Section by Section Summary of the 2013 HOME Final Rule: Subpart A - General

§92.2 Definitions

CDBG Program          

The 2013 Rule includes this term in order to provide the cross reference to the Community Development Block Grant program at 24 CFR part 570.

Commitment

The 2013 Rule amends several aspects of this definition to clarify the actions that constitute a commitment:

  • The Rule clarifies that PJs are able to commit funds for the provision of downpayment assistance. The pre-2013 Rule expressly permitted a PJ to commit funds for the production of affordable housing or the provision of tenant-based rental assistance. In practice PJs were permitted to commit funds to downpayment assistance, but this policy is now codified.
  • It alters the concept of “reserving” funds for CHDOs. With this revision, agreements with CHDOs that are not project-specific are no longer considered commitments. PJs must commit CHDO set-aside funds to specific projects for a specified amount of HOME funds within 24 months of signing their HOME grant agreement. [Note, a number of other changes related to CHDOs are made in the 2013 Rule. Changes to the definition of CHDO are described in this section; §92.300 includes changes related to activities that are eligible for CHDO set-aside funds and PJ oversight of CHDOs; and §92.208 clarifies certain issues related to CHDO operating funds.]
  • It specifies that a PJ cannot commit HOME funds to a project until all necessary financing is secured, a budget and schedule established, underwriting and subsidy layering completed, and construction is scheduled to begin within 12 months.
  • It specifies that signatories to written agreements must date the document in order for it to constitute a valid commitment. Since the HOME statute and regulations require the PJ to enter into a legally binding commitment within 24 months of signing the HOME Investment Partnerships Agreement, dates are needed to verify compliance.
  • It includes a cross-reference to §92.504(c) to direct PJs to the required provisions of a written agreement to help ensure that the agreements evidencing commitment meet the HOME standards for written agreements.
  • It clarifies that a commitment does not include an agreement between:
    • A PJ and a subrecipient that the PJ controls (such as an authority that is part of the local government), or
    • A lead entity of a consortium and a consortium member.  

    These entities are considered a part of the PJ itself, and not separate entities.

The requirement that funds are considered committed only when the PJ has a legally binding written agreement with a State recipient, a subrecipient, or a contractor to use a specific amount of HOME funds remains unchanged.

Suggested Next Steps for PJs

  1. Revise existing policies and procedures related to project commitments to be sure they include:

    1. Definition of commitment of funds for downpayment assistance.

    2. Verification, prior to execution of a written agreement, that all necessary financing has been secured, a budget and schedule have been established, underwriting and subsidy layering have been completed, and construction is expected to start within 12 months.

    3. Elimination of the “reservation” of CHDO set-aside funds for projects to be determined at a later date, and adoption of CHDO commitment of funds for specific projects and specific amounts of HOME funds.

  2. Review commitment agreements to be sure they include the required provisions of a written agreement that are specified at §92.504(c) to meet the HOME standards for written agreements.

  3. Develop a tracking system of CHDO set-aside projects that are in the planning stages to ensure that projects will be ready for commitment before the 2-year deadline. This will help ensure that the PJ will meet the requirement to expend 15 percent of its formula allocation through CHDOs.

  4. Revise the correspondence/legal review process for documents to ensure that all documents are dated by the signatories.

Effective Date

August 23, 2013 for all definition changes, except for the new provision that requires the reservation of funds to CHDOs be project-specific which becomes effective on October 22, 2013 (90 days after the publication of the Final Rule). HUD will implement the new definition of CHDO reservation for deadlines that occur on or after January 1, 2015.

Community Housing Development Organization (CHDOs)

There are several changes to the definition of CHDO that impact the criteria that qualify a nonprofit organization as a CHDO.

