Title 12 — Banks and Banking
Chapter 42 — Low-Income Housing Preservation and Resident Homeownership
§ 4116. Resident homeownership program
Statutory text
Formation of resident council
Tenants seeking to purchase eligible low-income housing in accordance with section 4110 of this title shall organize a resident council for the purpose of developing a resident homeownership program in accordance with standards established by the Secretary. The resident council shall work with a public or private nonprofit organization or a public body (including an agency or instrumentality thereof). Such organization or public body shall have experience to enable it to help the tenants consider their options and to develop the capacity necessary to own and manage the housing, where appropriate, and shall be approved by the Secretary.
Other program requirements and limitations
Sales to residents
As a condition of approval of a plan of action involving homeownership program under this subchapter, the resident council shall prepare a workable plan acceptable to the Secretary for giving all residents an opportunity to become owners, which plan shall identify—
the price at which the resident council intends to transfer ownership interests in, or shares representing, units in the housing;
the factors that will influence the establishment of such price;
how such price compares to the estimated appraised value of the ownership interests or shares;
the underwriting standard the resident council plans to use (or reasonably expects a public or private lender to use) for potential tenant purchasers;
the financing arrangements the tenants are expected to pursue or be provided; and
a workable schedule of sale (subject to the limitations of paragraph (8)) based on estimated tenant incomes.
Approval of method of conversion and limitation on conditions of approval
The Secretary shall approve the method for converting the housing to homeownership, which may involve acquisition of ownership interests in, or shares representing, the units in a project under any arrangement determined by the Secretary to be appropriate, such as cooperative ownership (including limited equity cooperative ownership) and fee simple ownership (including condominium ownership). The Secretary may not require the prepayment of the mortgage on eligible low-income housing for the approval of a plan of action involving a homeownership program for the housing.
Required conditions
The Secretary shall require that the form of homeownership impose appropriate conditions, including conditions to assure that—
the number of initial owners that are very low-income, lower income, or moderate-income persons at initial occupancy meet standards required or approved by the Secretary;
occupancy charges payable by the owners meet requirements established by the Secretary;
the aggregate incomes of initial and subsequent owners and other sources of funds for the project are sufficient to permit occupancy charges to cover the full operating costs of the housing and any debt service;
each initial owner occupies the unit it acquires; and
the low-income affordability restrictions shall continue to apply to any rental units in the housing for any period during which such units remain rental units.
Use of proceeds from sales to eligible families
The entity that transfers ownership interests in, or shares representing, units to eligible families, or another entity specified in the approved application, may use 50 percent of the proceeds, if any, from the initial sale for costs of the homeownership program, including improvements to the project, operating and replacement reserves for the project, additional homeownership opportunities in the project, and other project-related activities approved by the Secretary. The remaining 50 percent of such proceeds shall be returned to the Secretary for use under section 4110 of this title, subject to availability under appropriations Acts. Such entity shall keep, and make available to the Secretary, all records necessary to calculate accurately payments due the Secretary under this paragraph.
Restrictions on resale by homeowners
In general
Transfer permitted
A homeowner under a homeownership program may transfer the homeowner’s ownership interest in, or shares representing, the unit, except that a homeownership program may establish restrictions on the resale of units under the program.
Right to purchase
Where a resident management corporation, resident council, or cooperative has jurisdiction over the unit, the corporation, council, or cooperative shall have the right to purchase the ownership interest in, or shares representing, the unit from the homeowner for the amount specified in a firm contract between the homeowner and a prospective buyer.
Promissory note required
The homeowner shall execute a promissory note equal to the difference, if any, between the market value and the purchase price, payable to the Secretary, together with a mortgage securing the obligation of the note.
6 years or less
In the case of a transfer within 6 years of the acquisition under the program, the homeownership program shall provide for appropriate restrictions to assure that an eligible family may not receive any undue profit. The plan shall provide for limiting the family’s consideration for its interest in the property to the total of—
the contribution to equity paid by the family;
the value, as determined by such means as the Secretary shall determine through regulation, of any improvements installed at the expense of the family during the family’s tenure as owner; and
the appreciated value determined by an inflation allowance at a rate which may be based on a cost-of-living index, an income index, or market index as determined by the Secretary through regulation and agreed to by the purchaser and the entity that transfers ownership interests in, or shares representing, units to eligible families (or another entity specified in the approved application), at the time of initial sale, and applied against the contribution to equity.
Such an entity may, at the time of initial sale, enter into an agreement with the family to set a maximum amount which this appreciation may not exceed.
6–20 years
In the case of a transfer during the period beginning 6 years after the acquisition and ending 20 years after the acquisition, the homeownership program shall provide for the recapture by the Secretary or the program of an amount equal to the amount of the declining balance on the note described in subparagraph (A)(iii).
