Directive Number: 236.241 ------------------------------------------------------------------------ Project Name Project Location Project Number USE AGREEMENT AND AMENDMENT OF EXISTING REGULATORY AGREEMENT FOR LIMITED DIVIDEND MORTGAGORS FOR MULTIFAMILY PROJECTS INSURED OR ASSISTED UNDER SECTION 236 OF THE NATIONAL HOUSING ACT AND SUBJECT TO THE LOW-INCOME HOUSING PRESERVATION AND RESIDENT HOMEOWNERSHIP ACT OF 1990 WITH SECTION 241 LOAN This Agreement, entered into by the Secretary of Housing and Urban Development (the "Secretary" or "HUD"), and ("Owner"), provides as follows: WHEREAS, (the "Project"), a unit project located in , was financed with a Secured Note (the "Mortgage Note") and Deed of Trust (the "Mortgage"), dated 19 and insured and assisted by the Secretary under Section 236 of the National Housing Act, 12 U.S.C. Section 1715z-1, and which project may be subject to future secured notes insured pursuant to other provisions of the National Housing Act, which note or notes are described in the Regulatory Agreement dated , 19 and recorded on as document number in Book , Page in the Recorder's Office of County, or any amendments to the Regulatory Agreement as may be made from time to time covering real property as described in Exhibit "A" attached hereto; WHEREAS, the Project is subject to a Regulatory Agreement or any amendments thereto, (the "Regulatory Agreement"), dated 19 and recorded on 19 in the County Recorder's Office of County as document number , Book ,Page ; WHEREAS, the Owner is eligible to prepay the Project mortgage and the Project is subject to the provisions of the Low- Income Housing Preservation and Resident Homeownership Act of 1990, as amended ("LIHPRHA") 12 U.S.C. 4101 et seq., because it meets the definition of "eligible low-income housing" in LIHPRHA; WHEREAS, pursuant to LIHPRHA, the Owner has requested, and HUD has agreed to provide certain incentives, as set forth herein, in exchange for the Owner's agreement to continue the low-income affordability restrictions on the Project for the remaining useful life of the Project; NOW, THEREFORE, in consideration of the mutual promises set forth herein, the parties hereby agree as follows: 1. Definitions a. "Adjusted Income" has the meaning set forth in the definition of "adjusted income" in 24 CFR Part 248 on the effective date of this Agreement. b. "Low-Income Tenants" are persons or families whose income are more than 50 percent but not more than 80 percent of Median Income as determined by HUD with adjustments for smaller or larger families. c. "Median Income" is the median income for a four- person family as calculated by HUD based on the lesser of the median income for the PMSA or 125 percent of the national median income. d. "Moderate Income Tenants" are persons or families whose incomes are more than 80 percent of Median Income but not more than of 95 percent of Median Income as determined by HUD with adjustment for smaller or larger families. e. "Plan of Action" is that document submitted by the Owner, and approved by HUD, pursuant to LIHPRHA requesting incentives in exchange for maintaining the low and moderate income character of the Project for its remaining useful life. f. "Project Specific Rent" is the market rent that an unsubsidized tenant would reasonably expect to pay for the subject unit, as determined by HUD, based on actual project conditions after repair. g. "Remaining Useful Life" is the period during which the physical characteristics of the Project remain in a condition suitable for occupancy, assuming normal maintenance and repairs are made and major systems and capital components are replaced as becomes necessary. h. "Total Tenant Payment" is the portion of the rent plus, if applicable, a utility allowance, that is payable by the tenant. i. "Very Low-Income Tenants" are persons or families whose incomes do not exceed 50 percent of Median Income as determined by HUD with adjustments for smaller and larger families. 2. Term. This Agreement shall remain in effect for the Remaining Useful Life of the Project, as that term is defined in Paragraph 1 of this Agreement. The Owner may petition HUD to make a determination that the remaining useful life of the Project has expired not less than fifty years from the date of approval of the Plan of Action for the Project. In making such a determination, HUD shall presume that the useful life of the Project has not expired, and the Owner shall have the burden of proof in establishing such expiration. HUD will not determine that the useful life of the Project has expired if such determination results primarily from failure to make regular and reasonable repairs and replacement, as become necessary. Tenants and interested persons and organizations may provide comments on the Owner's petition and may appeal HUD's determination. 