Transmittal -- Models for the preparation of Grant and Use Agreements Under
LIHPRHA & ELIHPA


June 24, 1996

MEMORANDUM FOR:  All Field Assistant General Counsel
                          All Chief Counsel
                       All Chief Attorneys

                /s/
FROM:  Nelson A. Díaz, General Counsel, C

SUBJECT:        Transmittal of Grant Agreements and Use Agreements For
Implementing Plans of Action Approved Under the Low-
Income Housing Preservation and Resident Homeownership
Act of 1990 and the Emergency Low-Income Housing
Preservation Act of 1987

        The purpose of this memorandum is to transmit the necessary
Models for the preparation of Grant Agreements and Use Agreement
and Amendment to Existing Regulatory Agreements ("Use Agreement")
implementing Plans of Action ("POA") under the Low-Income Housing
Preservation and Resident Homeownership Act of 1990, as amended
("LIHPRHA") and the Emergency Low-Income Housing Preservation Act
of 1987, as amended ("ELIHPA").

Revised Use Agreements for POAs Approved Under LIHPRHA

        On March 6, 1995, this office forwarded a memorandum
delegating responsibility to Field Assistant General Counsel,
Chief Counsel and Chief Attorneys for the preparation of Use
Agreements implementing POAs approved under LIHPRHA ("March
Memorandum").  The March Memorandum outlined the necessary
instructions for preparing the Use Agreements.  The Model Use
Agreements were attached.  The March Memorandum indicated that
the Model Use Agreements reflected provisions contained in The
Departments of Veterans Affairs and Housing and Urban Development
and Independent Agencies Appropriations Act of 1995 [Pub. L. No.
103-327, 108 Stat. 2298, approved September 28, 1994] ("FY 1995
Appropriations Act") which amended Sections 222 and 229(4) of
LIHPRHA, and the provisions were effective only during FY 1995.
Under the various Continuing Resolutions, those provisions
continued in effect until the enactment of Section 2(b) of the
Housing Opportunity Program Extension Act of 1996 [Pub. L. No.
104-120, 110 Stat. 834, approved March 28, 1996] ("Extender Act")
and the subsequent enactment of the Departments of Veterans
Affairs and Housing and Urban Development, and Independent
Agencies and Appropriations Act, 1996 (see the second
undesignated paragraph) [Pub. L. No. 104-134, 110 Stat. 1321,
approved April 26, 1996] ("FY 1996 Appropriations Act").
Consequently, the amendments contained in the FY 1995

Appropriations Act to Sections 222 and 229(4) of LIHPRHA are no
longer effective, and the Model Use Agreements have been revised
to reflect this.  The revised Model Use Agreements should be used
for the purposes indicated in the March Memorandum and you should
discontinue using the Model Use Agreements attached to the March
Memorandum.

        In response to Field Staff requesting preparation of Use
Agreements, you should continue to refer to the March Memorandum
for instructions for preparing the Model Use Agreements.  Note
that the numbering of paragraphs on the Model Use Agreements
differs from the references in the March Memorandum.  Use the
caption description for each paragraph when referring to the
instructions contained in the March Memorandum.  In addition to
the instructions contained in the March Memorandum, the POA may
permit the owner or a priority purchaser to retain the excess
rental income in a project covered by a mortgage insured under
Section 236 of the National Housing Act.  The seventh provision
of the Extender Act and the FY 1996 Appropriations Act provides:

"That the Secretary may modify the regulatory agreement
to permit owners and priority purchasers to retain
rental income in excess of the basic rental charge in
projects assisted under section 236 of the National
Housing Act, for the purpose of preserving the low and
moderate income character of the housing."

        If the POA permits the owner or a priority purchaser to
retain the excess rental income, delete the paragraph in the
Section 236 Use Agreement entitled "Calculation and Remittance of
Excess Income" and replace it with the following:

"Retention of Excess Rental Income.  Paragraph 4(i) of
the Regulatory Agreement is revised to read as follows:

The Owner may retain all rental charges collected that
exceed the aggregate basic rental charges for all
occupied units provided the Owner uses the excess
rental income for only the following eligible uses:

(A) Project operating income shortfalls, including
repair costs;

(B) Rental subsidy for very low-income tenants that do
not receive rental assistance;

(C) Pay owner's transaction costs (as defined by HUD);
or

(D) Priority purchaser education oversight fees (as
defined by HUD).

