PRESERVATION LETTER NO. 5
 
MEMORANDUM FOR:     All Housing Directors; Multifamily Housing Directors;
                    Production Chiefs; Asset Management Chiefs; and
                    Preservation Coordinators
 
FROM:     Nicolas P. Retsinas, Assistant Secretary for Housing - Federal
                  Housing Commissioner, H
 
SUBJECT:  The Processing Time Line for the Preservation Program
 
     On May 3, 1996, the Department issued Preservation Letter No. 4 which
contained Section V, Time Line and Temporary Moratorium.  The purpose of the
time line was to advise HUD staff and program participants on the dates for
actions for the Preservation Program for the remainder of FY 1996.  Subsequent
to issuance of Letter No. 4, several program participants questioned the
timing of funding of priority categories identified in the statute.
Specifically, they believed that H.R. 2099 limited funding of approved plans
of action through August 15, 1996,  to those involving sales to nonprofits and
that the other priority categories were not eligible for funding until August
16; they asked that the Department reexamine its position.
 
     In addition to the language regarding the funding of sales to
nonprofits, Title II of H.R. 2099 also states in relevant part,  That the
Secretary may (underlining added) give priority to funding and processing the
following projects provided that the funding is obligated not later than
September 15, 1996: (1) projects with approved plans of action to retain the
housing that file ... to transfer the housing; (2) projects with approved
plans of action that are subject to a repayment or settlement agreement...;
(3) projects for which submissions were delayed as a result of their location
... in a Presidential Disaster Declaration; and (4) projects whose processing
was ... suspended, deferred, or interrupted ....    HUD determined to exercise
the authority reflected in this language by giving equal priority to all of
the projects in this proviso and reflected that decision in Preservation
Letter No. 4.
 
     As requested, we have reexamined our position in this matter.  The
Department strongly supports sales to nonprofits and tenant involvement in
such sales and believes that it is appropriate to give such projects first
priority in funding.  This could be accomplished through a set-aside of funds;
however, based on current estimates, if funds for all sales in the pipeline
were set-aside, there would be no funds available for the
 
projects falling into categories (2) through (4) above.   A better approach
would be to fund sales on a priority basis through August 15, 1996 as provided
for in H.R. 2099 and not to exercise the authority to fund all eligible,
priority projects until after August 15, 1996.  Accordingly, the revised
funding/program time line is as follows:
 
A.   On or before August 15, 1996.  Available preservation funds will be
     distributed as follows:
 
     1.    Tenant protections, i.e., vouchers and certificates, where needed
           when an owner prepays or terminates mortgage insurance contract.
 
     2.    Any sale to a priority purchaser with an approved plan of action.
           This includes:
 
       a. sale to a priority purchaser that was in the funding queue on
          April 26, 1996;
 
       b. sales to priority purchasers in the pipeline; and
 
       c. conversions to sales to priority purchasers.
 
B.   Between August 16, 1996 and September 16, 1996 (inclusive).*
 
     1.   If the Department determines that there are insufficient funds
          available to meet all demands for funding, funds will be distributed
          as follows:
 
       a. Tenant protections, (i.e., vouchers and certificates).
 
       b. In order of  receipt of their approved POA in Headquarters,
          projects falling into any of the categories listed below:
 
          1)   Sales to priority purchasers,
 
          2)    Projects with approved plans of action that are subject to a
                repayment or settlement agreement that was executed between
                the owner and the Secretary before September 1, 1995,
 
          3) Projects for which submissions were delayed as a result of
             their location in areas that were designated as a Federal
             disaster area in a Presidential Disaster declaration,
 
          4) Projects whose processing was, in fact, or in practical
             effect, suspended, deferred, or interrupted for a period of
             nine months or more because of differing interpretations, by
             the Secretary and an owner concerning the time of the ability
             of an uninsured Section 236 property to prepay, or by the
             Secretary and a State or local rent regulatory agency,
             concerning the effect of a presumptively applicable State or
             local rent control law or regulation on the determination of
             preservation value under Section 213 of LIHPRHA, as amended,
             if the owner of such project filed notice of intent to extend
             the low-income affordability restrictions of the housing, or
             transfer to a qualified purchaser  who would extend such
             restrictions, on or before  November 1, 1993.
 
     2.   The Department may impose a temporary moratorium on applications for
          preservation incentives by potential recipients.  Based on our
          current projection of funding availability, as of August 16, 1996,
          the Department will likely stop accepting new initial notices of
          intent.
 
C.   Between September 16, 1996 and September 30, 1996 (inclusive).*  If the
     Department determines that there are insufficient funds available to
     meet all demands for funding,
 
     1.   Funds will be set aside for tenant protections, (i.e., vouchers and
          certificates) and , thereafter,
 
     2.   In order of  receipt in Headquarters, any project with an approved
          plan of action would be funded.  This would include the funding of
          extension projects based on their position in the funding queue, as
          well as sales to other than priority purchasers.
 
D.   On October 1, 1996, the Department will likely suspend further
     processing of preservation applications which do not have approved plans
     of action.
 
     After making these decisions, but prior to issuance of these revised
instructions, the Department has discussed these matters with various affected
constituencies and Congressional staff.
 
     *As stated, reassessments of the funds available will, at a minimum, be
performed at these times and such reassessments may result in a change to the
funding order cited. In any event, however, funding of  tenant protections
will remain the top priority.
 
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