the common areas and facilities serving the project), the construction of which shall have been completed at least one year prior to the filing of the application for assistance payments under Subpart C of this part and which meets such standards as the Secretary may prescribe, provided that the property is to be occupied by a mortgagor who, without such assistance, would be likely to be involuntarily displaced from the dwelling or, in the case of a condominium, from a unit in the project. Provided, That any family (i) which, by virtue of threatened displacement from a unit in a project, would be eligible for assistance under this provision for a onefamily unit in the resulting condominium project, and (ii) which is precluded from the purchase of such condominium unit because of a rule of the condominium association, may be entitled to assistance under this section in connection with a single family dwelling or a one-family unit in another condominium (together with an undivided interest in the common areas and facilities serving the project), which otherwise meets the standards of this section and which is located in the same market area as the converted project.

(5) A substantially rehabilitated single family dwelling that is security for a mortgage which was endorsed for mortgage insurance under § 203.50 not more than twelve months prior to the application for a firm commitment.

(b) The marketability of all lots or units to be developed or rehabilitated must be established.

[48 FR 13413, Mar. 31, 1983]

§ 235.16 Value of property after rehabilitation.

Value after rehabilitation will be based upon the market data approach utilizing similarly rehabilitated property sales data. The value of a rehabilitated property will be the lesser of the following:

(a) Value before rehabilitation (“as is") plus the cost of rehabilitation.

(b) Acquisition cost plus the cost of rehabilitation.

(c) Market value after rehabilitation. A property rehabilitated and offered as security for a subsidized mortgage

must be fully marketable in the neighborhood (either currently or after the completion of neighborhood improvements) without the benefit of the subsidy.

[41 FR 1172, Jan. 6, 1976, as amended at 41 FR 3470, Jan. 23, 1976]

8 235.18 Lot size.

Homeownership assistance payments may not be used to permit acquisition of land in excess of requirements for an adequate residential site, even though the cost of land may be cheaper in outlying areas. Accordingly, lots for use under the program authorized by this part shall not exceed one acre unless more than one acre is needed to comply with local code requirements or to provide for a safe and adequate water supply and sewage disposal system.

8 235.20 Requirements for family unit in

condominium.

Where the dwelling involved is a one-family unit in a condominium project, the following additional requirements shall be met:

(a) Family unit eligibility. The family unit must be located in a project which has been financed with a mortgage which is or has been insured under any of the FHA-multifamily housing programs other than sections 213(a) (1) and (2) of the National Housing Act: Provided, That, this FHA mortgage financing rules does not apply to projects involving 11 or less units nor to existing public housing units concerning which there has been established condominium

which meets such standards as the Secretary may prescribe and for which the mortgagor qualifies as a family occupying low-rent public housing nor to units identified in § 235.15(a)(4).

(b) Plan of apartment ownership. The project in which the family unit is located shall have been committed to a plan of apartment ownership by enabling deed, deed of constitution, public deed, or other recorded instrument which has been approved by the Secretary and which is certified by the mortgagee as acceptable and binding within the jurisdiction where the project is located.

(c) Certificate by mortgagee. The mortgagee shall certify as to each of the following:

(1) That the individual deed for the family unit to be covered by an FHAinsured mortgage complies with all legal requirements of the jurisdiction and that ownership thereunder is subject to the plan of apartment ownership.

(2) That the mortgagor has good and marketable title to the family unit subject only to the mortgage which is a valid first lien on the property.

(3) That the family unit is assessed and subject to assessment for taxes pertaining to the unit.

(d) FHA controls for consumer and public interest. The Secretary may require the execution of a regulatory agreement which shall be made applicable to any association of owners and to any subsequent owner of a family unit. The Secretary may impose such additional conditions and provisions as he deems necessary for the protection of the consumer and public interest.

(e) Mortgage covenant concerning common expenses and assessments. The mortgage shall contain a covenant by the mortgagor to pay the allocated share of the common expenses or assessments and charges by the Association of Owners as provided in the Plan of Apartment Ownership.

(f) Definition of term "assessment”. As used in the mortgage, the term "assessment", except where it refers to assessments and charges by the Association of Owners, shall mean special assessments by State or local governmental agencies, districts or other public taxing or assessing bodies.

[41 FR 1172, Jan. 6, 1976, as amended at 45 FR 62796, Sept. 22, 1980; 53 FR 34284, Sept. 6, 1988]

EFFECTIVE DATE NOTE: At 53 FR 34284, Sept. 6, 1988, § 235.20 was amended by revising paragraph (e). Under section 7(o)(3) of the Department of Housing and Urban Development Act (42 U.S.C. 3535(o)(3)), this final rule cannot become effective until after the first period of 30 calendar days of continuous session of Congress which occurs after the date of the rule's publication. HUD will publish a notice of the effective date of this rule following expiration of the 30-session-day waiting period. Whether or not the statutory waiting period has expired, this rule will not become effective until HUD's separate notice is published an

§ 235.22 Mortgage provisions.

