CPD Notice 03-05



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U.S. Department of Housing and Urban Development

Community Planning and Development

______________________________________________________________________________________________________________________

Special Attention of:

Notice: CPD 03-05

All Secretary's Representatives Issued: March 11, 2003

All State/Area Coordinators Expires: March 11, 2004

CPD Division Directors __________

All HOME Coordinators Cross References: Supersedes CPD 94-17

All HOME Participating Jurisdictions

______________________________________________________________________________________________________________________

Subject: Field Office Guidance on Manufactured Housing under the HOME Program.

TABLE OF CONTENTS

I. PURPOSE 2

II. GENERAL HOME REQUIREMENTS…………………………………………………..2

III. BACKGROUND AND GENERAL DISCUSSION OF ELIGIBLE ACTIVITIES 2

IV. REAL VS. PERSONAL PROPERTY 3

V. PERMANENT FOUNDATIONS 4

VI. UTILITY HOOK-UPS 4

VII. PROPERTY STANDARDS………………………………………………………………5

VIII. APPLICABILITY OF THE UNIFORM RELOCATION ACT 5

IX. ELIGIBLE HOME ACTIVITY SCENARIOS

Existing Homeowner Scenarios 7

Low-Income Homebuyer Scenario 9

Rental Housing Scenario 12

Pad-Only Rental Projects 13

X. PROJECT IDENTIFICATION 15

I. PURPOSE…………………………………………………………………….. 2

II. GENERAL HOME REQUIREMENTS………………………………………. 2

III. BACKGROUND AND ELIGIBLE ACTIVITIES……………………………. 4

IV. UTILITY HOOK-UPS AND THE HOMESITE………………………………. 5

V. PERMANENT FOUNDATIONS……………………………………………… 6

VI. PROPERTY STANDARDS…………………………………………………… 6

VII. REAL VS. PERSONAL PROPERTY…………………………………………. 7

VIII. APPLICABILITY OF THE UNIFORM RELOCATION ACT……………….. 7

IX. PROJECT IDENTIFICATION………………………………………………… 8

X. ELIGIBLE HOME ACTIVITY SCENARIOS………………………………… 9

Homeownership……………………………………………………….. 9

Rental Housing………………………………………………………… 12

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CGHPO: Distribution: W-3-1

Previous Editions Are Obsolete HUD 21B (3-80)

I. PURPOSE:

This Nnotice is a comprehensive revision of the last notice on this subject, directive CPD-94-17, and includesreflects regulatory changes made made by to the HOME Final Rule published on September 16, 1996 regulations since 1996. It

This notice was developed to assist HOME Participating Jurisdictions (PJs) to identify eligible activities involving manufactured housing. WhileAlthough the notice makes a distinction distinguishes between a manufactured home and a modular home, it will only addresses the use of HOME funds for manufactured housing.

II. GENERAL HOME REQUIREMENTS:

Manufactured housing is subject to all HOME program requirements that apply to otherHOME-assisted housing. All HOME funds must be used for housing or tenant-based rental assistance for low-income families [1](i.e., families whose income does not exceed 80 percent of the area median income, as determined by HUD). HOME-assisted housing units are also subject to rent, resale and long-term affordability restrictionsrequirements in §92.252 (affordable rental housing) or §92.254 (affordable homeownership housing). For rental housing, the rents are restricted and the housing must be rented to low-income and very low-income families for a period of five to fifteen years, depending on the amount of HOME assistance provided to the housing.

HOME Rents: Every HOME-assisted rental unit is subject to rent restrictions designed to ensure that rents are affordable to low-income families. HOME rents for all jurisdictions are determined by HUD and may be obtained from the Community Planning and Development (CPD) Division in each HUD Field Office, or online at: offices/cpd/affordablehousing/programs/home/limits/rent/index.cfm.

The maximum HOME rents calculated by HUD include utility costs. If tenants will pay utility bills, the maximum rent must be adjusted by the amount of the PJ-determined utility allowance.

There are two HOME rents for projects with 5 or more HOME-assisted units: high HOME rents and low HOME rents. For projects with 4 or fewer HOME-assisted units, only the high HOME rent limits are applicable.

High HOME Rents are the lesser of the Fair Market Rent (FMR) for existing housing for comparable units in the area as established by HUD under 24 CFR 888.111; or

A rent that does not exceed 30 percent of the adjusted income of a family whose annual income equals 65 percent of the area median income, as determined by HUD, with adjustments for number of bedrooms in the unit.

Low HOME Rents are established at §92.252(b) for projects containing five or more HOME-assisted units. At least 20 percent of the HOME-assisted units in the project must be occupied by very low-income families (i.e., families whose income does not exceed 50 percent of area median income) and meet one of the following rent limitations:

(a) The rent does not exceed 30 percent of the annual income of a family whose income equals 50 percent of the area median income, as determined by HUD, with adjustments for smaller and larger families; or

(b) The rent does not exceed 30 percent of the family’s adjusted income. If the unit receives Federal or State project-based rental subsidy, and the very-low income family pays as a contribution toward rent not more than 30 percent of the family’s adjusted income, then the maximum rent (i.e., tenant contribution plus project-based rental subsidy) is the rent allowable under the Federal or State project-based rental subsidy.

In addition, §92.253 provides tenant and participant protections. The term of the lease must be for not less than one year, unless by mutual agreement by the tenant and owner. The lease cannot include any of the terms prohibited under §92.253(b) and the tenancy may only be terminated in accordance with §92.253(c). The owner must have written tenant selection criteria that meet the criteria in §92.253(d).