The Owner shall document in the Owner's audited annual
financial statement in a separate schedule the amounts
of excess income collected and the purposes for which
it was used.  If the Owner uses the excess income for
other than one of the eligible uses, this fact shall be
disclosed by the auditor in the Compliance portion of
the audit."

        The revised Model Use Agreements for LIHPRHA are as follows:

        Attachment A -  For use in the Section
221(d)(3) Market Rate program (File Name:
221D3MKT.NEW)

        Attachment B -  For use in the Section
221(d)(3) Market Rate program with Section
241(f) Secondary Financing (File Name:
221D3MKT.241)

        Attachment C -  For use in the Section
221(d)(3) Market Rate program with Section
241(f) Secondary Financing and Transfer of
Physical Assets from a limited dividend
mortgagor to a nonprofit mortgagor (File
Name:  221D3MKT.TPA)

        Attachment D -  For use in the Section
221(d)(3) BMIR program (File Name:
221DBMIR.NEW)

        Attachment E -  For use in the Section
221(d)(3) BMIR program with Section 241(f)
Secondary Financing (File Name:
221DBMIR.241)

        Attachment F -  For use in the Section
221(d)(3) BMIR program with Section 241(f)
Secondary Financing and Transfer of Physical
Assets from a limited dividend mortgagor to a
nonprofit mortgagor (File Name:
221DBMIR.TPA)

        Attachment G -  For use in the Section 236
program (File Name: 236.NEW)

        Attachment H -  For use in the Section 236
program with Section 241(f) Secondary
Financing (File Name: 236.241)

        Attachment I -  For use in the Section 236
program with Section 241(f) Secondary
Financing and Transfer of Physical Assets
from a limited dividend mortgagor to a
nonprofit mortgagor (File Name: 236.TPA)

Carry Grant Agreements under LIHPRHA

        In connection with POAs approved under LIHPRHA which involve
sales to priority purchasers and a Section 241(f) loan, you may
be asked to prepare a Carry Grant Agreement.  (See Attachment J,
File Name:  CARRY.GRA)  The Carry Grant will be used in place of
the former Equity and Gap Grants.  The legal authority for the
Carry Grant is Section 220(d)(3)(B) of LIHPRHA (12 U.S.C.
§ 4110(d)(3)(B)).  For sales to priority purchasers that request
a Section 241(f) loan in connection with the sale, the Section 8
assistance needed to support the loan will be capped at 100
percent of the FMR.  Additional money needed by the priority
purchaser to support the sales transaction will be provided in
the form of a Carry Grant.  In addition, the Carry Grant funds
may also cover a percentage of the Transfer Preservation Equity,
substantial rehabilitation or repair costs, deposits to reserve
accounts, and any development-related costs.  Since the uses of
the Carry Grant funds cannot be determined until after the
specific POA has been approved, you should work with the Program
Office to determine the applicable uses for grant funds that will
be listed in Articles I and V of the Grant Agreement.

        In response to Field Staff requesting preparation of Use
Agreements in connection with Carry Grants, you should continue
to refer to the March Memorandum for instructions for preparing
the Model Use Agreements using the Models described in the above
section.

Capital Grant Agreement and Use Agreements Under LIHPRHA

        In connection with POAs approved under LIHPRHA which involve
sales to priority purchasers, priority purchasers may elect to
receive a Capital Grant instead of a Section 241(f) loan.  The
Capital Grant is provided under Section 220(d)(3)(B) of LIHPRHA
(12 U.S.C. § 4110(d)(3)(B)) to priority purchasers to cover the
cost of acquisition, cost of repairs and reasonable transaction
costs associated with the acquisition and implementation of an
approved POA.  Your responsibility with respect to a Capital
Grant transaction will be to review and approve the Transfer of
Physical Assets ("TPA") documents.  Additionally, your
responsibility will include the preparation of the Capital Grant
Agreement and the appropriate Use Agreement for Capital Grant
transactions.  At the closing, the documents should be executed
by the priority purchaser in the following order:  (1)
Appropriate Non-Profit Mortgagor Regulatory Agreement; (2) Use
Agreement; and (3) Capital Grant Agreement.  The Regulatory
Agreement and Use Agreement must be recorded.  The Capital Grant
Agreement does not need to be recorded.