Use of recaptured funds
Any net sales proceeds that may not be retained by the homeowner under the plan approved pursuant to this paragraph shall be paid to the HOME Investment Trust Fund for the unit of general local government in which the housing is located. If the housing is located in a unit of general local government that is not a participating jurisdiction (as such term is defined in section 12704 of title 42), any such net sales proceeds shall be paid to the HOME Investment Trust Fund for the State in which the housing is located. With respect to any proceeds transferred to a HOME Investment Trust Fund under this subparagraph, the Secretary shall take such actions as are necessary to ensure that the proceeds shall be immediately available for eligible activities to expand the supply of affordable housing under section 12742 of title 42. The Secretary shall require the maintenance of any records necessary to calculate accurately payments due under this paragraph.
Protection of nonpurchasing families
Eviction
No tenant residing in a dwelling unit in a property on the date the Secretary approves a plan of action may be evicted by reason of a homeownership program approved under this subchapter.
Rental assistance
If a tenant decides not to purchase a unit, or is not qualified to do so, the Secretary shall ensure that rental assistance under section 1437f of title 42 is available for use by each otherwise qualified tenant (that meets the eligibility requirements under such section) in that or another property. Any system for preferences established under section 1437f(d)(1)(A) or 1437f(o)(6)(A) of title 42 shall not apply to the provision of assistance to such families.
Relocation assistance
The resident council shall also inform each such tenant that if the tenant chooses to move, the owner will pay relocation assistance in accordance with the approved homeownership program.
Qualified management
As a condition of approval of a homeownership program under this subchapter, the resident council shall have demonstrated its abilities to manage eligible properties by having done so effectively and efficiently for a period of not less than 3 years or by entering into a contract with a qualified management entity that meets such standards as the Secretary may prescribe to ensure that the property will be maintained in a decent, safe, and sanitary condition.
Timely homeownership
Except in the case of limited equity cooperatives, resident councils shall transfer ownership of the property to tenants within a specified period of time that the Secretary determines to be reasonable. During the interim period when the property continues to be operated and managed as rental housing, the resident council shall utilize written tenant selection policies and criteria that are approved by the Secretary as consistent with the purpose of providing housing for very low-income families. The resident council shall promptly notify in writing any rejected applicant of the grounds for any rejection.
Records and audit of resident councils
Maintenance
Each resident council shall keep such records as may be reasonably necessary to fully disclose the amount and the disposition by such resident council of the proceeds of assistance received under this subchapter (including any proceeds from sales under paragraphs (4) and (5)(D)), the total cost of the homeownership program in connection with which such assistance is given or used, and the amount and nature of that portion of the program supplied by other sources, and such other sources as will facilitate an effective audit.
Access
The Secretary shall have access for the purpose of audit and examination to any books, documents, papers, and records of the resident council that are pertinent to assistance received under this subchapter.
Audit
The Comptroller General of the United States, or any of the duly authorized representatives of the Comptroller General, shall also have access for the purpose of audit and examination to any books, documents, papers, and records of the resident council that are pertinent to assistance received under this subchapter.
Assumption conditions
Any entity that assumes a mortgage covering low-income housing in connection with the acquisition of the housing from an owner under this section must comply with any low-income affordability restrictions for the remaining useful life of the housing as determined under section 4112(c) of this title.
Legislative history
Reconstructed from this section’s Code source credit and amendment notes, resolved against the local Statutes at Large. Editorial notes are evidence, not the law that made the change.
