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Questions on Rent Supplements and Rental Assistance Payment

Rent Supplement Prospective Conversion to PBVs

Assume that 100% of the units in a multifamily family project are covered by the original Rent Supp contract. In an application for a prospective conversion under the 2nd component of RAD, how many of the Rent Supp units can be converted to PBVs?

See Section 3.5A of the Notice (pages 128 and 129). The Notice provides that 100% of the Rent Supp units can be converted to PBVs so long as at least 50% of the units at the project quality for one or more of the exceptions described in the Notice. Note that one of these exceptions is for 'families receiving supportive services. If less than 50% of the units at the project qualify for an exception, then only 50% of the Rent Supp units can be converted to PBVs; the remaining Rent Supp households would receive tenant-based vouchers.

Enhanced Vouchers due to Flexible Subsidy Load

If a project with Flexible Subsidy loan has a Rent Supplement or RAP contract expiring in FY13, may an owner include in the RAD conversion the Enhanced Vouchers that would be provided because of the Flexible Subsidy loan?

Yes. Pursuant to Section 201 of the Housing and Community Development Amendments of 1978, residents of a project which received Flexible Subsidy are entitled to enhanced vouchers if it is part of a preservation transaction as determined by the Secretary. If the Owner prepays the mortgage, this would terminate the Rent Supp or RAP contract, constituting a triggering event for RAD. If HUD opts to make EVs available under this discretionary authority, these may be included in the RAD conversion to Project Based Vouchers.

Rent Supp Contract Expiration Less Than 60 Days

We plan on submitting a RAD application under Component Two. Our Rent Supp contract will expire on 1/1/13 so this is fewer than 60 days as referenced on Page 131. Since we are less than 60 days it is our understanding that we first must submit the RAD application, then request a one year extension. to the Rent Supp contract. If we ask for this extension, the contract will expire on 1/1/14. Since this would be later than the date of 9/30/13, then should the Owner submit the submission request per Section 3.6.1 of PIH-2012-32 or 3.6.3(B)?

Many owners have contracts with fast approaching expiration dates. If you contract will expire within 120 days, we strongly encourage you to pursue what is called a Retroactive conversion, as described in Section III of Notice 2012-32. Under a Retroactive conversion, you will work with the Multifamily field office to request tenant protection vouchers for the project residents (TPVs are provided fto income eligible residents for all units on the original contract that have been occupied at some point in the prior 24 months). After the TPVs are provided, you may work with the PHA to request conversion of the assistance to Project Based Vouchers. HUD has extremely limited funds to support short term extensions of Rent Supp and RAP contracts. Since your contract will expire within 60 days, we recommend pursuing the retroactive conversion described above. If an Owner has a contract expiring further out, HUD will consider contract extensions on a case by case basis for the purpose of facilitating a RAD conversion. To discuss this option, please contact your Multifamily field office who will set up a meeting with you and include the RAD team.

Rent Supp - Tenant Notification

We have a HUD 236 project totaling 80 units of which 31 units are under a Rent Supp contract. When requesting a RAD Prospective Conversion, do we notify only the 31 tenants who will be impacted (conversation of TBV to PBV) or all 80 units?

. The resident briefing and required tenant notification and comment period are applicable to all residents, not just the 31 Rent Supp units; this is particularly important in partially-assisted properties because residents will need to understand if the assistance in their unit will be converted.

2nd Component Davis Bacon Applicability

Does Davis Bacon Wages rates apply to a Section 236 De-coupling project (State HFA insured) and converting from 20% RAP/80% 236 Basic Rent to a 100% Project Based Voucher Contract? As part of the de-coupling, the project will go through unit and common area renovation work.

The project you describe would be eligible for RAD if it is a prospective Rent Supp or RAP conversion that involves the decoupling and prepayment of the Section 236 mortgage. The prepayment would trigger Enhanced Vouchers for all units that could be included in the PBV contract. The 2nd component of RAD (non-competitive conversion of RAP, Rent Supp and Mod Rehab units to PBVs under Section 3 of the Notice) does not add a unique requirement for Davis-Bacon prevailing wage compliance. However, per the PBV regulations, if the project does not meet the HQS requirements, the Owner will need to enter into an AHAP (Agreement to Enter into a HAP) for the construction period and this will require Davis Bacon wage rates. You may wish to work closely with your PHA to understand HQS standards, and to asses whether the project meets these standards prior to the prepayment and decoupling.