For homeownership housing, the family must be low-income and the housing must be occupied as the family’s principal residence. The housing acquired by homebuyers is subject to recapture or resale restrictions to ensure the family continues to occupy the housing as its principal residence for a period of five to fifteen years, depending on the amount of HOME assistance, or the HOME assistance is recaptured or the housing sold to another low-income family. The PJ must impose either recapture or the resale requirements which it establishes consistent with the standards in §92.254. HOME-assisted homeownership housing must be modest housing.

For acquisition of housing by a homebuyer with or without rehabilitation of the housing, the HOME Program requires the housing to:

1. be a single family (1-4) housing unit;

2. have a sales price or an after-rehabilitation value that does not exceed 95 percent of the median purchase price for single family housing in the area;

3. be purchased by a family that qualifies as low-income, and that will occupy the property as its principal residence;

4. remain affordable for a period of five to fifteen years, as described at §92.254(a)(4);

be subject to either the resale or recapture provisions described at §92.254(a)(5).

For rehabilitation not involving acquisition of the housing (i.e., rehabilitation of owner-occupied housing):

6. The estimated value of the property, after rehabilitation, must not exceed 95 percent of the median purchase price for single family housing in the area;

7. The housing must be the principal residence of an owner whose family qualifies as a low-income family at the time HOME funds are committed to the housing

There are no continuing affordability requirements for owner-occupied rehabilitation projects.

This notice does not address these requirements in detail. For a detailed description of the affordability se requirements, consult 24 CFR Part 92, the Building HOME manual, and other resources available online at:

.

All housing assisted with HOME funds is subject to per-unit HOME subsidy limits and to subsidy layering review by the PJ. All HOME-assisted housing must meet the property standards in §92.251.

III. BACKGROUND ANDBACKGROUND AND GENERAL DISCUSSION OF ELIGIBLE ACTIVITIES:

The HOME Program offers broad discretionflexibility in the types of single family (one to four unit) propertieshousing eligible to receive that may be assisted HOME funds. MA manufactured homes and manufactured housing lots (also called “homesites” in this Notice) is an eligible propertyqualify as housing under the HOME Program.

The Manufactured Home Construction and Safety StandardsMHCSS (MHCSS) established by HUD (24 CFR Part 3280) defines a manufactured home in §3280.2 to be "a structure, transportable in one or more sections which, in the traveling mode, is eight body feet or more in width or forty body feet or more in length, or, when erected on site, is three hundred twenty or more square feet, and which is built on a permanent chassis and designed to be used as a dwelling with or without a permanent foundation when connected to the required utilities, and includes the plumbing, heating, air-conditioning, and electrical systems contained therein." (emphasis added).

Note that a A mobile home falls within the definition of is a manufactured home. "Mobile home" and "trailer" were commonly -used terms prior to before 1976 when Congress adopted in legislation using the term "manufactured home" to take their place. Therefore, throughout tThis Nnotice uses, the term manufactured home to shall refer to all types of non-motorized manufactured housing units (thus excluding recreational vehicles) whichthat meet the definition in 24 CFR 33280.2, Manufactured Home Construction and Safety Standards (MHCSS).

A A manufactured home differs from a modular home in that a manufactured unit is a complete package with its systems (for example, heating, electric and plumbing), and fixtures in place at time of delivery. mManufactured homes ispossess built in sections in a factory, possesses a a permanent chassis (as defined at 24 CFR 3280.902 (a)), and must comply be designed and manufactured in compliance with the Manufactured Home Construction and Safety Standards (MHCSS) in 24 CFR 3280. and A mthe procedural and enforcement regulations of 24 CFR 3282. Modular homes do not possess a permanent chassis, and are often partially prefabricated at the factory with its systems added on site is built in sections in a factory to meet state, local or regional building codes. Once assembled, the modular unit becomes permanently fixed to one site site and must comply with applicable local building codes. Because this Nnotice pertains to manufactured homes, the discussions and scenarios that follow exclude modular homes, which are treated the same as site-built housing for the purposes of the HOME Program.

HOME funds can be used in a number of ways to assist to assist manufactured homes. The manufactured housing may be rental or homeownership housing. The eligible activities applicable to manufactured homes are set forth in the HOME regulations at 24 CFR 92.205(a)(4) and 92.2 (definition of “reconstruction”). acquisition, rehabilitation, and tenant-based rental assistance. HOME funds can be used to:

• acquire manufactured housing;

• acquire land for a homesite for manufactured housing;

• rehabilitate manufactured housing;

• replace an existing substandard manufactured home with a new or standard manufactured home; and

• provide tenant-based rental assistance to tenants to rent manufactured housing or to rent the homesite on which a family’s manufactured home is located.

( provide incentives to develop and support affordable rental housing and homeownership, including manufactured housing;

( acquire land for a homesite or a manufactured home unit;

( assist low-income homebuyers to purchase a manufactured home;

( rehabilitate a manufactured home for rent or homeownership;

( replace a manufactured home unit (considered reconstruction under 24 CFR 92.2); and

( rental assistance

It should be noted that new construction is not an eligible activity with regard to a manufactured home. Because A manufactured homes are is a unit constructed at the factory and transported to the site, new construction is not an applicable activity for . Therefore, new construction is an inapplicable activity in the context of manufactured housing projectsunits. Such activities are designated as acquisition projects.

Allocation of Costs: HOME funds can be used to assist some or all of the housing units in a multi-unit project (§92.205(d)). HOME funds may only be used to pay for the actual eligible costs of the HOME-assisted housing. If the housing units are comparable in terms of size, amenities and number of bedrooms and the development costs are the same, HOME funds can pay, within the maximum per-unit subsidy limits, a percentage of the total HOME eligible costs equal to the proportion of HOME-assisted to total units. When units are not comparable, the PJ must allocate the HOME costs on a unit-by-unit basis, allocating actual costs for each unit to the HOME Program. To allocate these costs, the PJ must designate the HOME-assisted units, develop a pro forma for the assisted units, and track the costs for each unit. Common costs attributable to HOME-assisted units are determined by calculating the total square feet in HOME units as a percentage of the total square feet in the project. HOME funds can pay for that percentage of common costs.

