If demolition will occur after the proposed disposition to an acquiring entity for the demolition, then submit a disposition only application.
Casualty Loss / Natural Disaster
If a PHA's property sustains substantial destruction due to a casualty loss or natural disaster (e.g., fire, tornado, hurricane, flooding), the PHA may need to submit an after the fact Section 18 application to ensure HUD records are accurate. A PHA may also need to submit a Section 18 demolition and/or disposition application in conjunction with demolishing, restoring, rebuilding, or repositioning Public Housing property damaged by casualty loss or natural disaster. The SAC application is subject to all Section 18 application requirements when submitting documentation to HUD, with the exceptions of Resident Consultation; Board Resolution; local government consultation, letter of support from local government, and FHEO review are not required in the event of an accidental loss.
To evidence physical obsolescence for the demolition or disposition of a project, PHAs must show that the necessary modification and/or rehabilitation to a project is not cost-effective. HUD uses a percent threshold compared to the HUD Total Development Cost (TDC) Limits. The HUD TDC unit estimates are released annually. See the guidance below.
HUD TDC Guidance
HUD generally considers modifications not to be cost-effective if costs exceed 62.5% of TDC for elevator structures and 57.14% for other types of structures. PHAs should use the HUD TDC information associated with the year the rehabilitation cost estimate was generated.
For instance, if a rehabilitation cost estimate was generated in November 2022, but the PHA did not submit the application until January 2023, the PHA should use HUD’s 2022 TDC information. More information about HUD’s TDC calculations, including procedures HUD uses for establishing TDC limits can be found at 24 CFR 905.314.
- TDC Limits: Annual postings of TDC limits can be found on HUD's webpage at 2023, 2022, 2021, 2020, 2019, 2018, 2017, 2016, and 2015.
- 52860-B form: An Excel Version of the Total Development Cost (TDC) Addendum (HUD-52860-B) is available here. HUD-52860B is a required form for all applications considering obsolescence for repositioning.
- 0-3 Year Rehab Cost Estimate: Attached with HUD-52860 form, an excel document of list of specific and detailed work-items that require rehabilitation or repair within next 3 years, preferably prepared by an outside engineer or architect that includes scope of work and Cost Estimate (PNA preferred). See PIH Notice 2021-07 for guidance on allowable soft and hard cost estimates.
Rehab for Section 18-Physical Obsolescence vs RAD
Excel version of rehab cost estimate
Submit as part of SAC DDA application
Submit as part of RAD Application
More Efficient or Effective
Repositioning applications that apply under more efficient or effective for off-site or on-site development will only be eligible to receive up to 25% of the TPVs requested by the PHA. For example, if 80 units were occupied in the last 24 months at time of application submission under efficient and effective, the PHA can only receive up to 20 TPVs or (25% of 80 units).
De Minimis Demolition
In accordance with Section 18(f) of the U.S. Housing Act of 1937 (1937 Act), in any 5-year period PHA may demolish not more than the lesser of 5 dwelling units or 5 percent of the total public housing dwelling units owned by the PHA, but only if the space occupied by the demolished unit is used for meeting the service or other needs of public housing residents or the demolished unit was beyond repair.
Transactions with a Seller/Promissory Note (typically in tax credit deals) are seen as a below FMV transaction by the SAC. The SAC sees this as a below FMV transaction because the seller note is typically subject to cash flow and may not be paid back in full to the PHA by the acquiring entity. The PHA may consider this a FMV transaction for the purposes of their tax credit underwriting, as the PHA would receive a seller's note that is the appraised “FMV of the property”.
The Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, as amended (URA) does not apply to Section 18 actions. However, Section 18 of the Act and 24 CFR Part 970 contain similar, but distinct, requirements for the relocation of residents. 104(d) of the Housing and Community Development Act of 1974 applicable, the notice requirements at 24 CFR 970.21(e) apply. Such notice must also explain to the tenant the assistance available under section 104(d) (which includes offering the choice of assistance calculated at section 104(d) or URA levels). See Appendix 33 of HUD Handbook 1378.
PHAs may realize proceeds when they sell, transfer, ground lease or otherwise dispose of public housing property. PHAs retain flexibility to determine the use of proceeds, provided the use is consistent with the 1937 Act which requires that proceeds be used for the provision of low-income housing or to benefit the residents of the public housing agency; or leveraging amounts for securing commercial enterprises, onsite in public housing projects of the PHA appropriate to serve the needs of the residents. A PHA’s use of proceeds is subject to HUD (SAC) approval pursuant to 24 CFR part 970.19. See PIH Notice 2020-23 for allowable use of proceeds.
- Proceeds Training Video
- PIH Notice 2020-23 (Use of Proceeds under Section 18 Disposition or Section 22 Voluntary Conversion)
- Memo: Proceeds for SAC Letter Disposition Approvals
In accordance with 24 CFR 970.35 and SAC's approval letter, PHAs must ensure the Public Housing property is in “Removed from Inventory” (“RMI”) status in IMS/PIC within 7 days of making the final payment to the demolition contractor (demolition) or execution of sales or lease contract (disposition).
Specific instructions are as follows:
- Select the "Development Number", then select "Add Transaction”;
- Select the appropriate "Application (DDA) Number" from the drop-down menu;
- In the "Action/Closing Date" box, enter the removal (demolition) date If the properties in a DDA application were demolished/disposed of (phased) on multiple dates, a separate transaction is needed for each action date;
- Use “Remove Residential Inventory by Building” section, select the appropriate building(s) available in the "Complete Buildings Available" box and transfer them to the "Proposed Buildings" box;
- Save the information using the "Save" button. The status of this information is then displayed as "Draft”;
- PHA supervisory staff submits the information to the PHA Executive Director, or the designated final reviewer at PHA, using the Submission sub tab. The status becomes "Submitted for Review”;
- PHA Executive Director or designee uses the Review sub tab to reject the transaction, which places it in a "Rejected" status, or approves, which places it in a "Submitted for Approval" status;
- The Field Office reviews the request, and once the Field Office approves it, the status of the units in IMS/PIC permanently changes to RMI.
APPLICATION SUBMISSION REQUIREMENTS
All requests for HUD's consent for demolition and/or disposition must be made electronically through PIC. The PHA must complete the applicable sections of the HUD-52860 (see Detail Matrix on page 9 of HUD-52860).
- HUD-52860-A addendum;
- If doing obsolscence HUD-52860-B addendum; and
- If closing out the public housing unit portfolio or adding public housing units,
HUD-5837 form. Closeout FAQs >