Housing and Community Development Act of 1987
Pub. L. 100–242 title II § 226 · 101 Stat. 1815
Enacted · 12 U.S.C. § 4116
Pub. L. 100–242, title II, § 226, as added Pub. L. 101–625, title VI, § 601(a), Nov. 28, 1990, 104 Stat. 4267
Source evidence
Code source credit
Pub. L. 100–242, title II, § 226, as added Pub. L. 101–625, title VI, § 601(a), Nov. 28, 1990, 104 Stat. 4267Enacted provision · exact public law section
SEC. 226. ALTERNATIVE STATE STRATEGY. (a) Criteria for Approval.— The Secretary may approve a State strategy for purposes of section 225(a) only upon finding that it is a practicable statewide strategy that ensures at a minimum that— (1) current tenants will not be involuntarily displaced (except for good cause); (2) Minorities. housing opportunities for minorities will not be adversely affected in the communities within which the housing is located; (3) any increase in rent for current tenants shall be to a level that does not exceed 30 percent of the adjusted income of the tenants or the fair market rent for comparable housing under section 8(b) of the United States Housing Act of 1937, whichever is lower, except that any increase not necessitated by increased operating costs shall be phased in equally over not less than 3 years if such increase exceeds 10 percent; (4) housing approved under the State strategy will remain affordable to very low-income, lower income or moderate income families and persons for not less than the remaining term of the original mortgage, if the housing is to be made available for rental, or for not less than 40 years, if the housing is to be made available for homeownership; (5) (A) not less than 80 of all units in eligible low income housing approved under the State strategy shall be retained as affordable to families or persons meeting the income eligibility standards for initial occupancy that applies to the housing on January 1, 1987; and (B) not less than 60 percent of the units in any one project shall remain available and affordable to such families or persons, within which not less than 20 percent of the units shall remain available and affordable to very low income families or persons as determined by the Secretary with adjustments for smaller and larger families; (6) expenditures for rehabilitation, maintenance and operation shall be at a level necessary to maintain the housing as decent, safe and sanitary for the period specified in paragraph (4); (7) not less than 25 percent of new assistance required to maintain low income affordability in accordance with this section shall be provided through State and local actions, such as tax exempt financing, low-income tax credits, State or local tax concessions, and other incentives provided by the State or local governments; and (8) for each unit of eligible low income housing approved under the State strategy that is not retained as affordable to families or persons meeting the income eligibility standards for initial occupancy on January 1, 1987, the State will provide with State funds 1 additional unit of comparable housing in the same market area that is available and affordable to such families or persons, and such units or funds shall be made available before the Secretary approves the State strategy. (b) Additional Requirements.— (1) The Secretary may not approve a State strategy until the State has entered into all of the agreements necessary to carry out the strategy. (2) Each State strategy shall include any other provision that the Secretary determines to be necessary to implement an approved State strategy. (c) Implementation Agreements.— The Secretary may enter into such agreements as are necessary to implement an approved State strategy, which agreements may include incentives that are authorized in other provisions of this subtitle.Housing and Community Development Act of 1992
Pub. L. 102–550 § 309(1) · 106 Stat. 3672
Inserted · 12 U.S.C. § 4116(b)(2)
Pub. L. 102–550, § 309(1), inserted “and limitation on conditions of approval” in heading
Inserted · 12 U.S.C. § 4116(b)(2)
Pub. L. 102–550, § 309(1), inserted at end of text “The Secretary may not require the prepayment of the mortgage on eligible low-income housing for the approval of a plan of action involving a homeownership program for the housing.”
Source evidence
Code amendment note
Subsec. (b)(2). Pub. L. 102–550, § 309(1), inserted “and limitation on conditions of approval” in heading and inserted at end of text “The Secretary may not require the prepayment of the mortgage on eligible low-income housing for the approval of a plan of action involving a homeownership program for the housing.”Enacted provision · exact public law section
(1) in paragraph (2)— (A) by inserting “and limitation on conditions of approval” before the period at the end of the paragraph heading; and (B) by inserting after the period at the end the following new sentence: “The Secretary may not require the prepayment of the mortgage on eligible low-income housing for the approval of a plan of action involving a homeowner-ship program for the housing.”;Housing and Community Development Act of 1992
Pub. L. 102–550 § 309(2) · 106 Stat. 3672
Added · 12 U.S.C. § 4116(b)(3)(E)
Pub. L. 102–550, § 309(2), added subpar. (E)
Source evidence
Code amendment note
Subsec. (b)(3)(E). Pub. L. 102–550, § 309(2), added subpar. (E).Enacted provision · exact public law section
(2) in paragraph (3)— (A) in subparagraph (C), by striking “and” at the end; (B) in subparagraph (D), by striking the period at the end and inserting “; and”; and (C) by adding at the end the following new subparagraph: “(E) ) the low-income affordability restrictions shall continue to apply to any rental units in the housing for any period during which such units remain rental units”;Housing and Community Development Act of 1992
Pub. L. 102–550 § 309(3) · 106 Stat. 3672
Substituted · 12 U.S.C. § 4116(b)(8)
Pub. L. 102–550, § 309(3), substituted “Except in the case of limited equity cooperatives, resident” for “Resident”
Source evidence
Code amendment note
Subsec. (b)(8). Pub. L. 102–550, § 309(3), substituted “Except in the case of limited equity cooperatives, resident” for “Resident”.Enacted provision · exact public law section
(3) in paragraph (8), by striking “Resident” and inserting “Except in the case of limited equity cooperatives, resident,” andHousing and Community Development Act of 1992
Pub. L. 102–550 § 309(4) · 106 Stat. 3672
Struck · 12 U.S.C. § 4116(b)(10)
Pub. L. 102–550, § 309(4), struck out “, as determined by the Secretary,” after “entity that assumes”
Substituted · 12 U.S.C. § 4116(b)(10)
Pub. L. 102–550, § 309(4), substituted “4112(c)” for “4112(d)”
Struck · 12 U.S.C. § 4116(b)(10)
Pub. L. 102–550, § 309(4), struck out at end “This requirement shall only apply to an entity, such as a cooperative association, that, as determined by the Secretary, intends to own the housing on a permanent basis.”