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V. UTILITY HOOK-UPS AND THE HOMESITE

Utility hook-ups are on-site, permanent, public or private utility sources (for example, electric, water, sewer/septic, natural gas) for use by individual manufactured home units. The HOME regulation at §92.205(a)(4) requires manufactured homes assisted with HOME funds (except for existing, owner-occupied manufactured homes that are rehabilitated with HOME funds) to be connected to permanent utility hookups.

The HOME regulations also require the manufactured home to be located on land that is owned by the manufactured home owner or on land for which the manufactured home owner has a lease for a period at least equal to the applicable period of affordability.

IV. REAL VS. PERSONAL PROPERTY

Section 92.254(c) of the HOME final rule requires that affordable homeownership units assisted with HOME funds meet the definition of homeownership at § 92.2, which includes “ownership in a fee simple title or a 99 year leasehold interest in a one- to four-unit dwelling or in a condominium unit, or equivalent form of ownership approved by HUD (emphasis added).” In some states, manufactured housing is considered to be personal property, as opposed to real property, and thus there is no fee simple title or similar document demonstrating ownership of the unit. In such case the PJ must first check with its own legal counsel and its local HUD Field Office to determine the form of documentation that demonstrates the applicant’s ownership interest in the manufactured housing unit.

V. PERMANENT FOUNDATIONS:

The manufactured home procedural and enforcement regulations (24 CFR 3282.12) define a site-built permanent foundation as "a system of supports, including piers, either partially or entirely below grade," and that meets the criteria as further defined in Section §3282.12. HUD Handbook 4930.3G, Permanent Foundations Guide for Manufactured Housing, further defines a permanent foundation as one that "must be constructed of durable materials at the site, with attachment points to receive a manufactured home."

The HOME fFinal rRule, which was published on September 16, 1996,, eliminated the requirement that HOME-assisted manufactured housing units rest upon a permanent foundation. This change resulted was based on from comments citing the significant additional cost of providing a permanent foundation as an obstacle to providing affordable housing, primarily in rural areas. The final rule regulation now at §92.251(a)(4) defers to State and local standards regarding permanent foundations. However, HUD strongly encourages HOME PJs to provideconstruct or improve permanent foundations when assisting manufactured housing. The term "permanent foundation" and its requirements are specifically and recommends PJs follow the guidance described in HUD Handbook 4930.3G, Permanent Foundations Guide for Manufactured Housing available online at: publications/destech/permfound.html.

The difference in foundation types may have implications when affect the ability of a homebuyer to obtaining Federally FHAinsured mortgages insurance. For example, to receive a FHA Title II Federally insured mortgage insurance, manufactured homes are required to be anchored to a permanent foundation. Other requirements for Federally insured FHA mortgages insurance are found in HUD Handbook 4145.1, Revision 2,, Architectural Processing and Inspections for Home Mortgage Insurance, paragraph 3-4.

VI. UTILITY HOOK-UPS:

This term means an on-site, permanent, public or private utility source (for example, electric, water, sewer/septic, natural gas) for use by individual manufactured home units. The HOME Final Rule at 92.205(a)(4) requires permanent utility hookups included in each HOME-assisted acquisition and/or acquisition/rehab project involving a manufactured housing unit. Furthermore, such units must be located on land that is owned by the manufactured housing unit owner or land for which the manufactured housing owner has a lease for a period at least equal to the applicable period of affordability.

VII. PROPERTY STANDARDS

All manufactured housing assisted with HOME funds must meet the property standards at §92.251(a)(4), which states that the construction of all manufactured housing must meet the Manufactured Home Construction and Safety Standards. These standards pre-empt State and local codes covering the same aspects of performance for such housing. PJs providing HOME assistance to install manufactured housing units must comply with applicable State and local laws or codes. In the absence of such laws or codes, the PJ must comply with the manufacturer’s written instructions for installation of manufactured housing.

In addition, manufactured housing that is rehabilitated using HOME funds must meet the requirements set forth in §92.251(a)(1). Each PJ must develop written rehabilitation standards that establish the required methods and materials for the rehabilitation work that will bring the substandard housing into compliance with the property standard. Further guidance on written rehabilitation standards and property standards can be found at: offices/cpd/affordablehousing/library/homefires/volumes/vol13no1.cfm.

The HOME final rule establishes a separate property standard for manufactured housing. A Existing manufactured unithousing that is being acquired or rehabilitated with HOME funds must meet the property standards at §92.251(a)(2).

24 CFR 92.251(a)(4), which states that “all manufactured housing must meet the Manufactured Home construction and Safety Standards established under 24 CFR Part 3280. These standards pre-empt State and local codes covering the same aspects of performance for such housing. Participating jurisdictions providing HOME assistance to install manufactured housing units must comply with applicable State and local laws or codes. In the absence of such laws or codes, the participating jurisdiction must comply with the manufacturer’s written instructions for installation of manufactured housing units. Manufactured housing that is rehabilitated using HOME funds must meet the requirements set out in paragraph (a)(1) of this section.” Section 92.251(a)(1) requires, in part, that each participating jurisdiction develop written rehabilitation standards for HOME-assisted rehabilitation projects.

VII. REAL VS. PERSONAL PROPERTY

Section 92.254(c) of the HOME regulations requires that affordable homeownership units assisted with HOME funds meet the definition of homeownership at §92.2, which requires “ownership in a fee simple title or a 99-year leasehold interest in a one- to four-unit dwelling or in a condominium unit, or equivalent form of ownership approved by HUD. For purposes of housing located on trust or restricted Indian lands, homeownership includes leases of 50 years.”

