PRESERVATION LETTER NO. 3
 
MEMORANDUM FOR:     All Housing Directors; Multifamily Housing
                    Directors;  Production Chiefs; Asset
                    Management Chiefs; Preservation
                    Coordinators; and Mortgage Credit Examiners
 
FROM:     Nicolas P. Retsinas, Assistant Secretary for Housing -
            Federal Housing Commissioner, H
 
SUBJECT:   Waiver of Certain Requirements for a Sales Transaction
             under the Preservation Program
 
      On April 12, 1996, I issued Preservation Letter No. 1,
which contained a number of regulatory waivers.  The purpose of
the waivers was to remove any impediment to the rapid conversion
of a preservation extension transaction to a sale to a qualified
priority purchaser, defined as a resident council, nonprofit
organization or a State or local government agency.   Such
projects were designated by the Congress as eligible to receive a
priority in funding through August 1, 1996.  The need to move
swiftly was due in part to this funding deadline and also because
the statute implementing this requirement only became law on
March 28, 1996.
 
     To provide a level playing field for the limited
preservation resources available this fiscal year and in
recognition of the fact that the Congress has directed the
Department to suspend processing of all applications which do not
have an approved plan of action as of October 1, 1996, the
waivers were also applied to sales transactions in the pipeline.
 
     Since issuing the waivers, we have heard from a number of
constituencies about the potential impact of one of the waivers
on tenant-endorsed sales (super priority purchasers) that were in
the processing pipeline.  Specifically, the waiver of 24 CFR
248.157(c), Right of First Offer to Priority Purchasers, meant
that owners could accept a bona fide offer from any priority
purchaser, which offer may or may not have the endorsement of the
tenants.  After discussion with these constituencies, we realize
that we inadvertently placed tenant-endorsed sales at risk with
this waiver.
 
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     The Department places a priority on tenant involvement in
the Preservation Program and all of its multifamily housing
programs and believes that tenant participation in these sales
transactions, either as a purchaser or endorser of the purchaser
is vital to the preservation of this stock as affordable housing
going forward.  Therefore, I am rescinding the waiver of 24 CFR
248.157(c) as included in Preservation Letter No. 1, effective on
May 3, 1996.  Rather, effective May 3, 1996, I hereby waive 24
CFR 248.157(c) for an owner who sells his/her project to a
qualified priority purchaser, provided such sale has the support
of a majority of the tenants.  Such support must be evidenced
before the plan of action will be approved.
 
     An owner who accepted a bona fide offer, as defined in 24
CFR 248.101, from a qualified priority purchaser between
April 12, 1996 and May 2, 1996, is governed by the waiver in
Preservation Letter No. 1 and may proceed with the submission of
the plan of action to the local HUD office.