HUD’s Office of Multifamily Housing Programs posted a memorandum on September 18 providing guidance on combining Section 8 Housing Assistance Payments (HAP) contracts. When an owner and HUD agree that HAP contracts may be combined, the assisted units and budget authority will be rolled into a surviving contract that will be renewed for a 20-year term. The memorandum suggests that combining contracts has the potential benefit of lowering administration costs, reducing the number of Management and Occupancy Reviews, and sharing reserves in order to better capitalize a property.
The memorandum details 15 conditions necessary in order to combine contracts. For example, if HAP contracts have differing income eligibility requirements or use agreements, HUD will not approve combining them unless the owner agrees to abide by the most restrictive contract and use agreement provisions.
If two contracts have differing income eligibility requirements, the existing waiting lists for each project will remain in place and tenants on those waiting lists will continue to be selected according to the existing priorities until the existing waiting lists have been exhausted. On the effective date of the new combined contract, any new applicants must meet the more restrictive income limits and be placed on a new waiting list. Applicants from the new list will not be selected for admission until the previous waiting lists have been exhausted.
Another provision requires an owner to agree to the terms of the “Preservation Exhibit,” which provides for the automatic renewal of the contract at the end of the 20-year renewal term for the number of years remaining on the latest expiring contract at the time of its termination. As an example, the memorandum states that if Project X’s contract will expire in December 2018 and Project Y’s contract will expire in November 2020, in order to combine the contracts, the owner must agree to extend the newly renewed combined contract by the remaining term of Project Y’s contract.
The most recent Real Estate Assessment Center (REAC) inspection score must be 60 or greater, or there must be a HUD-approved plan in place to correct deficiencies. A new REAC inspection is required if the most recent REAC score is more than three years old. The memorandum also presents requirements pertaining to Management and Occupancy Reviews (MOR) that have various ratings. For example, if the property is rated troubled and the MOR is more than 12 months old, at least a limited MOR must be completed and the property must score “Satisfactory” or above prior to approval.
The memorandum is at http://portal.hud.gov/hudportal/documents/huddoc?id=Sec8_Housing_Assis_Pay_Cnt.pdf