When a manufactured home is purchased, the buyer receives title (like title to a motor vehicle). Generally, once the manufactured home is set on a permanent foundation, it is treated as real property and ownership then is evidenced through title to the real property. However, in some states, manufactured housing is considered to be personal property, rather than real property. Manufactured housing meets the HOME Program definition of homeownership through fee simple title to the real property or title to the manufactured home.

VIII. APPLICABILITY OF THE UNIFORM RELOCATION ACT:

PJs should be aware of tThe provisions of theregulations for the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 (URA) and at 49 CFR Part 24, Subpart F, which expressly deal with manufactured homes. PJs should consider these regulations, when assessing potential HOME projects. Several important areas of consideration include:

1.) Displacement. Displacement as a result of the acquisition, rehabilitation or demolition of a manufactured home for a HOME-assisted project is subject to the URA and HUD Handbook  1378, Tenant Assistance, Relocation and Real Property Acquisition. See especially Paragraph  3-8 of Handbook 1378. (The URA relocation provisions apply whether or not the manufactured home is classified as real or personal property under State law.)

2) The acquisition of a manufactured home that is considered to be real property under State law and/or the home site is subject to the URA (see Chapter 5 of Handbook 1378).

32). Cost Effective Acquisition -- Undesignated Sites. Paragraph 5a of HUD Handbook 1378 discusses acquisition programs that do not involve pre-selected sites. To comply with the URA and carry out cost-effective programs, HUD recommends that, where possible, the participating jurisdiction PJ limit acquisition under such programs (e.g., for

example, a low-income homebuyer program) to arm's-length, voluntary transactions where, before the seller executes the final contract of sale, the seller is informed of:

• ( that the fact that the property will not be condemned if negotiations fail to result in an amicable agreement, and,

• ( of the estimated fair market value of the property. (This does not preclude the buyer from negotiating a sale at a lower price.)

If these timely disclosures are made, the purchase is exempt from the real property acquisition requirements of the URA and a seller-occupant of the property is not eligible for URA relocation assistance. (To prevent misunderstanding, the purchase offer and the contract of sale should contain an acknowledgment that the sale is not made under the threat of taking by eminent domain and the seller will not receive any relocation assistance under the URA.) However, any tenant-occupant displaced by acquisition, rehabilitation or demolition for a HUD-assisted program is covered by the URA relocation requirements and is entitled to relocation assistance to help rent (or buy) and move to a comparable replacement dwelling.

43) Coordination with CPD Relocation/Realty Staff. Acquisition and relocation issues are often highly technical. This is especially the case with manufactured homes where the owner of the unit may not own the site and a displaced occupant may buy a replacement unit but rent the site, or vice-versa. Accordingly, program staff are urged to consult with CPD relocation/realty staff and to encourage participating jurisdictions to consult with such staff about URA issues that may arise in connection with an assisted manufactured home program. Discussion during the early planning stages can prevent unnecessary expense. PJs are encouraged to refer to HUD Handbook 1378, Tenant Assistance, Relocation and Real Property Acquisition, when assessing potential HOME projects and their relocation assistance implications.

IX. PROJECT IDENTIFICATION

The HOME Program provides flexibility for providing assistance for manufactured housing and the manufactured housing homesite -- both homeownership and rental. Because the homesite is not always owned by the owner of the manufactured home, confusion may arise over identification of project type (i.e., rental, existing homeowner, homebuyer) and occupancy requirements. Here are some basic guidelines:

• When HOME assistance is used only with respect to the homesite (i.e., acquisition, site improvements, rehabilitation of the homesite), whether for rental or ownership, and the manufactured homes are owned by the residents, the project is designated as an existing homeowner project.

• When HOME assistance is used to rehabilitate an existing owner-occupied manufactured home or to replace a substandard manufactured home, the project is designated as an existing homeowner (homeowner rehabilitation) project.

• When HOME assistance is used to acquire a manufactured home and land for homeownership, the project is designated as a homebuyer project.

• When HOME assistance is used for projects in which the manufactured housing is offered for rent, the project should be reported as a rental project.

• When HOME assistance is used to acquire a new or existing manufactured home for homeownership (but not to replace an existing unit) that is set on a rented homesite, the project should be reported as a homebuyer project.

It may be possible to have more than one type of project on one site. That will be the case if a PJ uses HOME funds to assist the development of a manufactured housing community and to assist the acquisition of manufactured housing for rental to be placed on some of the homesites so that some of the homesites will have the rental manufactured housing and some of the homesites will be rented by the homeowners of manufactured housing. In that case, the PJ must set up two projects in the Integrated Disbursement and Information System (IDIS), a rental project for the rental units and an existing homeowner project for the existing homeowners whose manufactured housing will occupy the homesites. As discussed above, affordability requirements are differentiated between renters and homeowners.

One family may also be represented under two different projects. If a family is assisted to acquire a manufactured home and the manufactured home is then placed on a rental lot which was also assisted with HOME funds, the family would be associated with both a homebuyer project and assistance to existing homeowners.

IX. ELIGIBLE HOME ACTIVITY SCENARIOS:

A. Assisting Existing Homeowners and Homebuyers: ProgramHOME Affordable Housing Requirements (§ 92.254)

HOME funds can be used for owner-occupied housing rehabilitation as well as homebuyer assistance.