3. Use Restriction. The Project shall be used solely as rental housing for Very Low-, Low- and Moderate-Income Tenants, except to the extent that commercial use has been approved by the Commissioner. If there is any approved commercial use or non-rental units in the Project, rents from the units receiving Section 8 assistance shall not be used to pay any expenses incurred with respect to the commercial use or non-rental units. 4. Maintenance of Affordability. a. Paragraph 4(c) of the Regulatory Agreement is deleted in its entirety. The Owner will, to the extent practicable, maintain the Project as affordable to the following number of Very Low-, Low- and Moderate-Income Tenants: No. of Units Very Low-Income Tenants Low-Income Tenants Moderate-Income Tenants In renting vacant units to new tenants , the Owner may deviate from the above Tenant Profile to the extent necessary to keep the project financially viable, only with the approval of HUD. b. The Owner may rent to a higher proportion of Very Low-Income Tenants than required by the foregoing tenant income profile. However, HUD does not agree to provide Section 8 assistance beyond that which is indicated in Paragraph 10 of this Agreement. c. No tenant in occupancy as of the effective date of this Agreement ("Current Tenant(s)") shall be required to relocate on the basis of his or her income. d. Paragraph 4(d) of the Regulatory Agreement is amended to read as follows: (d) to the extent that it does not conflict with the tenant income profile established in Section 222 of LIHPRHA, preference for occupancy shall be given to those families displaced as a result of a major disaster as determined by the President or as a result of governmental action; 5. Rents. a. Phase In of Rents For Current Tenants. Any increase in Total Tenant Payments for Current Tenants that results from the initial implementation of this Agreement shall be phased in within the restrictions imposed by Section 222(a)(2)(E) of LIHPRHA (42 U.S.C. 4112(a)(2)(E)), as follows: If the increase in Total Tenant Payment is greater than 30 percent, it will be phased in equally over a period of not less than three years with each increase occurring at the beginning of a lease year, the first lease year beginning upon the date of this Agreement. If the total increase is greater than 10 percent yet not in excess of 30 percent, it will be phased in at no more than 10 percent per year. However, the rent level of any Current Tenant determined in accordance with this phase-in provision may be increased, if such increase is made necessary by reasonable increases in operating costs, during the phase-in period. b. Very Low- and Low-Income Tenants. Current Very Low- and Low-Income Tenants shall be assisted by Section 8 assistance pursuant to Paragraph 10 of this Agreement and shall pay rent in accordance with the Housing Assistance Payments Contract ("HAP Contract"). c. Moderate-Income Tenants. Current Moderate-Income Tenants and tenants with incomes exceeding the limit for Moderate-Income Tenants shall make a Total Tenant Payment of not more than the lowest of 30 percent of their Adjusted Income, the existing Section 8 fair market rent ("FMR") or (if applicable in accordance with HUD instructions) the Project Specific Rent (PSR). Any rent increases resulting from this Paragraph shall be phased in in accordance with Paragraph 5.a. of this Agreement. If the rents paid by Moderate-Income Tenants and tenants with incomes exceeding the limit for Moderate-Income Tenants immediately prior to the date of this Agreement are higher than those specified in this Paragraph, those rents shall not be changed because of the implementation of this Agreement. d. In the event the income of a Current Moderate- Income Tenant decreases below 80 percent of Median-Income and Section 8 assistance is not available, that tenant shall pay the lower of: (i) the FMR (or the PSR, when applicable); or (ii) the higher of 30 percent of the Adjusted Monthly Income (AMI) or the Minimum Rent. The Minimum Total Tenant Payment shall be equal to 30 percent of 80 percent of Median-Income for the applicable family size adjusted by family allowances. 6. Rents for Future Tenants. a. Very Low- and Low-Income Tenants. Future Very Low- and Low-Income Tenants admitted in accordance with the tenant income profile established in Paragraph 4 of this Agreement shall be assisted by Section 8 assistance pursuant to Paragraph 10 of this Agreement and shall pay rent in accordance with the HAP Contract. b. The Owner may admit additional Very Low-Income Tenants to the Project in excess of that required by the tenant income profile set forth in Paragraph 4 of this Agreement. In the event that Section 8 assistance is not available for these additional Very Low-Income Tenants, they shall pay for rent the lower of: (1) the FMR (or the PSR, when applicable); or (ii) the higher of 30 percent of AMI or