7-5. PRESERVATION PROJECTS (LIHPRHA AND ELIHPA)

When owners entered into long-term Use Agreements with HUD under the Preservation Program, HUD agreed to certain items which were outlined in the Preservation project’s approved Plan of Action (POA).

In most Preservation contracts, the POA allows for either a budget-based rent adjustment, an OCAF rent adjustment, or an Annual Adjustment Factor (AAF) rent adjustment.

• A. Renew the HAP Contract for a Preservation Project contract per the provisions outlined in the project’s approved POA which includes the HUD approval letter and the recorded Preservation Use Agreement. The HAP Contract for Preservation Projects cannot be renewed under any option other than Option Five unless the project is being transferred or sold, in which case the owner may request Mark-to-Market debt-restructuring (Option Three) in accordance with section 5-1.D.

• B. Corrections. There are instances where some Section 8 contracts of Preservation projects were renewed under terms different than the terms in the approved POA. In these cases, the AE/CA should calculate the rent as it would have been if the contract(s) had been renewed under terms consistent with the approved POA. This is the “current rent” that should be used as the basis for determining the renewal rent. There is no reimbursement for income lost due to past renewals.

• C. Opt-Outs. In general, approved POAs do not permit the owner to opt-out of the Section 8 contract. However, if a Preservation project owner believes it has the authority to opt-out of the Section 8 contract:

  1. Plan. The owner must submit a detailed plan to the AE/CA that indicates how it intends to honor its obligations under the Use Agreement to maintain the project as affordable housing.

     • a. This plan should detail how the owner intends to maintain the appropriate income mix.

     • b. Owners must be made aware that should they elect to opt-out; they are not released from their obligations set forth under the long-term Use Agreement to provide affordable housing .

  2. Role of the Local HUD Office. The Regional Center or Satellite Office (or CA) should take the following steps:

     • a. The AE/CA should review the approved POA to determine if it provides for the right of the owner to opt-out of the Section 8 contract. In general, opt-outs were precluded, but each approved Preservation POA was structured differently, and as a result, the AE/CA must review each approved POA which includes the HUD approval letter and the recorded Preservation Use Agreement to determine whether or not the project is eligible to opt-out of the Section 8 contract.

Chapter Seven – Published March 2023

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• b. If the approved POA does not allow the owner to opt-out, the AE/CA should advise the owner that it must renew the Section 8 contract.

• c. If the approved POA allows the owner to opt-out, the owner must provide the standard one-year notification of termination of the Section 8 contract(s) to the tenants. Eligible families will be issued enhanced vouchers to permit the families to remain in their units.

3. Plan Submission to HQ: If after review of the owner’s plan, the AE/CA agrees that the owner can opt-out, the AE/CA forwards a copy of the plan to the Director of the Office of Asset Management and Portfolio Oversight, Headquarters for review and either approval or rejection.

• D. Conflicting Documents. The Preservation Use Agreement was recorded to implement the terms of the approved POA. However, there may be instances where the terms of the approved POA and the Use Agreement conflict.

  1. Since the Use Agreement is a recorded instrument, binding on all third parties, if a discrepancy exists between the Preservation Use Agreement and the approved POA, the Preservation Use Agreement prevails and is binding on all parties.

  2. The approved POAs are far more extensive and cover many more items than are covered in a Preservation Use Agreement. In cases where there are items contained in the approved POA that are not addressed in the Preservation Use Agreement, the terms of the approved POA, as they relate to the specific item, are binding on all parties.