Nonprofit Status (Paragraph 4)

The pre-2013 Rule requires that a nonprofit organization, in order to qualify as a CHDO, must be organized under the Internal Revenue Code of 1986 (IRC) at 501(c)(3) or 501(c)(4). The 2013 Rule expands this definition to include: (1) a subordinate of a central organization under IRC 905 (this was previously permitted in practice, but is now codified); or (2) a wholly-owned entity that is regarded as an entity separate from its owner for tax purposes (e.g., a single member limited liability company that is wholly-owned by an organization that qualifies as tax-exempt), when the owner organization has a tax exemption ruling from the IRS under section 501(c)(3) or 501(c)(4) of the IRC. The nonprofit must meet the other qualifying criteria outlined in the CHDO definition.

CHDO and For-Profit Entities (Paragraph 3)

The requirements of paragraph 3 ensure that the CHDO is not controlled by, or significantly influenced by, a for-profit entity. In addition to the pre-2013 requirements that remain unchanged, paragraph 3(iv) adds a new criterion that if a for-profit entity creates or sponsors a potential CHDO, while the officers and employees of the for-profit entity can serve as Board members of a CHDO (subject to the one-third appointment limitation), they cannot serve as officers or employees of the CHDO.

CHDO and Governmental Entities (Paragraph 5)

Paragraph 5 is revised to state that a governmental entity may create a CHDO, and while officers and employees of the governmental entity can serve as Board members to the CHDO (subject to the one-third appointment limitation), they cannot serve as officers or employees of the CHDO. The additional limitations of the pre-2013 Rule on the involvement of a public entity remain unchanged.

CHDO Capacity and Staffing (Paragraph 9)

Paragraph 9 changes how a nonprofit demonstrates its capacity to undertake affordable housing activities. To qualify as a CHDO, the 2013 Rule requires that a nonprofit have paid employees with housing experience appropriate to the role the nonprofit expects to play in projects (i.e., developer, sponsor, or owner) in order to receive a CHDO designation. Note, the definition of “owner” has been significantly revised in the 2013 Rule at §92.300. The Rule now permits a CHDO to own and operate housing that it does not develop. Therefore, a nonprofit that will undertake development activities must demonstrate development capacity. A nonprofit that will undertake property ownership and management must demonstrate ownership/management experience. The requirement for development capacity can no longer be demonstrated through the use of consultants with development experience, except during the first year of operation as a CHDO, provided that the consultant trains the CHDO staff. In addition, the capacity requirement cannot be met through the use of volunteers or staff that is donated by another organization. Consultants or volunteers can continue to fill occasional skill gaps or undertake activities that are required only on a periodic basis (e.g., project underwriting), but cannot be the basis of a determination that a nonprofit has the capacity to be designated as a CHDO.

Unchanged Provisions

The qualifying criteria for CHDOs that are not listed here remain unchanged (paragraphs 1, 2, 6, 7, 8, 10).

Suggested Next Steps for PJs

  1. Revise checklist of items that a nonprofit organization must submit in order for the PJ to determine if it qualifies as a CHDO, including:

    1. Documentation of nonprofit status in Articles of Incorporation and IRS correspondence.

    2. For key staff only, statement of qualifications and experience, or resume(s). The qualifications and experience of consultants is no longer relevant unless the CHDO is in its first year of operation and it is using a consultant to train its staff.

  2. Determine the PJ’s process for reviewing and approving (or rejecting) a CHDO. Determine who will make the determination that a nonprofit qualifies as a CHDO and how will this be documented.

  3. See changes at §92.2, definition of commitment regarding the revision of CHDO reservations; §92.300 for changes related to CHDO set-aside eligible activities, PJ oversight of CHDOs, and §92.208 regarding CHDO operating funds.

Effective Date

 August 23, 2013

Consolidated Plan

The 2013 Rule includes this term in order to provide the cross references to the consolidated plan that is submitted to HUD for review and approval in accordance with 24 CFR part 91.

Homeownership

The revised definition reorganizes the list of eligible forms of homeownership and provides guidance on ownership situations that were not addressed in the pre-2013 Rule (indicated as “NEW” below):

  • Fee simple title in a 1- to 4- unit dwelling or condominium unit or at least a 99-year leasehold interest, except:
    • Housing located in insular areas must have a ground lease for at least 40 years

    • Housing located on an Indian trust or restricted Indian land, for at least 50 years

    • Housing located on land owned by a community land trust, for at least 50 years (NEW)

    • Manufactured housing on a ground lease that is at least equal to the applicable affordability period. (NEW) Additional guidance on manufactured housing is found at §92.251(e).