the Floor Rent. The Floor Rent shall be equal to 30 percent of 50 percent of Median Income for the applicable family size adjusted by family allowance. c. Low-Income Tenants. Future Low-Income Tenants shall receive Section 8 assistance and the Total Tenant Payment shall be determined in accordance with the HAP Contract. In the event that Section 8 assistance is not available, Future Low- Income Tenants shall pay the lesser of the FMR or the Minimum Rent. d. Moderate-Income Tenants. The Total Tenant Payment for Future Moderate-Income Tenants shall be the lowest of 30 percent of Adjusted Income, the FMR or the PSR, when applicable. In the event the income of a Future Moderate-Income Tenant decreases below 80 percent of Median Income and Section 8 assistance is not available, that tenant shall pay the Minimum Rent. 7. Adjustments to Total Tenant Payments and to Project Rent. a. Tenants shall be recertified annually. Any tenant who refuses to certify or recertify income shall pay for rent the lesser of the FMR or the PSR, when applicable. b. Project rent adjustments shall be calculated based on an annual adjustment factor established by HUD and applied to the portion of rent attributable to project operating expenses. The Owner may apply for a rent adjustment on an annual basis on the anniversary date of approval of a LIHPRHA Plan of Action. If the Owner believes that the rent adjustment approved by HUD is not adequate, the Owner may appeal the HUD's determination within 30 days of receiving notice of HUD's decision. HUD may approve a rent increase in excess of that needed to cover project operating expenses only if HUD determines such an increase is necessary to reflect extraordinary and necessary expenses of owning and maintaining the Project (any such budget based increase is only for the year approved and does not carry forward into subsequent years). c. Paragraph 4(f) of the Regulatory Agreement is deleted in its entirety. 8. Establishment of Basic and Market Rents. Paragraph 4(b) of the Regulatory Agreement is deleted in its entirety and paragraph 4(a) of the Regulatory Agreement is revised to read as follows: The aggregate basic monthly rental charges for the Project shall be the amount approved by the Commissioner as necessary to enable the owner to receive the annual authorized return determined pursuant to the HUD-approved Plan of Action (including therein the debt service payable on any HUD-approved equity loan), pay debt service on the federally assisted first mortgage on the project (less the amount of any interest reduction payments) and on any loan for rehabilitation of the project, meet project operating expenses, and establish adequate reserves. The aggregate market rental charges for the Project shall be the aggregate basic rental charges plus the monthly interest reduction payment. 9. Calculation and Remittance of Excess Income. Paragraph 4(i) of the Regulatory Agreement is revised to read as follows: The Owner shall remit to the Commissioner on or before the tenth day of each month all rental charges collected that exceed the aggregate basic rent, up to but not exceeding, the monthly subsidy amount. Any income received in excess of the monthly subsidy amount shall be deposited in the Residual Receipts account. 10. Section 8 Assistance. The Owner agrees to accept assistance under a HAP Contract executed pursuant to Section 8 of the United States Housing Act of 1937, as amended, with respect to units in the Project. The Owner agrees to accept and utilize such assistance in accordance with the HAP Contract, and agrees to accept any renewal or extension of the HAP Contract or any contract under a program designated by the Secretary as a successor to the Section 8 Program. To the extent authorized by law and to the extent that appropriated funds are available, the Secretary agrees to provide Section 8 assistance under Section 8 or any successor program with respect to units in the Project. If assistance under Section 8 or any successor program ceases to be available during the term of this Agreement, this Agreement will be renegotiated by the parties in accordance with Section 224(b) of LIHPRHA (42 U.S.C. 4114(b)). 11. Distributions and Amendment of Regulatory Agreement. Paragraph 6(e)(1) of the Regulatory Agreement is amended to read as follows: (1) All distributions shall be made only as of or after the end of a semiannual or annual fiscal period, or as indicated in paragraph 6(e)(2) of this Agreement, and only as permitted by the law of the applicable jurisdiction; all such distributions in any one fiscal year shall be no more than $ and the right to such distributions shall be cumulative. All or a portion of the semiannual or annual distributions may be applied to monthly debt service payments for an equity takeout loan approved by the Secretary. Except with respect to the proceeds of a HUD-approved equity takeout loan, no equity withdrawal shall be made from borrowed funds or when there is any default under this Agreement or under any mortgage secured by the Project. 