If the property reaches mortgage maturity, residents not living in units with some form of rental assistance would be subject to large rent increases or eviction (save the recent FY12 HUD appropriations provision allowing for a limited number of tenant protection vouchers nationally for residents in such situations).

Other stipulations contained in the notice are the execution of 20-year renewals of any project-based Section 8 rental assistance contracts for the property; the possibility of rent increases using Mark-up-to-Budget for nonprofit buyers and Mark-up-to-Market for for-profit buyers; a cap of 10% on increases to rent on units without project-based Section 8; commissioning of a Capital Needs Assessment and a timetable for addressing the property’s physical needs; and a buyer with affordable housing experience and the capacity maintain the property throughout the extended affordability period. Click here for more information.

— Posted on 12/08/2011