        Attached is a Model Capital Grant Agreement to be used for
such transactions.  (Attachment K, File Name:  CAPGRANT).  In
connection with the Capital Grant transactions, attached are
Model Use Agreements to be used as follows:

        Attachment L -  For use in the Section
221(d)(3) Market Rate program with a Capital
Grant (File Name:  221M-GRA.USE)

        Attachment M -  For use in the Section
221(d)(3) BMIR program with a Capital Grant
(File Name:  221B-GRA.USE)

        Attachment N -  For use in the Section 236
program with a Capital Grant (File Name:
236-GRA.USE)

        If the POA permits the priority purchaser in a Capital Grant
transaction to retain the excess rental income, delete the
paragraph in the Section 236 Use Agreement entitled "Calculation
and Remittance of Excess Income" and replace it with the
"Retention of Excess Rental Income" language provided above.

        Purchasers of projects which are not eligible for a capital
grant or priority purchasers that elect to receive a
Section 241(f) loan, should be closed in accordance with the
March Memorandum and the instructions provided above in the
section entitled "Revised Use Agreements for POAs Approved Under
LIHPRHA."

Capital Grant Agreement and Use Agreements Under ELIHPA

        In connection with POAs approved under ELIHPA which involve
sales to priority purchasers, priority purchasers may elect to
receive a Capital Grant instead of a Section 241(f) loan.   The
Capital Grant is provided under Section 224(b)(7) of ELIHPA
(12 U.S.C. § 1715l note) which authorizes the Secretary to
provide other incentives authorized in other provisions of law to
facilitate sales of projects to qualified nonprofit
organizations, limited equity tenant cooperatives, public
agencies and other entities acceptable to the Secretary.
A Capital Grant to a priority purchaser is authorized under
LIHPRHA in Section 220(d)(3)(B) (12 U.S.C. § 4110(d)(3)(B).
Therefore, the Secretary will offer Capital Grants under ELIHPA
to priority purchasers.

        Your responsibility with respect to a Capital Grant
transaction will be to review and approve the TPA documents.
Additionally, your responsibility will include the preparation of
the Capital Grant Agreement and the appropriate Use Agreement for
Capital Grant transactions.  At the closing, the documents should
be executed by the priority purchaser in the following order:
(1) Appropriate Non-Profit Mortgagor Regulatory Agreement; (2)
Use Agreement; and (3) Capital Grant Agreement.  The Regulatory
Agreement and Use Agreement must be recorded.  The Capital Grant
Agreement does not need to be recorded.

        Attached is a Model Capital Grant Agreement to be used for
such transactions.  (Attachment O,  File Name:  CAPGRANT.II)  In
connection with the Capital Grant transactions, attached are
Model Use Agreements to be used as follows:

        Attachment P -  For use in the Section
221(d)(3) Market Rate program with a Capital
Grant (File Name:  221M-GRA.II)

        Attachment Q -  For use in the Section
221(d)(3) BMIR program with a Capital Grant
(File Name:  221B-GRA.II)

        Attachment R -  For use in the Section 236
program with a Capital Grant  (File Name:
236-GRA.II)

        For your convenience, you will be able to download the Model
Agreements attached to this memorandum from HUDCLIPS.  The file
copy names for the Model Agreements are indicated above.  If your
office does not have access to HUDCLIPS, please contact
Gayle E. Bohling and she will e-mail the documents to your
office.

        If you have any questions regarding the information
contained in this memorandum, please contact Ms. Bohling at
(202) 708-4167.