For acquisition with or without rehabilitation, each unit must:

8. Be a single family (1-4) unit;

9. Have a sales price or an after-rehabilitation value that does not exceed 95 percent of the median purchase price for single family housing in the area for newly constructed units;

10. Be purchased by a family that qualifies as low-income, and will occupy the property as its principal residence;

11. Remain affordable for a period of 5 to 15 years, as described at § 92.254(a)(4);

Be subject to either the resale or recapture provisions described at § 92.254(a)(5)

For rehabilitation not involving acquisition:

13. The estimated value of the property, after rehabilitation, must not exceed 95 percent of the median purchase price for single family housing in the area;

14. The housing must be the principal residence of an owner whose family qualifies as a low-income family at the time HOME funds are committed to the housing

1. Existing Homeowner Scenarios

Rehabilitation of existing owner-occupied manufactured housing stock is an eligible activity under the HOME pProgram. HOME funds can pay for rehabilitation of the manufactured housing, (including the creation or repair construction or rehabilitation of a permanent foundation), acquisition of land for the permanent placement of the manufactured housingunit, and relocation costs associated with moving a unitthe manufactured housing.

The White Jones family owns a manufactured home and the lot on which it sits. The unitmanufactured home rests on a temporary foundation and containhas all utility hook-ups. The White Jones family’s income qualifies them as a low-income family (i.e., their annual family income is below 80% percent of the area median income). The manufactured home requires roof repair and electrical updating. It is anticipated that the repairshabilitation will cost $8,000. The estimated after-rehabilitation value of the propertyhousing is below 95 percent% of area median incomepurchase price. The White’sJoneses will continue to occupy the unit as atheir principal residence.

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QUESTION: Can the PJ fund this project withcommit HOME funds to dollars this project? If so, what requirements apply?

ANSWER: A PJ may commit use HOME funds to such a for this project, if the manufactured home unit meets the standards of 24 CFR 3280 at construction (if produced after June 15, 1976); meets property standards in as specified at 24 CFR §92.251(a)(1) after rehabilitation is complete. While manufactured housing units are not required to rest on permanent foundations to receive HOME assistance, the Department encourages the use of HOME funds to construct permanent foundations for manufactured units acquired, rehabilitated, or otherwise assisted with HOME.

QUESTION: If the Whites Joneses rent their padhomesite, can the PJ commit use HOME funds to for this project?

ANSWER: A PJ may commituse HOME funds to such afor this project and consider it a homeowner rehabilitation project provided that all of the previously- mentioned requirements are met. This project is a homeowner rehabilitation project.

QUESTION: What if rehabilitation of thea manufactured housing unit is not cost-effective (i.e., rehabilitation costs more than replacement)?

If replacement of the WhiteJoneses’s unit would beis more cost-effective, the PJ may elect to assist the WhitesJoneses in acquiring a new manufactured home. This activity would be is reconstruction and the project is classified as a homeowner rehabilitation project. Homeowner rehabilitation projects do not have any recapture or resale provisionsrequirements.

The definition of reconstruction includes the replacement of an existing substandard manufactured housing unit with a new or standard manufactured housing unit. The decision of replacement versus rehabilitation is left to the PJ's discretion based upon the condition of the structuremanufactured home and the feasibility of rehabilitation.

The HOME Final Rule regulation allows the "reconstructed" unit to be placed anywhere on the existing lot. This flexibility allows PJs to meet current zoning requirements that might affect the reconstruction site. Thus, when a manufactured home is acquired to replace a substandard manufactured housing unit, it too may be placed anywhere on the existing lot.

When a HOME project involves the replacement (via acquisition) of a manufactured housing unit, PJs should be cognizant of assess the "trade-in" or "scrap" value, if any, of the unit being replaced when determining the level amount of HOME subsidyassistance being provided. PJs should develop a consistent approach to account for such value. For example, if the manufactured housing unit owner receives payment possesses a for "trade-in" valueof the unit, perhaps that amount should be used toward replacement costs and subtracted from the total replacement costsHOME assistance provided. Regardless of the approach determined, PJs should be mindful of the potential value that exists in the unit being replaced.

QUESTION: If the WhiteJoneses’s manufactured housing unit was located on a rented padhomesite, could the PJ assist them to purchase the land? Would this be homeowner rehabilitation or homebuyer assistance?.

ANSWER: The land acquisition is eligible for HOME assistance. A PJ may assist an existing homeowner to acquire the land on which the manufactured housing sits or land to which the manufactured housing can be relocated. Because the family owns the manufactured housing, Land acquisition is eligible as part of the project is aa homeowner rehabilitation programproject. Thus, it is possible for an existing homeowner to use HOME funds to acquire the land on which the unit sits, or land to which the unit can be relocated. The This activity is important for three reasons: 1) it enables existing homeowners to use ownership arrangements such as fee simple title, lease purchase agreements and participation in limited-equity cooperatives; 2) it enables a PJ to assist homeowners with substandard lots (for example, a lot in a flood plain, or on a hazardous waste site); and 3) it encourages the installation of permanent foundations. HOME regulations do not impose resale or recapture requirements or ongoing affordability requirements onprovisions that apply to homebuyer assistance do not apply to families who own their units and receive HOME assistance to purchase land to site those units homeowner rehabilitation projects. .

Because mMany manufactured housing parkland-lease communitiess contain a diverse group mix of families with incomes ranging above and below 80 percent% of area median income. Accordingly, it is necessary to examine how HOME funds can be used in such situations. For example:

A manufactured housing parkland-lease community association which incorporated as a nonprofit organization under state law, and which consists of 100 families who own their units and rent the padshomesites, would like to acquire the parkland-lease community from the current owner, make necessary site improvements, and sell each padhomesite to the current residents. Family incomes among association members vary, with only 50 percent% of the association members qualifying as low-income families having incomes below 80% of the area's median.

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QUESTION: Can a PJ assist this association? If so, what requirements apply?

ANSWER: A PJ may choose to assist this association , or any cooperative or condominium of this typeto acquire the land and undertake site improvements of the homesites for low-income families (and a pro rata share of any common areas). However, the amount of HOME funds that can be used is directly proportionate to the number of families with incomes below 80% of the area's median. Only the actual HOME eligible costs of the homesites for low-income families may be charged to the HOME Program.