12. Reserve for Replacements and Amendment of Regulatory Agreement. Paragraph 2(a) of the Regulatory Agreement is amended by adding the following language to the end thereof: The Secretary will not approve the release of funds from the Reserve for Replacements account if doing so would reduce the balance below an amount equivalent to one month's maximum gross rent potential, except in emergencies such as natural disasters requiring immediate repairs or to avoid a default on, or assignment of, the mortgage insured by the Commissioner. 13. Savings Due to Management Efficiencies. Any net savings from reductions in operating expenses due to management efficiencies as determined by the Secretary shall be deposited into the Reserve for Replacement Account. The Owner may have access to these funds on a semiannual basis upon a finding by HUD that a withdrawal will not reduce the balance in the Reserve for Replacements account below that required in Paragraph 2(a) of the Regulatory Agreement, as amended by this Agreement, and that the Owner is maintaining the property in accordance with the Housing Quality Standards set forth in 24 CFR Part 886. 14. Residual Receipts. (a) On an annual basis, the Secretary may permit the Owner to withdraw funds from the Residual Receipts account as necessary to ensure that the Owner receives an annual distribution equalling the authorized return determined pursuant to the HUD-approved Plan of Action, less any amounts paid as debt service on a HUD-approved equity loan. (b) To the extent necessary to ensure that the Owner receives the annual authorized return (including debt service payments on a HUD-approved equity loan) during the tenant rent phase-in period established pursuant to Paragraph 5.a. of this Agreement, the Secretary shall permit the Owner to receive the following additional incentives, in the following order of preference: (1) Access to Residual Receipts accounts; (2) Excess income payments not yet remitted pursuant to Paragraph 4(i) of the Regulatory Agreement, as amended by Paragraph 10 of this Agreement; and (iii) Increases in rents, as permitted under the Section 8 HAP Contract. (c) Subparagraph (b) shall apply only if the short-fall in income is due to the rent phase-in period, itself, and not due to other factors such as vacancies or excess costs. 15. Displacement. No Current Tenant shall be displaced, except for good cause. 16. Civil Rights Requirements. The Owner will comply with the provisions of any Federal, State or local law prohibiting discrimination in housing on the basis of race, color, religion, sex, national origin, handicap or familial status, including but not limited to: Title VI of the Civil Rights Act of 1964 (Public Law 90-284, 82 Stat. 73), the Fair Housing Act, Executive Order 11063, Section 504 of the Rehabilitation Act of 1973, and all requirements imposed by or pursuant to the regulations of the Department of Housing and Urban Development implementing these authorities, including, but not limited to 24 CFR Parts 1, 100, 107, and 110, and Subparts I and M of Part 200. 17. Housing Quality Standards. The Owner shall maintain the Project in accordance with the Housing Quality Standards set forth in 24 CFR Part 886 and applicable local codes. In the event there is a conflict between the housing quality standards and local codes, the stricter standard shall prevail. The Secretary shall conduct an annual physical assessment of the Project in order to ensure compliance with the Housing Quality Standards. 18. Violations of this Agreement. If HUD determines that the Owner has violated the terms of this Agreement, including compliance with the Housing Quality Standards, HUD shall notify the Owner of its determination and the Owner shall have 90 days in which to cure the violation. At the expiration of the 90 days, HUD shall reinspect the Project or take other investigative steps in order to ensure compliance. The failure to cure any violation within 90 days of notification of the violation may result in, but not be limited to, the forfeiture of, or reduction in, the Owner's annual distribution; withholding of an escrowed equity loan proceeds; reduction in, or suspension of, the Section 8 assistance authorized in this Agreement; acceleration of debt secured by the Project; payment of relocation expenses to tenants admitted to the Project inconsistently with the tenant income profile established in this Agreement; and the imposition of any other sanctions authorized in law. 19. Agreement Binding Upon Successors and Assigns. Upon conveyance of the Project during the term of this Agreement, the Owner shall require its successor or assignee to assume its obligations under this Agreement. In any event, this Agreement shall be binding upon the Owner's successors and assigns. 