8.15.5.2 State/Local Occupancy Use and/or Rent Restrictions

A. Use or rent restrictions sought by the State or local jurisdiction for projects financed by proceeds from State/local tax-exempt obligations are often more restrictive than the minimum requirements of the Internal Revenue Code. The Regional/Satellite Office Director may approve a State or local restriction exceeding the minimum requirements of the Internal Revenue Code, but only if the following conditions are met:

1. The Regional/Satellite Office Director must determine that the restriction is not likely to have an adverse impact on project occupancy, marketability, or long-term feasibility. This determination must be made on a project-by-project basis.

2. The restriction must not conflict with any applicable HUD mortgage insurance regulations or related administrative requirements.

3. The restriction must not appear in the Note, Mortgage, Regulatory Agreement, or any other HUD/FHA loan document.

4. Unless otherwise approved in writing by HUD, the restriction must be qualified to provide that it will automatically terminate in the event of either foreclosure or transfer of title by deed in lieu of foreclosure. Such a termination provision must be included in every legal instrument (e.g., deed, land use restriction agreement, Security Agreement, or financing agreement) in which the restriction appears.