Thus, iIn the situation described above where only 50 percent% of the families are have low-incomes below 80% of median, HOME funds cwould be limited assistto 50 percent% of the total acquisition and improvement costs, if the lot sizes are the same. Stated differently, eligible costs must be prorated to reflect the number of units occupied by families with incomes below 80% of median divided by the total number of units. The HOME project, in this instance, would consist of assisting the 50 low-income families who meet the income targeting criterion, and pay cover only 50 percent% of the acquisition and improvement costs (if the lot sizes were the same). As long asBecause the HOME-assisted padshomesites would beare being sold to low-income families thatwho already own[2] their manufactured housing units (whether they own the unit or rent from a third party), no resale/ or recapture requirements would provisions or affordability periods apply. This project would be a homeowner rehabilitation project. The sale price of the padshomesites should be negotiated between the PJ and the developer association based on the levelamount and form of HOME subsidyassistance provided.

2. Low-Income Homebuyer Scenario

Manufactured homes are a viable means of provideing affordable homeownership opportunities to low-income families who wish to buy a home. Costs associated with acquisition of the manufactured housing unit and the site acquisition, and site improvements may be paid for as a low-income homebuyer project, provided that all restrictions requirements contained in § 92.254 are met, including the resale or recapture provisions and affordability period requirements.

Mr. and Mrs. Smith qualify as a low-income family. They wish to buy a new manufactured home for use as their principal residence. The Smiths have found a parcel of land that can accommodate their home with available utility hook-ups. The land parcel, however, is a vacant one and does not have a permanent foundation. The PJ has determined that the cost of the manufactured home, p lus the land, permanent foundation, and the improvements (for example, constructing a permanent foundation) will meet not exceed the maximum property value housing limits established at § 92.254(a)(2)(i), (ii), and (iii).

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QUESTION: Can the PJ use HOME funds to assist the Smiths? If so, what requirements apply?

ANSWER: HOME funds maycan be used to: 1)buy the manufactured home, acquiree the parcel of land,; 2) perform pay for the necessary site improvements, (including provide constructing a permanent foundation, if the owner of PJ wishes),; and pay 3) acquire the manufactured home; 4) transport the unit to the acquired lot; and 5) perform all necessary activitiescosts to secure the unit manufactured housing to the foundation and to hook-up the utilities. All of the above are eligible costs under the HOME Program.

In accepting the HOME assistance, the Smiths would be required to: a) make the property occupy the home as their principal residence; and b) comply with the PJ’s resale or recapture provisions if they wished to sell the property within the affordability period.requirements.

Low-income families may enter into lease-purchase agreements (that is, a lease with an option to buy the unit and land) with a PJ, developer, or non-profit organization or for-profit owner, even though the use of HOME funds does not immediately result in home ownership. The HOME Final Rule regulations requires the purchase to occur within 36 months of entering into the lease-purchase agreement. The homebuyer must qualify as low-income at the time the lease-purchase agreement is signed. [3]

If the potential homebuyer does not purchase the propertyhousing, it may be sold to another eligible homebuyer. A subsequent lease-purchase agreement will not be permitted for this same propertyhousing, unless the purchase can be completed within the original 36-month period. If no eligible homebuyer is found, the property housing must be made available for rent in accordance with all HOME rental requirements.

A limited-equity cooperative (in which a homebuyer buys "shares" in the project) is also an eligible form of assistance to a homebuyer, provided that the cooperative housing meets the HOME affordability requirements outlined at § 92.254(a).

B. Rental Housing: Program HOME Affordable Housing Requirements (§ 92.252)

Manufactured housing can be used to increase rental opportunities for low-income families. PJs may use HOME funds to undertake activities such as land acquisition, unit acquisition of the manufactured housing, site improvements and/or rehabilitation, unit rehabilitation of the manufactured housing, orand demolition associated with manufactured housing rental projects.

Manufactured housing can be used to increase rental opportunities for low-income families. Inf rental housing situations where both the padhomesite and manufactured housing unit are under common ownership, such a the project would be treated the same as a stick-built any other HOME rental project. A manufactured housing rental project will qualify as affordable housing provided that it meets the requirements of § 92.252.. These requirements include:

( rent limitations;

( provisions that the units will be occupied by low-income or very low-income families;

← five to fifteen-year affordability periods (depending upon the amount of HOME funds used per unit (see § 92.252); and

property standards (see § 92.251)

A manufactured housing rental project must also meet the tenant and participant protection requirements at § 92.253. These include:

terms of the lease must be for not less than one year, unless by mutual agreement by tenant and owner;

( lease does not include any of the terms prohibited under § 92.253(b);

( termination of tenancy safeguards; and

tenant selection criteria

1Allocation of Costs: HOME funds can be used to assist a multi-unit project. If the units are comparable in terms of size, amenities and number of bedrooms, HOME funds can pay, within the maximum per-unit subsidy limits, a percentage of the total HOME eligible costs equal to the proportion of HOME-assisted to total units. When units are not comparable, the PJ must allocate the HOME costs on a unit-by-unit basis, allocating actual costs for each unit to the HOME Program. To allocate these costs, the PJ must designate the HOME-assisted units, develop a proforma for the assisted units, and track the costs for each unit. Common costs attributable to HOME-assisted units are determined by calculating the total square feet in HOME units as a percentage of the total square feet in the project. HOME funds can pay for that percentage of common costs. For further guidance, please refer to CPD Notice 98-02, Allocating Costs and Identifying HOME-assisted Units in Multi-unit Projects ().

