total expenditures certified to by the Sponsor and approved by the Agency.

17. In the event the Sponsor is unable to obtain a federally insured mortgage, the Agency agrees to waive repayment of the loan, provided the Sponsor has complied with all the foregoing requirements of this agreement, has diligently tried to obtain a federally insured mortgage, and submits a full and complete accounting satisfactory to the Agency of all funds expended, including funds disbursed from the trust account together with the Sponsor's certification that all sums were in payment of expenditures listed in the application and approved by the Agency: Provided, That (subject to section 6 above) repayment shall not be waived if the Sponsor shall obtain mortgage financing from some source not insured by (enter HUD or Farmers Home Administration as appropriate) for this or a similar project on the same site. Any unexpended funds in the trust acount shall be returned to the Agency for appropriate adjustment. The Agency will not cancel repayment of that portion of the loan which is determined to be in excess of percent (enter percentage specified in section 3 above) of the total expenditures certified to by the Sponsor and approved by the Agency.

8. Special conditions:

a. Compliance with title VI of the Civil Rights Act of 1964. The sponsor agrees to comply with all requirements imposed by title VI of the Civil Rights Act of 1964 (Public Law 88-352, 78 Stat. 241), the statement assuring compliance with that title executed as part of the loan application which is hereby incorporated and made a part of this contract and the applicable regulations implementing that title issued by-

(enter name of Federal Department or agency administering Federal project or federally assisted project).

b. Compliance with equal employment opportunity requirements. The Sponsor agrees to comply with the provisions of Executive Order 11246 and the regulations of the Secretary of Labor at 41 CFR Chapter 60, and to incorporate or cause to be incorporated into any contract for construction work or modification thereof, as defined in the regulations of the Secretary of Labor at 41 CFR Chapter 60, which is paid for in whole or in part with funds obtained from the Federal Government or borrowed on the credit of the Federal Government pursuant to a grant, contract, loan, insurance, or guarantee, or undertaken pursuant to any Federal program involving such grant, contract, loan, insurance, or guarantee, the following equal opportunity clause:

The Sponsor hereby agrees that it will incorporate or cause to be incorporated into any contract for construction work or modi

■ (Paragraphs 6 and 7 are not applicable to loans made to a limited dividend sponsor as determined by the Secretary.)

fication thereof, as defined in the regulations of the Secretary of Labor at 41 CFR Chapter 60, which is paid for in whole or in part with funds obtained from the Federal Government or borrowed on the credit of the Federal Government pursuant to grant, contract, loan, insurance, or guarantee, or undertaken pursuant to any Federal program involving such grant, contract, loan, insurance, or guarantee, the following equal opportunity clause:

During the performance of this contract, the contractor agrees as follows:

(1) The contractor will not discriminate against any employee or applicant for employment because of race, color, religion, sex, or national origin. The contractor will take affirmative action to insure that applicants are employed, and that employees are treated during employment without regard to their race, color, religion, sex, or national origin. Such action shall include, but not be limited to, the following: Employment, upgrading, demotion, or transfer; recruitment, advertising, layoff, or termination; rates of pay or other forms of compensation; and selection for training, including apprenticeship. The contractor agrees to post in conspicuous places, available to employees and applicants for employment, notices to be provided setting forth the provisions of the nondiscrimination clause.

(2) The contractor will, in all solicitations or advertisements for employees placed by or on behalf of the contractor, state that all qualified applicants will receive consideration for employment without regard to race, color, religion, sex, or national origin.

(3) The contractor will send to each labor union or representative of workers with which he has a collective-bargaining agreement or other contract or understanding, a notice to be provided by the Contract Compliance Officer advising the said labor union or workers' representatives of the contractor's commitment under this section, and shall post copies of the notice in conspicuous places available to employees and applicants for employment.

(4) The contractor will comply with all provisions of Executive Order 11246 of September 24, 1965, and of the rules, regulations, and relevant orders of the Secretary of Labor.

(5) The contractor will furnish all information and reports required by Executive Order 11246 of September 24, 1965, and by rules, regulations and orders of the Secretary of Labor, or pursuant thereto, and will permit access to his books, records, and accounts by the Department and the Secretary of Labor for purposes of investigation to ascertain compliance with such rules, regulations, and orders.

(6) In the event of the contractor's noncompliance with the nondiscrimination clauses of this contract or with any of the said rules, regulations, or orders, this contract may be canceled, terminated, or suspended in whole or in part and the con

tractor may be declared ineligible for further Government contracts or federally assisted construction contracts in accordance with procedures authorized in Executive Order 11246 of September 24, 1965, or by rule, regulation, or order of the Secretary of Labor or as otherwise provided by law.