Source evidence
Code amendment note
Subsec. (b)(10). Pub. L. 102–550, § 309(4), struck out “, as determined by the Secretary,” after “entity that assumes”, substituted “4112(c)” for “4112(d)”, and struck out at end “This requirement shall only apply to an entity, such as a cooperative association, that, as determined by the Secretary, intends to own the housing on a permanent basis.”Enacted provision · exact public law section
(4) in paragraph (10)— (A) by striking “, as determined by the Secretary,”; (B) by striking “section 222(d)” and inserting “section 222(c)”; and (C) by striking the last sentence.Pub. L. 105–276 title V § 514(b)(2)(A) · 112 Stat. 2461
Substituted · 12 U.S.C. § 4116(b)(6)(B)
Pub. L. 105–276, which directed the substitution of “Any system for preferences established under section 1437f(d)(1)(A) or 1437f(o)(6)(A)” for “The requirement for giving preferences to certain categories of eligible families under sections 1437f(d)(1)(A) and 1437f(o)(3)” in second sentence, was executed by making the substitution for text which included the word “preference” rather than “preferences” to reflect the probable intent of Congress
Source evidence
Code amendment note
Subsec. (b)(6)(B). Pub. L. 105–276, which directed the substitution of “Any system for preferences established under section 1437f(d)(1)(A) or 1437f(o)(6)(A)” for “The requirement for giving preferences to certain categories of eligible families under sections 1437f(d)(1)(A) and 1437f(o)(3)” in second sentence, was executed by making the substitution for text which included the word “preference” rather than “preferences” to reflect the probable intent of Congress.Enacted provision · exact public law section
(A) Low-income housing preservation and resident homeownership act of 1990.— The second sentence of section 226(b)(6)(B) of the Low-Income Housing Preservation and Resident Homeownership Act of 1990 (12 U.S.C. 4116(b)(6)(B)) is amended by striking “The requirement for giving preferences to certain categories of eligible families under sections 8(d)(1)(A) and 8(o)(3)” and inserting “Any system for preferences established under section 8(d)(1)(A) or 8(o)(6)(A)”.
9 of 9 references resolved to an enrolled provision
Editorial Notes
Amendments1992–1998 · 2 rounds
1998
Subsec. (b)(6)(B). Pub. L. 105–276, which directed the substitution of “Any system for preferences established under section 1437f(d)(1)(A) or 1437f(o)(6)(A)” for “The requirement for giving preferences to certain categories of eligible families under sections 1437f(d)(1)(A) and 1437f(o)(3)” in second sentence, was executed by making the substitution for text which included the word “preference” rather than “preferences” to reflect the probable intent of Congress.
1992
Subsec. (b)(2). Pub. L. 102–550, § 309(1), inserted “and limitation on conditions of approval” in heading and inserted at end of text “The Secretary may not require the prepayment of the mortgage on eligible low-income housing for the approval of a plan of action involving a homeownership program for the housing.”
Subsec. (b)(3)(E). Pub. L. 102–550, § 309(2), added subpar. (E).
Subsec. (b)(8). Pub. L. 102–550, § 309(3), substituted “Except in the case of limited equity cooperatives, resident” for “Resident”.
Subsec. (b)(10). Pub. L. 102–550, § 309(4), struck out “, as determined by the Secretary,” after “entity that assumes”, substituted “4112(c)” for “4112(d)”, and struck out at end “This requirement shall only apply to an entity, such as a cooperative association, that, as determined by the Secretary, intends to own the housing on a permanent basis.”
Credits
1990–1998 · 3 acts
- 1990Pub. L. 100–242, title II, § 226, as added Pub. L. 101–625, title VI, § 601(a), , 104 Stat. 4267
- 1992amended Pub. L. 102–550, title III, § 309, , 106 Stat. 3765
- 1998Pub. L. 105–276, title V, § 514(b)(2)(A), , 112 Stat. 2548.
Show as published
(Pub. L. 100–242, title II, § 226, as added Pub. L. 101–625, title VI, § 601(a), , 104 Stat. 4267; amended Pub. L. 102–550, title III, § 309, , 106 Stat. 3765; Pub. L. 105–276, title V, § 514(b)(2)(A), , 112 Stat. 2548.)