Example: A PJ purchases a trailer park with twenty manufactured units to be used for rental housing. Each unit needs rehabilitation work. The total cost of acquisition and rehabilitation is $500,000. The PJ provides $250,000 of HOME funds, or one half of the total cost, to this project. The PJ must allocate the HOME funds to determine the minimum number of units that must be designated as HOME-assisted units. If the units are comparable in terms of size, number of bedrooms and amenities, then the total HOME development can be pro-rated to determine the minimum number of HOME units. In this example, the pro-rated share of HOME-assisted units is 50 percent, as the amount of HOME assistance comprises 50 percent of the total development cost. If the units in this project are not comparable, then the PJ must allocate the HOME assistance to specific units, based on actual development cost per unit. The PJ may also choose to designate either “fixed” or “floating” HOME units at the outset of the project. Comparable (pro-rated) units may be designated as “floating”, while non-comparable (actual cost) must be designated as “fixed” HOME units. See CPD Notice 98-02, “Allocating costs and identifying HOME-assisted units in multi-unit projects” for further guidance on this topic.

3. Rental Housing Scenarios

A State is assisting a local non-profit to acquire a parcel of land to be converted to a low-income manufactured housing rental parkland-lease community. The land parcel selected has utilities available to the site, but not on-site; and contains a concrete structure that will require demolition. HOME funds will also be used by the nonprofit to acquire the manufactured units that it will rent to low-income families.

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QUESTION: Can a PJ commituse HOME funds tofor this project? If so, what requirements

apply?

ANSWER: The costs of acquiring the land and manufactured housing, demolishing the structure, making site improvements, constructing permanent foundations, and hooking up utilities are eligible HOME costs, in an amount that does not exceed the maximum per-unit subsidy limit. The PJ may commituse funds tofor the non-profit's project provided that all the manufactured :

( housingit meets the rent limitations contained at § 92.252 (a)-(c);

( the project will remain affordable for a period of time based on the amount of HOME funds used per unit ([§ 92.252(e))];

( the rental units is willrented to families that meet the income targeting requirements and rent restrictions discussed in Part III of this notice; and

( the units meets the property standards in §as required by 24 CFR 92.251; and.

( the units were built to the standard of 24 CFR 3280 (if produced after June 15, 1976) as evidenced by the HUD label.

HOME Rents: Every HOME-assisted rental unit is subject to rent restrictions designed to make sure that rents are affordable to low-income families. These maximum rents are referred to as HOME rents[4].

There are two HOME rents established for projects: high HOME rents, and low HOME rents. HUD provides the following maximum HOME rent limits.

High HOME Rents are the lesser of: the fair market rent for existing housing for comparable units in the area as established by HUD under 24 CFR 888.111; or

A rent that does not exceed 30 percent of the adjusted income of a family whose annual income equals 65 percent of the area median income, as determined by HUD, with adjustments for number of bedrooms in the unit.

Low HOME Rents are established at § 92.252(b). At least 20 percent of all HOME-assisted units in each project with five or more HOME-assisted units must be occupied by very low-income families (not exceeding 50 percent of area median income), and meet one of the following rent requirements:

(a) The rent does not exceed 30 percent of the annual income of a family whose income equals 50 percent of the area median income, as determined by HUD, with adjustments for smaller and larger families; or

(b) The rent does not exceed 30 percent of the family’s adjusted income. IF the unit receives Federal or State project-based rental subsidy, and the very-low income family pays as a contribution toward rent not more than 30 percent of the family’s adjusted income, then the maximum rent (i.e., tenant contribution plus project-based rental subsidy) is the rent allowable under the Federal or State project-based rental subsidy (see footnote 2 on preceding page for information about where to acquire HOME low rent figures).

24. PadHomesite-only Rentals

A qQuestions that often arises in padhomesite-only rental situations is what tconcerning the methodology isused for determining the rent for the padhomesite. Where the PJ is providing rental assistance, HUD recommends, but does not require, that PJs to use a standard that has been developed through HUD’s Section 8 Pprogram. The Department has established the pad mobilehomesite manufactured home payment standard at 40 percent% of the 2-bedroom FMR. For mobilemanufactured home owners who rent their padshomesite, utility costs are included as part of the rent calculation. The padhomesite rental/utility costs are normally set as a percentage of the FMR, but exceptions are issued for local areas that supply data requesting higher pad homesite rentals.[5]

Rents based on F40orty percent of the FMR areis a reasonable toto slightly high number for many areas. This figureIt is traditionally too low for rural areas with significant heating degree- days where liquid propane gas is used for heating and where the correctmore accurate percentage may be as high as 60 % or 70 percent % of the FMR. HOME participating jurisdictions PJs providing padhomesite-only rental assistance are strongly encouraged to adhere to this standard, where appropriate. If a PJs that establishes a rent limits that is substantially higher than the HUD standard, it must document the basis for thisis standard in itheir ts files.

A PJ wants to use HOME funds to assist a developer (either for profit or non profit) to acquire and improve a homesite that is intended for use by existing owners of manufactured housing. The developer would retain legal title to the low-income unitA PJ wants to use HOME funds to assist a developer (either for profit or non profit) to acquire and improve a homesite that is intended for use by existing owners of manufactured housing. The developer would retain legal title to the low-income unit. Reasons for such a project may include relocating an existing homeowner to a newly created manufactured housing lease community, or acquiring an existing manufactured housing community to reduce land rental costs.5

. Reasons for such a project may include relocating an existing homeowner to a newly created manufactured housing home park, or acquiring an existing park to reduce land rental costs.5

A family may own its unit, or rent or lease its unit either from the same owner as the pad or from a third party. HOME funds can be used to assist in with the acquisition, development, or rehabilitation of a manufactured home parkland-lease community where the homesites are rented to low-income owner-occupants of manufactured housing. [6] Note that because a homesite-only project is considered assistance to existing homeowner housing, CHDO set-aside funds may not be used.

For example:

QUESTION: Can HOME funds be used to assist this developer? If so, what requirements apply?