(7) The contractor will include the portion of the sentence immediately preceding paragraph (1) and the provisions of paragraphs (1) through (7) n every subcontract or purchase order unless exempted by rules, regulations, or orders of the Secretary of Labor issued pursuant to section 204 of Executive Order 11246 of September 24, 1965, so that such provisions will be binding upon each subcontractor or vendor. The contractor will take such action with respect to any subcontract or purchase order as the Department may direct as a ineans of enforcing such provisions, including sanctions for noncompliance: Provided, however, That in the event a contractor becomes involved in or is threatened with, litigation with a subcontractor or vendor as a result of such direction by the Department, the contractor may request the United States to enter into such litigation to protect the interest of the United States.

The Sponsor further agrees that it will be bound by the above equal opportunity clause with respect to its own employment practices when it participates in federally assisted construction work: Provided, That if the applicant so participating is a State or local government, the above equal opportunity clause is not applicable to any agency, instrumentality, or subdivision of such government which does not participate in work on or under the contract.

The Sponsor agrees that it will assist and cooperate actively with the Department and the Secretary of Labor in obtaining the compliance of contractors and subcontractors with the equal opportunity clause and the rules, regulations, and relevant orders of the Secretary of Labor; that it will furnish the Department and the Secretary of Labor such information as they may require for the supervision of such compliance; and that it will otherwise assist the Department in the discharge of its primary responsibility for securing compliance.

The Sponsor further agrees that it will refrain from entering into any contract or contract modification subject to Executive Order 11246 of September 24, 1965, with a a contractor debarred from, or who has not demonstrated eligibility for, Government contracts and federally assisted construction contracts pursuant to the Executive order and will carry out such sanctions and penalties for violation of the equal opportunity clause as may be imposed upon contractors and subcontractors by the Department or the Secretary of Labor pursuant to Part II, Subpart D of the Executive order. In addition, the applicant agrees that if it fails or refuses to comply with these undertakings, the Department may take any or all of the following actions: Cancel, terminate, or suspend

in whole or in part this grant (contract, loan, insurance, guarantee); refrain from extending any further assistance to the applicant under the program with respect to which the failure or refusal occurred until satisfactory assurance of future compliance has been received from such applicant; and refer the case to the Department of Justice for appropriate legal proceedings.

c. Compliance with affirmative fair housing marketing requirements. The Sponsor agrees to comply with all fair housing and equal housing opportunity requirements, including affirmative marketing, imposed by Executive Order 11063 (27 FR 11527) and Title VIII of the Civil Rights Act of 1968 (Public Law 90-284, 82 Stat. 73) and all regulations issued by the Department of Housing and Urban Development thereunder. d. Compliance with project selection criteria. The sponsor agrees to make every effort to plan and develop housing that would be acceptable under the Project Selection Criteria Regulations issued by the Department of Housing and Urban Development.

e. Environmental protection requirements. The sponsor agrees to supply all information requested by the

(enter name of Federal department or agency) in order to permit compliance with the (department's) (agency's) implementing the National Environmental Policy Act of 1969 (Public Law 91-190, 83 Stat. 852) and the Guidelines of the Council on Environmental Quality.

1. Preference to "displaced persons." The sponsor agrees that among the applications resulting from both affirmative marketing efforts and referrals from the displacing agency, those from persons displaced by the project providing the loan funds must be given preference. The sponsor further agrees that approval of applications for occupancy for persons other than those being displaced by the project will not be made until receipt of a formal notice from the displacing agency that all displaced persons desiring occupancy have exercised their options to file an application for occupancy.

By:

(Sponsor)

APPENDIX II

FHA Form No. 3433
Rev. 1/68

Form Approved

Budget Bureau No. 63-R1055.

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, FEDERAL HOUSING ADMINISTRATION

REQUEST FOR PRELIMINARY DETERMINATION OF ELIGIBILITY AS NONPROFIT SPONSOR OR MORTGAGOR

Under section 221, 231, or 232 of the National Housing Act

To: The Federal Housing Commissioner, c/o

b. Relationship between sponsoring group and mortgagor (existing connections or proposed, if mortgagor has not been formed).

c. Statement as to the source or sources from which the sponsor acquired its capital and acquires its income.

d. Source and amount of funds for the following expenses requiring cash outlay by the sponsor prior to receipt of the insured loan advances (if borrowed, give terms of the loan):

(1) FHA application and commitment fees,

(2) Option on project site, and

(3) Advance legal, housing consultant, and architect fees.

e. Detailed statement of the arrangements made or proposed for the following, listing the principals involved, the relationship between such principals and the sponsor and mortgagor, giving the terms of the arrangements and describing the circumstances surrounding each:

(1) Land upon which the project is to be built,

(2) Construction of the project, including the selection of the general contractor, subcontractors, and architect.