2nd Component of RAD - Project Based Vouchers

We are considering applying for a Prospective Conversion under the 2nd component of RAD, for a Rent Supplement project. Who would administer the PBV contract? Also, how are the initial rents for the PBVs determined?

The PBV contracts are administered by Public Housing Authorities (PHAs). While HUD ultimately determines the PHA that will administer a given PBV contract, you (the project owner) are encourage to reach out to a PHA in your jurisdiction to gauge their interest and begin the conversation about a potential RAD conversion and related project rents (see section 3.6 of Notice PIH-2012-32 for additional information on the application process). Since PBV HAP contracts are contracts between an owner and PHA, the PHA determines the PBV rents. The regulations for PBVs (24 CFR Part 983), however, require that PHAs set their PBV rents at the lessor of: a. Reasonable Rent (ie Comparable Market), b. 110% of FMR, or c. rent requested by the owner.

Sample Tenant Notice

Is there an example of the proper type of tenant notice that owners can post to inform tenants for the different cases of either accepting or rejecting RAD?

Sample tenant notification letters can be found in the appendix of Section III (assuming this is a question for a Rent Supp or RAP owner) of the notice (PIH Notice 2012-32). The Notice is on the RAD website (www.hud.gov/rad).

Special PHA Fees for PBV Administration (Rent Supp RAD Conversion)

Are there any start-up fees or other special fees for PHAs who are administering project-based vouchers for a conversion under the second component of RAD (conversions of Rent Supplement, RAP or Mod Rehab contracts)?

For prospective Rent Supp and RAP conversion under the 2nd component of RAD, a PHA will be eligible for the “special housing fee” that accompanies certain “conversion actions” as established in PIH Notice 2001-41. While Special Fees were established in PIH Notice 2001-41, PIH Notice 2012-09 reestablished the amount at $200.00/unit. The purpose of this special fee is twofold: (1) to compensate PHAs for any extraordinary administrative costs associated with these special purpose allocations; and (2) to ensure PHAs will receive reimbursement for their efforts in the rare instances where the pending conversion action does not ultimately happen because of a decision by the owner or HUD. Please refer to PIH Notices 2001-41 and 2012-09 for more information regarding these Special Fees. The PHA will not earn a special housing fee for Mod Rehab conversions (since the PHA already administers those contracts).

PHA HAP Contract Administration

Can a PHA that does not currently administer Housing Choice Vouchers administer the RAD HAP contract with HUD’s approval? And, if so, is approval easily obtained?

A PHA that does not have a HCV program cannot administer a PBV HAP contract. There are no exceptions made specifically for the Rental Assistance Demonstration. Unfortunately, there is no ability at this time to obtain HCV status for those PHAs that do not currently have an HCV program.

Applicability of Davis Bacon to 2nd Component RAD Conversions

I am pursing a 2nd component conversion. Under the wording of the new PBV Final Rule, I am unclear if the transaction will be subject to Davis Bacon wage rates. Can you please confirm?

In the June 25, 2014 final rule, HUD clarified the reference to statutory labor standards provisions that are applicable to assistance under the PBV program. The Final Rule states that when the nature of the work planned to be performed prior to execution of a Housing Assistance Payments (HAP) contract, or after HAP contract execution within such post-execution period as may be specified by HUD, constitutes development of the project, statutory Davis-Bacon requirements may apply to existing housing (which is not subject to an agreement to enter into a housing assistance payments contract, or AHAP). The Department is preparing additional guidance to clarify when Davis Bacon requirements apply to existing PBV housing, including 2nd Component RAD transactions. In the meantime, we offer the following general rule of thumb: if the project will undergo rehabilitation in connection with the RAD conversion (either pre or post HAP contract execution), the development team should budget assuming Davis Bacon wage rates will apply.