Section 236 Preservation
Effective July 1, 2013, Multifamily Housing will launch a centralized processing model for the majority of Section 236 preservation activity through the Office of Recapitalization (Recap) in HUD Headquarters. Section 236 property owners and purchasers will no longer submit applications to the Multifamily Hub or Program Center. This modification of HUD’s current Section 236 transaction procedures is designed to streamline how Section 236 prepayment applications and related requests are processed, and to assign dedicated staff to oversee the complex work involved in these transactions. Under this reorganized framework, Section 236 property owners will be required to submit requests for applicable transactions directly to Recap for review, approval (or denial, as applicable), and processing. Recap is well positioned to take on these transactions, building on the experience of the Mark to Market program and the new Rental Assistance Demonstration, among other programs. While HUD is implementing improved, streamlined procedures to manage Section 236 transactions, HUD has not made nor requested any change in current statutes, regulations, or policies governing how these transactions are evaluated and approved.
Recap’s new portfolio of Section 236 transactions will include the following:
- Requests for prepayment of FHA-insured and HUD-held Section 236 Loans
- Interest Rate Payment (IRP) Decouplings
- Flexible Subsidy Deferrals
- Post-Transaction Unit Rent-Setting, Including Unit Rent Increases of Greater than 10 Percent
- Determination of Excess Income Compliance
- Housing Assistance Payment (HAP) Assumptions (dependent upon the approval of a modified Delegation of Authority)
- Issuance of Tenant Protection Vouchers and Enhanced Vouchers
- Nonprofit Fees and Sales Proceeds
- Modifications to LIHPRHA / ELIHPA Use Agreements
- Unit Conversion Requests
Section 236 transaction requests that will be NOT be evaluated and processed by Recap include:
- FHA-Insured Refinancing Applications
- Prepayment Requests, State Housing Finance Agency Non-Insured 236 Loans (State Agency 236 Properties)
- Requests for 236-Related Payment of Partial Claims (PPCs), and the Modification of HUD-Held Section 236 Loans
How to Apply
Owners and purchasers who are contemplating one or more Section 236 preservation transactions may request a Concept Meeting with HUD to discuss the particular details of a potential transaction and to ask questions about preparing an application. Requests to schedule a Concept Meeting can be e-mailed to HUD. HUD encourages, but does not require applicants to participate in a Concept Meeting prior to the submission of a Section 236 preservation application.
HUD recommends that owners verify the maturity date of the Section 236 loans. Some loans had unscheduled principal payments that may cause the loan to mature faster than originally anticipated. Check with your lender and accountant.
Owners and purchasers need to be aware that all Section 236 transactions require the HUD Office of the Chief Financial Officer to conclude that the owner has submitted all required Excess Income reports and has made all required Excess Income payments. The balance due under any Excess Income repayment agreements will need to be paid in connection with the transaction.
Section 236 Preservation Application Package
The Memorandum to the Industry provides a detailed description of the application process. In short, HUD’s revised Section 236 application procedures have been developed to introduce greater efficiency, consistency, and transparency to the application review process. Section 236 property owners and purchasers will now have one central portal through which to provide project information that is currently collected under established Paperwork Reduction Act (PRA) approval numbers. Owners and purchasers are strongly encouraged by HUD to use the Consolidated Application each time they apply for HUD approval of various Section 236 transactions. Owners and purchasers who choose not to use the Consolidated Application have the alternative option of submitting various required documents to HUD by e-mail, and as Portable Document Format (.PDF) files, to the following address: 236Preservation@hud.gov. In either case, Recap will only receive electronic submissions of Section 236 applications.
After an applicant completes the Consolidated Application, it will indicate which Exhibits the applicant must provide in order for HUD to evaluate requested individual transaction. HUD provides templates for each Exhibit, specifying the information to be provided and providing references to Notices and other relevant guidance. As noted previously, all such applications will be sent to Recap as of July 1, 2013. Please monitor Multifamily Preservation web page for information about and access to the Consolidated Application package.
NOTE: Applications that were sent to any Multifamily Hub, and which are under review as of July 1, 2013, will remain with the applicable Hub for completion. Recap will only process applications that are new submissions as of July 1, 2013.
- Multifamily Housing Preservation pages are now available on HUD exchange for Section 236
- Notice: Updated Guidelines for Continuation of Interest Reduction Payments after Refinancing, "Decoupling."