The 2013 Rule does not change the requirement that ownership interest must be in good, marketable title, subject to only certain restrictions (such as HOME resale restrictions, mortgages, deeds of trust, or liens or instruments that secure debt on the property), provided these are approved by the PJ.

The revised definition expressly states existing HUD policy that a contract for deed (also known as an installment contract or land sales contract) is not an eligible form of homeownership. A contract for deed is a financing mechanism that fails to provide equitable title to the contracting party, who remains vulnerable to forfeiting the property until the final payment is made. Because of this risk, assisting low-income families through contract for deed situations is not a sound use of HOME funds.
The requirement of the 2013 Rule that PJs have the responsibility to determine whether ownership or membership in a cooperative or mutual housing project constitutes homeownership under State law has not changed. However, the 2013 Rule clarifies that when these types of housing receive Low-Income Housing Tax Credits, they are rental housing (and not homeownership).

Suggested Next Steps for PJs

  1. Revise and update homeowner rehabilitation and homebuyer development assistance program policies and procedures to reflect this new definition. For homeowner rehabilitation program policies and procedures, see also revisions at §92.254(c) that permit four additional forms of ownership: heir property, life estate, living trust, and beneficiary deed.

  2. Revise and update program policies and procedures to include new eligible forms of homeownership:

    1. Housing located on land owned by a community land trust, for at least 50 years

    2. Manufactured housing on a ground lease that is at least equal to the applicable affordability period.

  3. Revise and update program policies and procedures including checklists to prohibit contracts for deed as an eligible form of ownership interest.

Effective Date

 August 23, 2013

Housing

The definition of housing remains substantially unchanged, except that the 2013 Rule specifically excludes halfway housing, dormitories (including farmworker dormitories), and all types of student housing, not just student dormitories. These types of residence constitute facilities or provide short-term or transitory housing, not permanent or transitional housing, as required by the HOME statute.
Note, revisions were also made to the definitions of low-income and very low-income families to clarify when a student household may be an eligible beneficiary.

Suggested Next Steps for PJs

  1. Revise and update policies for all programs (rental and homebuyer development, homebuyer assistance, and tenant-based rental assistance programs) to reflect this prohibition/clarification.

  2. Notify staff and all program partners (especially those that that accept applications or administer programs on behalf of a PJ and select projects) of this change.

Effective Date

 August 23, 2013

Low-Income Families and Very Low-Income Families

The definition of “low-income families” and “very low-income families” remains unchanged. However, the 2013 Rule specifically excludes certain students from participating independently in the HOME program. The HOME program adopts the Section 8 Housing Choice Voucher (HCV) program restrictions on student participation found at 24 CFR 5.612, which exclude any student that:

  1. Is enrolled in a higher education institution

  2. Is under age 24

  3. Is not a veteran of the U.S. military

  4. Is not married

  5. Does not have a dependent child(ren)

  6. Is not a person with disabilities

  7. Is not otherwise individually eligible, or has parents who, individually or jointly, are not eligible on the basis of income.

Excluded students are prohibited from receiving any type of HOME assistance, including renting HOME-assisted rental units, receiving HOME tenant-based rental assistance, or otherwise participating in the HOME program independent of their low- or very low-income families.

Suggested Next Steps for PJs

  1. Revise and update policies for all programs (rental and homebuyer development programs, homebuyer assistance, and tenant-based rental assistance) to reflect this policy on student participation.

  2. Notify staff and program partners of this clarification, particularly those that determine eligibility for HOME assistance.

  3. Modify application forms and program materials provided to applicants to state this exclusion of students.

Effective Date

August 23, 2013

Program Income

The definition of program income remains unchanged. The 2013 Rule amends the definition to clarify and codify previous policy that program income does not include gross income from the use, rental, or sale of real property received by the project owner, developer, or sponsor, unless the funds are paid by the project owner, developer, or sponsor to the PJ, subrecipient, or State recipient.