20. Reports. The Owner shall furnish the Secretary with such reports concerning the financial condition, operation and condition of the Project as the Secretary may prescribe. 21. Incorporation of Regulatory Agreement by Reference. Paragraphs 2(a); 2(c); 4(e), (g), (h), (j) and (k); 5; 6(b); 6(d); 6(e); 6(g); 6(h); 6(k); 9; 10; 13 and 17 of the Regulatory Agreement (HUD Form 93136 dated 9/69) are adopted and incorporated by reference herein. In the event that the Owner prepays all mortgage note or notes as are described in the Regulatory Agreement or any Regulatory Agreement Amendments or all FHA mortgage insurance is terminated, the provisions listed above shall remain in full force and effect, binding the Owner, its successors and assigns, as if all mortgage note or notes were not prepaid or all mortgage insurance terminated, except that in the case of such prepayment or termination: a. the phrase "the Secretary" shall be substituted for the term "Mortgagee" throughout the adopted language of the Regulatory Agreement; and b. the "mortgaged property," or "mortgaged premises" referred to in the Regulatory Agreement, shall be the Project. 22. Enforcement. In the event of a breach or threatened breach of any of the provisions of this Agreement, any eligible tenant or applicant for occupancy, or the Secretary or his or her successors or delegates, may institute proper legal action to enforce performance of such provision, to enjoin any conduct in violation of such provision, to recover damages (including refunds, with interest, on rent overcharges), and/or to obtain whatever other relief may be appropriate. 23. Severability. The invalidity, in whole or in part, of any provision of this Agreement shall not affect or invalidate any remaining provisions. 24. Impairment of Regulatory Agreement. The terms and provisions of the Regulatory Agreement shall continue in full force and effect except as expressly modified herein. Conflicts between this Agreement and the Regulatory Agreement shall be resolved in favor of this Agreement. 25. Execution of Other Agreements. The Owner agrees that it has not and will not execute any other agreement with provisions contradictory of, or in opposition to, the provisions of this Agreement, and that in any event, the provisions of this Agreement are paramount and controlling as to the rights and obligations set forth herein and supersede any other conflicting requirements. 26. Subsequent Statutory Amendments. If revisions to the provisions of this Use Agreement are necessitated by subsequent statutory amendments, the Owner agrees to execute modifications to this Use Agreement that are needed to conform to the statutory amendments. In the alternative, at HUD's option, HUD may implement any such statutory amendment through rulemaking by amending 24 C.F.R. Part 248. IN WITNESS WHEREOF, the parties hereto have executed this Agreement and have agreed that it shall be effective as of the ______ day of ________________, 19 . OWNER _____________________________ _____________________________ Witness SECRETARY OF HOUSING AND URBAN DEVELOPMENT _____________________________ ____________________________ Witness BY: Director Multifamily Housing Division HUD, Field Office STATE OF ) ) SS: COUNTY OF ) Before me, __________________, a Notary Public in and for said State, on this _____ day of _______________, 19 , personally appeared _____________________, who is personally well known to me to be the Director, ____________________________, and the person who executed the foregoing instrument by virtue of the authority vested in him by Section 204(g) of the National Housing Act, as amended, and I having first made known to him the contents thereof, he did acknowledge the signing thereof to be his free and voluntary act and deed on behalf of Henry G. Cisneros, as the Secretary of Housing and Urban Development for the uses, purposes and considerations therein set forth. Witness my hand and official seal this ____ day of ____________, 19 . (SEAL) ____________________________ Notary Public My commission expires ____________________, 19___. STATE OF ) ) ss: COUNTY OF ) On this ____ day of ________________, A.D., 19 , before me, a Notary Public in and for said county and State, residing therein, duly commissioned and sworn, personally appeared _____________________________, and proved to me on the basis of satisfactory evidence to be the ________________________ of the limited partnership that executed the within instrument and acknowledged to me that such limited partnership executed the same. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this Certificate first above written. __________________________________ NOTARY PUBLIC (SEAL) My Commission expires _____________________, 19___.