(3) Legal and housing consultant services, (4) Financing of the project, and (5) Management of the project.

To the best of my knowledge and belief, the foregoing information and that contained in the attached exhibit is true and correct.

(Date)

(Signature)

(Title-officer of
sponsoring group)

FHA Form No. 3433-Instructions
(January 1968)

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, FEDERAL HOUSING ADMINISTRATION Instructions Relating to Request for Preliminary Determination of Eligibility as Nonprofit Sponsor or Mortgagor

Sections 221, 231, and 232 of the National Housing Act, as amended, provide financing for nonprofit mortgagors. A nonprofit mortgagor is defined in FHA regulations as follows:

"The mortgagor shall be a corporation or association organized for purposes other than the making of a profit or gain for itself or persons identified therewith and which the Commissioner finds is in no manner controlled by nor under the direction of persons or firms seeking to derive profit or gain therefrom.”

The purpose of these instructions and form is to obtain the information required to enable the FHA Commissioner to make a determination prior to issuance of a letter of feasibility and acceptance of an application, that the sponsor of a mortgagor and the mortgagor itself, if the mortgagor has been created, is truly nonprofit in accordance with the definition above. The purpose of the preliminary determination is to prevent, as far as possible, unnecessary outlay of funds for FHA fees, plans, etc., by a sponsor or proposed mortgagor, who may be found ineligible. If found ineligible, the application will not be accepted. If tentatively found eligible, sponsor, mortgagor, and the parties supplying land and services, in accordance with the terms of the commitment to insure, will be required to formally certify as to motives and relationships prior to initial endorsement of the note for insurance. A determination as to eligibility will be made at that time.

Determination of nonprofit eligibility requires a knowledge of the motivation of the sponsor and mortgagor, relationship between the sponsor and mortgagor, and relationship between the inortgagor or sponsor and the various parties or firms concerned

with the project and mortgage transaction. It is essential that there be a full disclosure of all relationships and of all facts pertaining to each relationship.

Qualifications for successful sponsorship. It is most important that nonprofit sponsors should have continuity, and a serious and long-range desire to provide housing for low- and moderate-income families and individuals. Well-established institutional sponsors such as churches, labor unions, and fraternal organizations, are more likely to have continuity and a history of community and social service than a group organized for the specific purposes of initiating the project. In certain circumstances, however, a nonprofit group could have been recently formed with sumciently broad base of community or neighborhood support so as to assure continuity and successful operation of the proposed project.

A group with deep roots in the community or neighborhood will probably be stronger than a national or regionai organization without established roots in the community. Moreover, such a locally oriented sponsor is more likely to produce tenants for the project.

A nonprofit sponsor should be motivated not only by a desire to develop an adequate housing project, but also by a concern for the project's continuing successful operation. The entire membership of the sponsoring organization, not just a few of its representatives, should be thus motivated.

Establishing eligibility. In order to establish that a nonprofit sponsor is properly qualified to initiate, complete, and operate a housing project for low- and moderateincome families, FHA requires that:

1. The sponsor is acting on its own behalf and is not, either knowingly or unwittingly, under the influence, control, or direction of any outside party seeking to derive profit or gain from the proposed project, such as a landowner, real estate broker, contractor, or consultant.

2. The sponsor fully understands the responsibilities and obligations that attach to sponsorship of a housing project and its continuing successful operation. The principals and membership of the nonprofit sponsor organization should be prepared to explore in depth with the FHA director problems connected with land acquisition, interim and permanent financing, selection of architects and contractors, construction, rent-up, and management.

3. The sponsor is prepared by resolution of its directors or trustees to acknowledge the responsibilities and obligations of sponsorship and continuing ownership and that this position reflects the will of its membership.

4. The sponsor is reliable on the basis of its reputation and past performance or that of its principals. In determining reliability, consideration will be given to any previous experience the sponsor has had in providing

housing or related social or community services.

5. The sponsor either has within its own organization or has made arrangements for the necessary professional and management skills which are essential for the successful initiation, development, completion, and operation of the proposed project.

Capacity of sponsor. The proposed project should not be beyond the capacity of the sponsor.

One would not expect a small bank to take on the underwriting of a major industrial financing venture. Similarly, it would not be reasonable to expect a small church to assume responsibility for a large housing project. The size of the project must be in keeping with the size and capabilities of the sponsoring organization.

If a well-motivated and reliable sponsor proposes a project beyond its capabilities; effort should be made to obtain cosponsors which will permit the combining of capabilities to the extent necessary to satisfy the requirements of the proposal, or the size of the project should be reduced.