Suggested Next Steps for PJs  

  1. Review and update program policies and procedures for rental and homebuyer development programs to ensure that income from the sale, rental, or use of real estate by the project owner, developer, or sponsor is not treated as program income.

  2. Clarify this policy with staff and program partners and instruct them on how to implement this policy.

  3. Update written agreements with program partners to reflect this policy, pursuant to §92.504(c).

Effective Date

 August 23, 2013

Project Completion

The definition is clarified for rental projects only: a rental project is considered complete when construction is completed and the units are ready for occupancy. The PJ is required to report on beneficiary data in accordance with §92.502, however, the input of beneficiary data in IDIS is no longer required for project completion; units may be marked as vacant. Otherwise, the definition of project completion remains unchanged: projects must have all necessary title transfer requirements and construction work complete; projects must comply with all HOME requirements (including property standards at §92.251), final draw must be disbursed; and project completion data must be entered into IDIS (except for rental projects as amended).
§92.502(d) requires project completion data to be entered into IDIS within 120 days of the final drawdown for all activity types.

Suggested Next Steps for PJs  

  1. Revise the procedures for rental development programs to ensure that upon final draw of HOME construction funds and issuance of a certification of occupancy, the project is determined to be complete and it is designated as complete in IDIS.

  2. Revise written agreements with owners, developers, and sponsors to ensure that they continue to report beneficiary data, as units are rented, after the project is completed.

  3. Track rental projects to ensure that all available beneficiary data is provided and input into IDIS at project completion, and that beneficiary data is regularly input during project rent-up. This tracking provides the PJ with early notice of any units at risk of going unrented. Revisions at §92.252 require the PJ to provide marketing information to HUD for units that are unrented at six months. PJs must repay HOME funds for units that are unrented at 18 months after project completion. See §92.252 for more information.

Effective Date

 August 23, 2013

Public Housing

The 2013 Rule includes this term in the list of common HUD terms found at the beginning of §92.2 in order to provide the cross reference to the term in 24 CFR 5.100.

Reconstruction

The pre-2013 Rule states that housing can be rebuilt under the reconstruction category only if the housing was standing on the site at the time of project commitment. This definition is revised to facilitate rebuilding efforts after disasters (when housing may no longer be standing on the site). It permits reconstruction of units that are not standing on the site at the time of project commitment, provided that HOME funds are committed within 12 months of the date of destruction.
Since reconstruction is considered rehabilitation under the HOME program, the periods of affordability for reconstructed housing are based on the per-unit investment for rental projects [§92.252(e)], and displaced owner-occupants are not subject to resale and recapture provisions of §92.254(a)(5).
For all other housing (not destroyed by disaster), the definition of reconstruction remains unchanged.

Suggested Next Steps for PJs

  1. Revise and update program policies and procedures to permit reconstruction of units that were destroyed by disaster and are not standing on the site at the time of project commitment, provided that HOME funds are committed within 12 months of the date of destruction.

Effective Date

 August 23, 2013

Single Room Occupancy (SRO)

The 2013 Rule amends this definition to clarify that in order for a project to be designated as an SRO, its characteristics cannot be inconsistent with the PJ’s applicable building and zoning code classifications. For jurisdictions whose building and zoning codes do not include an SRO designation, SRO housing is permitted because it is not “inconsistent.”

The pre-2013 HOME Rule provides PJs with flexibility with respect to classifying a property as SRO housing or a group home, depending on the physical configuration of the project. This flexibility remains unchanged. Classifying a project as a SRO rather than a group home results in larger potential HOME subsidies and higher gross rents (because a group home is considered a single unit with multiple bedrooms). However, a PJ may not classify a project as a SRO in violation of its own building and zoning code classifications.

Suggested Next Steps for PJs

  1. Revise and update rental program policies to reflect that SRO determinations must not be inconsistent with zoning and building code classifications.