(a) Mortgage form. (1) The term "mortgage" as used in this part has the same meaning as defined in either § 203.17(a)(1) of this chapter, 203.43c(b)(1) of this chapter, or § 234.1(d) of this chapter, as applicable, and may refer both to a security instrument creating a lien, whether called a "mortgage," "deed of trusts," "security deed" or other term common in a jurisdiction, as well as the credit instrument, or note, secured thereby.

(2) The mortgage shall be in a form meeting the requirements of the Commissioner. For each case in which the Commissioner does not prescribe complete mortgage instruments, the Commissioner shall require specific language in the mortgage which shall be uniform for every mortgage, and may also prescribe the language or substance of additional provisions for all mortgages as well as the language or substance of additional provisions for use only in particular jurisdictions or for particular programs. Each mortgage shall also contain any provisions necessary to create a valid and enforceable secured debt under the laws of the jurisdiction in which the property is located.

(b) Mortgage multiples. The mortgage shall involve a principal obligation in multiples of $50.

(c) Payments. The mortgage shall: (1) Come due on the first of the month.

(2) Contain complete amortization provisions satisfactory to the Secretary and an amortization period not in excess of the term of the mortgage.

(d) Maturity. The mortgage shall provide for complete amortization not to exceed 30 years from the date of the beginning of amortization of the mortgage.

(e) Property standards. The mortgage must be a first lien upon the property that conforms with property standards prescribed by the Commissioner.

(f) Disbursement. The entire principal amount of the mortgage must have been disbursed to the mortgagor or to his or her creditors for his or her account and with his or her consent.

[41 FR 1172, Jan. 6, 1976, as amended at 45 FR 29278, May 2, 1980; 48 FR 12085, Mar. 23, 1983; 49 FR 21320, May 21, 1984; 53 FR 34284, Sept. 6, 1988]

EFFECTIVE NOTE DATE: At 53 34284, Sept. 6, 1988, § 235.22 was amended by revising paragraph (a) and adding new paragraphs (e) and (f). Under section 7(0)(3) of the Department of Housing and Urban Development Act (42 U.S.C. 3535(o)(3)), this final rule cannot become effective until after the first period of 30 calendar days of continuous session of Congress which occurs after the date of the rule's publication. HUD will publish a notice of the effective date of this rule following expiration of the 30-session-day waiting period. Whether or not the statutory waiting period has expired, this rule will not become effective until HUD's separate notice is published announcing a specific effective date. The text of paragraph (a) remaining in effect until further notice is set forth below.

8 235.22 Mortgage provisions.

(a) Mortgage form. The mortgage shall be executed upon a form approved by the Secretary for use in the jurisdiction in which the property covered by the mortgage is situated and shall be a first lien upon property that conforms with property standards prescribed by the Secretary. The entire principal amount of the mortgage must have been disbursed to the mortgagor or to his creditors for his account and with his consent.

§ 235.25 Maximum mortgage amount.

(a) With respect to mortgages insured pursuant to conditional commitments issued or preliminary reservations approved before July 13, 1981,

the mortgage shall not exceed the following:

(1) $32,000 for a single-family dwelling or a one-family unit in a condominium project, or

(2) $38,000 where a family of five or more persons requires a minimum of four bedrooms and it is found that adequate housing within the basic mortgage limits of paragraph (a)(1) of this section is not available in the area. The property must contain four or more bedrooms complying with applicable HUD/FHA standards for bedrooms. Partially finished attic or basement space, large closets and other enclosed areas shall not be counted as bedrooms. In addition, the property must meet other applicable underwriting standards.

(b) With respect to mortgages insured pursuant to conditional commitments issued or preliminary reservations approved on or after July 13, 1981, the mortgage shall not exceed the following:

(1) $40,000 for a single-family dwelling or a one-family unit in a condominium project, or

(2) $47,500 in the case of a family with five or more persons where the conditions set forth in paragraph (a)(2) of this section are met.

[46 FR 29259, June 1, 1981; 46 FR 31257, June 15, 1981]

§ 235.30 Increased maximum mortgage amount-high cost areas.

(a) With respect to mortgages insured pursuant to conditional commitments issued or preliminary reservations approved before July 13, 1981, located in any geographical area where the Secretary finds cost levels so require, the Secretary may increase the dollar amount limitations set forth in § 235.25(a) to an amount not to exceed the following:

(1) $38,000 for a single-family dwelling or a one-family unit in a condominium project, or

(2) $44,000 in the case of a family with five or more persons where the conditions set forth in § 235.25(a)(2) are met.

(b) With respect to mortgages insured pursuant to conditional commitments issued or preliminary reserva

tions approved on or after July 13, 1981, located in any geographical area where the Secretary finds cost levels so require, the Secretary may increase the dollar amount limitations set forth in 235.25(b) to an amount not to exceed the following:

(1) $47,500 for a single-family dwelling or a one-family unit in a condominium project, or

(2) $55,000 in the case of a family with five or more persons where the conditions set forth in § 235.25(a)(2) are met.