Attachments

ATTACHMENTS

        Attachment A -  Use Agreement and Amendment to
Existing Regulatory Agreement for use in the
Section 221(d)(3) Market Rate program/LIHPRHA
(File Name:  221D3MKT.NEW)

        Attachment B -  Use Agreement and Amendment to
Existing Regulatory Agreement for use in the
Section 221(d)(3) Market Rate program with
Section 241(f) Secondary Financing/LIHPRHA
(File Name:  221D3MKT.241)

        Attachment C -  Use Agreement and Amendment to
Existing Regulatory Agreement for use in the
Section 221(d)(3) Market Rate program with
Section 241(f) Secondary Financing and
Transfer of Physical Assets from a limited
dividend mortgagor to a nonprofit
mortgagor/LIHPRHA (File Name:  221D3MKT.TPA)

        Attachment D -  Use Agreement and Amendment to
Existing Regulatory Agreement for use in the
Section 221(d)(3) BMIR program/LIHPRHA (File
Name:  221DBMIR.NEW)

        Attachment E -  Use Agreement and Amendment to
Existing Regulatory Agreement for use in the
Section 221(d)(3) BMIR program with Section
241(f) Secondary Financing/LIHPRHA (File
Name:  221DBMIR.241)

        Attachment F -  Use Agreement and Amendment to
Existing Regulatory Agreement for use in the
Section 221(d)(3) BMIR program with Section
241(f) Secondary Financing and Transfer of
Physical Assets from a limited dividend
mortgagor to a nonprofit mortgagor/LIHPRHA
(File Name:  221DBMIR.TPA)

        Attachment G -  Use Agreement and Amendment to
Existing Regulatory Agreement for use in the
Section 236 program/LIHPRHA (File Name:
236.NEW)

        Attachment H -  Use Agreement and Amendment to
Existing Regulatory Agreement for use in the
Section 236 program with Section 241(f)
Secondary Financing/LIHPRHA (File Name:
236.241)

        Attachment I -  Use Agreement and Amendment to
Existing Regulatory Agreement for use in the
Section 236 program with Section 241(f)
Secondary Financing and Transfer of Physical
Assets from a limited dividend mortgagor to a
nonprofit mortgagor/LIHPRHA (File Name:
236.TPA)

        Attachment J -  Carry Grant Agreement/LIHPRHA
(File Name:  CARRY.GRA)

        Attachment K -  Capital Grant
Agreement/LIHPRHA (File Name:  CAPGRANT)

        Attachment L -  Use Agreement and Amendment to
Existing Regulatory Agreement for use in the
Section 221(d)(3) Market Rate program with a
Capital Grant/LIHPRHA  (File Name:  221M-
GRA.USE)

        Attachment M -  Use Agreement and Amendment to
Existing Regulatory Agreement for use in the
Section 221(d)(3) BMIR program with a Capital
Grant/LIHPRHA (File Name:  221B-GRA.USE)

        Attachment N -  Use Agreement and Amendment to
Existing Regulatory Agreement for use in the
Section 236 program with a Capital
Grant/LIHPRHA  (File Name:  236-GRA.USE)

        Attachment O -  Capital Grant
Agreement/ELIHPA (File Name:
CAPGRANT.II)

        Attachment P -  Use Agreement and Amendment to
Existing Regulatory Agreement for use in the
Section 221(d)(3) Market Rate program with a
Capital Grant/ELIHPA (File Name:  221M-
GRA.II)

        Attachment Q -  Use Agreement and Amendment to
Existing Regulatory Agreement for use in the
Section 221(d)(3) BMIR program with a Capital
Grant/ELIHPA (File Name:  221B-GRA.II)

        Attachment R -  Use Agreement and Amendment to
Existing Regulatory Agreement for use in the
Section 236 program with a Capital
Grant/ELIHPA  (File Name:  236-GRA.II)

 On June 15, 1992, this office issued a memorandum delegating
responsibility to Field Counsel for the preparation of Use Agreements
implementing POAs approved under ELIHPA.  You may continue to
use those Use Agreements in connection with POAs approved under ELIHPA.