A number of revisions have been made to the CHDO set-aside requirements.
To ensure that PJs provide CHDO set-aside funds only to organizations that qualify as CHDOs, §92.300(a) is revised to require PJs to:
Certify that a nonprofit organization meets the definition of "community housing development organization.
Document that the organization has the capacity to own, develop, or sponsor housing (as required by the revised definition of CHDO in §92.2) each time it commits CHDO funds to an organization for a specific project.
These provisions require a higher level of PJ scrutiny of CHDOs than was required under the pre-2013 Rule. Previously, a PJ was required to review documentation from the nonprofit organization in order to make a determination that it met the requirements for CHDO designation, including demonstrated capacity for carrying out HOME activities. The new certification requirement increases PJ accountability and formalizes this process. The documentation of CHDO capacity each time there is a commitment of funds is a new requirement.
August 23, 2013 (The certification and documentation requirements apply to commitments of funds to any CHDO after this date.)
§92.300(a)(1) redefines "reservation of funds” to a CHDO as occurring when a PJ enters into a written agreement with the CHDO committing HOME funds to a specific project to be owned, developed, or sponsored by the CHDO. This revision conforms to the revised definition of "commitment” at §92.2.
This change alters the previous requirements for reserving funds to a CHDO. Rather than permitting a general agreement between a PJ and a CHDO for a project to be identified at a future time, the Rule now requires a commitment of funds to a specific project to be undertaken by a CHDO.
With respect to the CHDO set-aside, it is statutorily required that the PJ provide a minimum of 15 percent of its annual HOME allocation for housing that is "owned, developed, or sponsored” by CHDOs. The pre-2013 Rule required a CHDO to have "effective project control” to qualify as a set-aside project. In 1994, HUD issued detailed guidance to clarify what qualified as housing owned, developed, or sponsored by a CHDO. The 2013 Rule codifies these definitions, with a significant modification to the definition of "owner” of rental housing as detailed below.
A subsidiary of the CHDO (in which case the subsidiary, which may be a for-profit or nonprofit organization, must be wholly owned by the CHDO);
A limited partnership (in which the CHDO or its wholly owned subsidiary must be the sole general partner); or
A limited liability company (in which the CHDO or its wholly owned subsidiary must be the sole managing member).
If the limited partnership or limited liability company agreement permits the CHDO to be removed as sole general partner or sole managing member, respectively, the agreement must require that the removal be "for cause” and that the CHDO must be replaced by another CHDO. In addition, HOME funds must be provided to the entity that owns the project.
The 2013 Rule also makes minor changes at §92.300(a)(e) to reference and/or conform to other provisions related to the use of CHDO set-aside funds:
The written agreement between the PJ and the CHDO must state the actual sales prices of the housing or describe the method that will be used to determine the sales price. [See §92.504(c)(3)(ii).] This is a new requirement.
The written agreement must state whether the proceeds of sale must be returned to the PJ or may be retained by the CHDO, and whether the proceeds must be used for HOME-eligible activities or other housing activities to benefit low-income families. [See §92.504(c)(3)(x).] This is not a new requirement.
Funds that are recaptured during the period of affordability [because housing no longer meets the affordability requirements under §92.254(a)(5)(ii)] must be reinvested in HOME-assisted activities in accordance with §92.503. This is not a new requirement.
The 2013 Rule does not change the requirement that CHDO set-aside funds may only be used for housing owned, developed, or sponsored by a CHDO. When a CHDO administers a TBRA, direct homebuyer assistance (except in conjunction with development activity, as defined above), or a homeowner rehabilitation program, it is serving as a subrecipient and cannot use CHDO set-aside funds for those activities.
See "Suggested Next Steps for PJs" at §92.2, definition of CHDO. Be sure that policies and procedures reflect a process for:
Certifying that the CHDO meets the definition of "community housing development organization”
Documenting that the CHDO has capacity relevant to its role as owner, developer, or sponsor
Performing this certification and assessment each and every time the PJ commits CHDO set-aside funds to a CHDO for a specific project.
Refer to "Suggested Next Steps for PJs" at §92.2, definition of commitment. Be sure that policies and procedures related to selecting CHDOs are revised so the PJ commits funds to specific projects within the 24-month time limit.
Revise and update procedures related to CHDO selection and qualification and/or Requests for Proposals to reflect the new requirements for selecting and qualifying CHDOs.
Review and publicize through the citizen participation process the revised definitions of "owner, developer, and sponsor.” If desired, identify and reach out to any nonprofit organizations that might qualify as CHDOs but have previously been unable to participate due to lack of development expertise.
See changes at §92.2, definition of commitment regarding the elimination of CHDO reservations; §92.2 definition of community housing development organization regarding criteria to qualify a nonprofit organization as a CHDO, §92.208 regarding CHDO operating funds, and §92.504(c)(3) related to written agreements with project owners, developers, and sponsors.
August 23, 2013 (Any CHDO set-aside projects to which the PJ makes a commitment after this date are subject to the new definitions of owner, developer, and sponsor. However, the requirement that PJs make a commitment of CHDO set-aside funds to a specific project, rather than a reservation of funds to a project to be determined at a later date becomes effective on October 22, 2013).