  2. See also §92.252(c) regarding the rents that can be charged for SRO housing.

Effective Date

 August 23, 2013

Subrecipient

The definition of subrecipient is amended to clarify that HOME subrecipients receive funds to carry out programs (e.g., downpayment assistance, homeowner rehabilitation, or tenant-based rental assistance programs, etc.), and not to undertake specific projects. (Entities that carry out projects are generally owners, developers, or sponsors.)

Suggested Next Steps for PJs

  1. For projects and programs to which a commitment is made after August 23, 2013, prior to executing an agreement, determine the role of the entity and enter into a written agreement accordingly.

  2. Any entities carrying out all or a portion of a program activity are serving in the capacity of subrecipient, and must have a written agreement that specifies this role. Determine if the existing written agreement with those entities meets the new requirements of a written agreement with a subrecipient specified at §92.504(c)(2). If not, amend the agreement(s). Examine agreements with State recipients, subrecipients, and contractors who administer programs.

  3. Any entities carrying out specific projects are serving in the capacity of owner, developer, or sponsor and must have a written agreement that specifies that role. PJs (and their State recipients and subrecipients) should determine if the current written agreement for owners, developers, or sponsor meets the requirements of a written agreement for that role as specified at §92.504(c)(3). If not, amend the written agreement(s) executed for new projects as of the effective date.

Effective Date

 August 23, 2013

Uniform Physical Condition Standards (UPCS)

This is a new definition. The UPCS are uniform national standards established by HUD for housing that is decent, safe, sanitary, and in good repair, pursuant to 24 CFR 5.703. These standards are newly adopted for HOME rehabilitation, acquisition, and tenant-based rental assistance projects in accordance with revisions made to the property standards requirements at §92.251. In the near future, HUD will issue guidance on the specific inspectable elements of UPCS that will apply to HOME. These new requirements become effective on January 24, 2015 (18 months after the publication date of the Final Rule).

Suggested Next Steps for PJs

  1. Look for HUD guidance on the UPCS and the property standard revisions at §92.251.

  2. Once these revisions go into effect and HUD guidance has been issued, modify policies, procedures, and agreements for HOME rehabilitation, acquisition, and TBRA projects to meet the requirements of §92.251.

Effective Date

 January 24, 2015 (18 months after the publication date of the Final Rule)

§92.3 Applicability of 2013 Regulatory Changes

This new section to the HOME Rule establishes the effective dates for various provisions of the 2013 Rule. In general, the provisions of the 2013 Rule are applicable to projects for which HOME funds are committed on or after August 23, 2013 (30 days following publication date of the Final Rule), except for the following:

  • The change in the definition of commitment at §92.2 that no longer permits non-specific reservations of funds to CHDOs as a commitment becomes effective 90 days after the publication date of the Final Rule, on October 22, 2013.  This provision will be implemented by HUD for deadlines that occur on or after January 1, 2015.

  • The requirements at §92.254(f) that require the PJ to adopt homebuyer program policies will be effective six months after publication date of the Final Rule, on January 24, 2014.

  • The new requirement at §92.504(a) that PJs develop and follow written policies and procedures and implement a risk-based monitoring system becomes effective 12 months after publication of the Final Rule, on July 24, 2014.

  • The requirement at §92.504(d)(2) for financial oversight of HOME-assisted rental projects during the affordability period will become effective 12 months after the publication date of the Final Rule, on July 24, 2014.

  • The separate 5-year deadline for expenditure of CHDO set-aside funds established at §92.500(d)(1)(C) becomes effective on January 1, 2015, and will be implemented by HUD for all deadlines that occur on or after that date.

  • The property standard provisions at §92.251 apply to projects to which funds are committed 18 months after the publication date of the Final Rule, on January 24, 2015.

Suggested Next Steps for PJs

  1. Create a master list and schedule of changes in the HOME Final Rule and begin to plan for effective dates, as listed above.

  2. Communicate deadlines to all decision makers and staff and make all necessary program changes.

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