ANSWER: HOME funds can be used to pay for the costs of acquisition and improvements to the homesites occupied by low-income homeowners. The costs that may be charged to the HOME program may be determined as a percentage of the cost of land and improvements equal to that proportion of the total number of homesites occupied by low-income families (i.e., eligible HOME units) provided the homesites are the same size.

This scenario describes an eligible HOME activity provided that several conditions are met. For each HOME-assisted homesite, Tthe owner of a manufactured unit must qualify as low-income; the unit must have met the standard of 24 CFR 3280 at production (if constructed after June 15, 1976); the unit must be connected to utility hook-ups; and the value of the unit must not exceed the maximum property value limit as established at in § 92.254 (a)(2)(i),. (ii), and (iii); and, at minimum, the unit must comply with the foundation standards described in the most current ANSI Handbook A225.1.

In addition, tThe developer must sign a written agreement to ensure that the assisted homesites will be rented to low-income families throughout the affordability period, which ranges from five to fifteen years depending upon the amount of HOME subsidy used per homesite for a reasonable period of time (e.g., the affordability period under §92.254(a)(4)), based on the amount of HOME assistance. A deed restriction or covenant running with the land must be recorded to ensure that the land remains available for affordable housing throughout the period of affordability. [Rents charged during this period should be negotiated between the PJ and the developer based on the level amount and form of HOME subsidy assistance provided (in no case should the negotiated rent exceed the HOME rent limits).]

If these requirements are met, HOME funds can be used to pay for a percentage of the improvements (including the acquisition of the land) equal to that proportion of the total number of pads occupied by low-income families (i.e., eligible HOME units.)

Please note that because a pad-only project is considered assistance to existing homeowners, CHDO set-aside funds may not be used. Also, affordability requirements do not apply when homeowner rehabilitation assistance is provided to manufactured housing units that rest on a rented pad, as there is no period of affordability attached to the provision of homeowner rehabilitation. The fact that a manufactured housing unit that is owned by the occupant(s) rests on a rented pad does not preclude the assistance of that unit with HOME funds.

VII. PROJECT IDENTIFICATION:

The Program recognizes the importance and prevalence of manufactured housing and provides for various homeownership and rental opportunities. The above scenarios illustrate the flexibility of the HOME Program. Flexibility, however may lead to some confusion over identification of project type (i.e., rental, existing homeowner, homebuyer) and occupancy requirements. Here are some basic guidelines:

( When HOME assistance is being used only with respect to the pad (i.e., acquisition, development, rehabilitation), whether for rental or ownership, the project should be designated as an existing homeowner project[7].

( When HOME assistance is being used to improve an existing unit or to replace a substandard unit, the project should be designated as an existing homeowner (homeowner rehabilitation) project.

( If HOME assistance is being used to acquire a unit and land for homeownership, the project should be reported as a homebuyer project.

( When HOME assistance is being used for projects in which the pad and the unit are under common ownership and offered for rent, the project should be reported as a rental project.

( When HOME assistance is being used to acquire a unit for homeownership (not replace an existing unit) which is set on a rented pad, the project should be reported as a homebuyer project.

It may be possible to have more than one type of project on one site. That will be the case if a PJ uses HOME funds to assist with the development of a manufactured housing park where HOME funds will be used to provide some rental units as well as empty pads for rental by existing homeowners. In that case, the PJ must set up two projects in the Integrated Disbursement and Information System (IDIS), or its successor system- a rental project for the rental units and an existing homeowner project for the existing homeowners who will occupy the pads. Affordability restrictions would be differentiated between renters and homeowners.

One family may also be represented under two different projects. If a family were to be assisted with the acquisition of a manufactured home and the unit is then placed on a rental lot which was also assisted with HOME funds, the family would be associated with both a homebuyer project and assistance to existing homeowners.

This Nnotice has reviewed the basic requirements of the HOME Program and the various ways funds can be used to support manufactured housing. Additional questions should be directed to the Community Planning and Development Division of the appropriate HUD Field Office.

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[1] Means families whose annual income do not exceed 80 percent of the area median income, as determined by HUD, with adjustments for smaller and larger families, except that HUD may establish income ceilings higher or lower than 80 percent of the median for the area on the basis of HUD findings that such variations are necessary because of prevailing levels of construction costs or fair market rents, or unusually high or low family incomes.

    [2] For IDIS purposes, this would be considered assistance to an existing homeowner.

[3] Section 599B of the Quality Housing and Work Responsibility Act of 1998 amended Title II, Section 214(2) of the Cranston-Gonzalez National Affordable Housing Act by eliminating the provision that HOME-assisted homebuyers must qualify as income eligible at the time of occupancy or when the HOME funds are invested, whichever is later.

[4]Individual HOME rents for various jurisdictions are available, and may be obtained, from the Office of Community Planning and Development in each HUD Field Office, or on the Internet at . The maximum HOME rents calculated by HUD include utility costs. If tenants will pay utility bills, the maximum rent must be adjusted by the amount of the PJ-determined utility allowance.

[5] The implementing regulation for manufactured home FMRs (24 CFR 888.113) was changed in December 1999 to include utilities along with pad rentals. The rate was therefore increased from 30 percent, which did not include utilities, to 40 percent of the 2-bedroom FMR. The Federal Register cite that increased the rate from 30 to 40 percent to allow for utilities was dated December 28, 1999, page 72722.

[6] For systems purposes, this would be considered assistance to an existing homeowner, unless the unit is also HOME-assisted and is being rented from the same owner as the pad, in this case it would be considered "rental" and rental project restrictions would apply.

[7] Unlike existing homeowner projects where there are no affordability periods, HOME-assisted pads for rental must be rent restricted for, at least, the time periods specified under 24 CFR 92.252(e).

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