Responsibilities of sponsorship. Some nonprofit sponsors may assume that the responsibility for the project, particularly in time of stress, rests with the government, the builder, or someone other than themselves; and that their role as sponsor is merely to lend their name to the project. If this attitude exists, it must be dispelled. Sponsors must understand that it is their project, and must evidence a serious intent to provide continuing support and an effective management.

The FHA commitment and mortgage insurance are predicated upon FHA's estimate (1) that there will be sufficient mortgage proceeds plus required escrows to build the project, and (2) that the rental or project income will be sumcient to meet all operating expenses and mortgage payments during the full term. Nonprofit sponsors should understand, however, that owning and operating a housing project involves difficult and trying problems, including the possibility that some unforeseen circumstances could cause project funds to run short. They should understand that FHA would expect them to cope with these problems at the time of need by all means at their disposal, such as promotional help, contributive management or services, appeals to membership or affiliated organizations. They are not legally required to provide such support, but any nonprofit sponsor should by definition feel a strong sense of moral duty to help in these circumstances. There is no reason to distinguish between a housing project and any other social purpose asset of a nonprofit organization, such as an elderly home, a medical facility, a convalescent conter or a day-care facility.

It is stressed, however, that FHA does not insist upon or require a pledge or guaranty, except in rare cases where deficits are anticipated during "rent-up." What is required

is a full understanding of responsibility on the part of the nonprofit sponsor. Sponsors must, of course, establish that they have the capabilities to meet expenses prior to the drawdown of mortgage funds, including expenses for architectural services, legal and other professional services, etc. Such expenses need not be covered by the sponsor's funds alone. They may be met through assured advances from such other parties as a bank, a federal, state or municipal fund, a foundation, a church hierarchy, or another nonprofit organization.

It is permissible to borrow funds from the contractor or other parties connected with the project if they are for items to be covered by the insured mortgage and if such sums are paid in full at the time the mortgage proceeds are advanced.

Potential sponsors. Although it is not desirable to attempt to establish rigid criteria for determining eligibility of nonprofit sponsors, certain factors will indicate strength, other factors will suggest weakness, and some factors will make the sponsor ineligible. An evaluation of factors applicable to a particular sponsor will assist in reaching a judgment about the eligibility of the sponsor and his ability to successfully carry out the proposed project.

Among factors which indicate strength are: (1) A serious desire to provide housing for qualified low- and moderate-income families and individuals, (2) deep roots in the neighborhood and community, (3) previous experience in successfully operating housing projects, (4) widespread support for the proposal within the membership of the nonprofit organization, (5) professional expertise within the nonprofit organization or available to it from qualified outside sources, (6) adequate financial capacity to meet initial expenses and to provide for unforeseen contingencies during construction and operation of the project, and (7) absence of conflicts of interest.

Among factors which suggest weakness are: (1) No previous housing experience, (2) no previous experience or contacts in the neighborhood in which the proposed project would be located, (3) evidence that a builder, landowner, consultant, or some other party expecting to benefit financially had initiated the project and dominates the sponsorship, (4) lack of assured continuity of support by the nonprofit group as a whole, or the support of individuals who may not continue their association with the sponsoring organization, (5) heavy commitments in other fields which would tax the financial capacity of the group and weaken its support of the proposed project in times of stress, and (6) lack of professional competence to build and operate the project successfully.

Eligible nonprofit sponsors will be found among organizations such as:

A strong local chapter of a national service organization.

A broadly based community action groupsuch could be recently formed if there is positive assurance of continuity.

An established church with a good record of social services.

A National or State church organization. An active charitable foundation of long standing-such could be a family foundation with unquestionable motivation, continuity, and no relationship to profit parties.

A labor union with an active local and full support of the membership.

An outstanding local service organization such as a Junior Chamber of Commerce.

Some sponsors are clearly ineligible without considering factors of strength and weakness, such as a nonprofit foundation controlled by the builder or his family, or by any other person or persons who would derive a profit or fee from the project.

Special Considerations for Section 221(h) Rehabilitation Sales Sponsorship. The nature of the program; 1.e., the rehabilitation and sale of properties to low-income purchasers, requires a special type of sponsorship.

The responsibility as it pertains to the real estate is relatively short term; whereas the responsibility for continued social services to the individual low-income owners is a long-term one. The sponsor must have the capacity or ability to arrange for the continued services required to aid the purchasers to become responsible home owners.

A group of public-spirited citizens organized specifically for the purposes of the program may be qualified if it can be demonstrated that the group has the motivation, determination, and capacity to assemble, rehabilitate, and market the properties to qualified purchasers and at the same time provide the required long-term services to the new home owners.