[46 FR 29259, June 1, 1981]

§ 235.31 Eligible mortgages in Alaska, Guam, or Hawaii.

(a) If the Commissioner finds that because of high costs in Alaska, Guam or Hawaii it is not feasible to construct dwellings without the sacrifice of sound standards of construction, design, and liveability within the limitations of maximum mortgage amounts provided in this subpart the principal obligation of mortgages may be increased in such amounts as may be necessary to compensate for such costs, but not to exceed, in any event, the maximum including high cost area increases, if any, otherwise applicable by more than one-half thereof.

[41 FR 11484, Mar. 19, 1976]

outstanding any other unpaid obligations contracted in connection with the mortgage transaction or the purchase of the mortgaged property, except obligations that are secured by property or collateral owned by the mortgagor independently of the mortgaged property.

(b) With the prior approval of the Commissioner, the mortgaged property may be subject to a second mortgage made or insured, or other secondary lien held, by a Federal, State or local governmental agency or instrumentality. However, the required monthly payments under the insured mortgage and the second mortgage or lien shall not exceed the mortgagor's reasonable ability to pay, as determined by the Commissioner.

[50 FR 20908, May 21, 1985; 50 FR 26696, June 28, 1985]

§ 235.35 Mortgagor's investment. (a) [Reserved]

(b) The mortgagor shall have paid, at the time the mortgage is insured, on account of the property, in cash or its equivalent, at least 3 percent of the Secretary's estimate of the cost of acquisition.

(c) The mortgagor may make a larger investment than required under paragraph (b) of this section to reduce the mortgage amount or to purchase a property on which the estimate of value and selling price do not exceed the limits specified in § 235.320.

(d) A purchaser can contribute the full value of his labor toward the required downpayment, or to reduce the mortgage, or both, if arrangements are made with the builder according to procedures prescribed by the Secretary. If a purchaser owns the lot on which the dwelling is to be built, an amount equivalent to his equity in the lot based on the FHA appraised value (or actual purchase price if acquired within the past six months), less any indebtedness against the property, may be applied toward the required downpayment, or to reduce the mortgage, or both.

[41 FR 1172, Jan. 6, 1976, as amended at 42 FR 22557, May 4, 1977; 44 FR 25837, May 3, 1979]

8 235.37 Limitation on concentration of units in a subdivision. ·

No mortgage shall be insured on a unit in a subdivision which when added to any other mortgages insured under this section in the subdivision after October 12, 1977, represents more than 40 percentum of the total number of units in the subdivision, except that the preceding limitation shall not apply with regard to any rehabilitated unit, or to any unit or subdivision located or to be located in an established urban neighborhood or area, where a sound proposal is involved and where an aggregation of subsidized units is essential to a community sponsored overall redevelopment plan, as determined by the Secretary.

[42 FR 57436, Nov. 2, 1977]

8 235.38 Reservations of contract authority.

(a) The Secretary will not issue conditional commitments to insure mortgages and to make interest reduction payments pursuant to this part. However, conditional commitments to insure mortgages issued under Part 203, Part 221, Subpart A, and Part 234, Subpart A of this chapter will be considered to be conditional commitments to insure under this part upon request by the mortgagee accompanied by submission of an application for firm commitment to insure under this part for an eligible mortgagor subject to the availability of contract authority for interest reduction payments under Subpart C of this part and subject to any limitations on eligibility set forth in this subpart.

(b) Preliminary reservations of contract authority may be issued by the Secretary to a builder or seller specifically identified for use in connection with commitments or a group of commitments for insurance of mortgages in a particular subdivision or project subject to the limitations in § 235.37 or for a specific home not in a subdivision. A builder or seller who wants to be certain that funds will be available to assist buyers should submit a request to the Secretary for a preliminary reservation of contract authority. If contract authority is available, it

will be reserved if the project in which the units will be located, meets project selection, affirmative marketing, environmental, underwriting, feasibility and other applicable requirements. A preliminary reservation is an advance commitment that contract authority will be available for assistance payments when homes are sold to families who qualify for assistance. Except as provided in this paragraph (b), there is no requirement that builders or sellers obtain preliminary reservations, but if a preliminary reservation is not requested there is no assurance that assistance funds will be available when completed units are to be sold to eligible families.

(c) Builders or developers of subdivisions, condominiums or substantial rehabilitation projects involving 13 or more subsidized units must apply for preliminary reservations. Application for preliminary reservations may be made as early as the developer desires but not before filing of the request for subdivision approval or other appropriate application. Builders or developers of smaller (12 or less units) subdivisions, may also apply for preliminary reservations.

(d) If a request for a preliminary reservation is approved, either for the amount requested or for an amount determined by the Secretary, the Secretary will reserve the contract authority. The reservation is a commitment by the Government that the contract authority for the transaction has been reserved.

(e) A preliminary reservation will expire six months after the date of issue. If construction has started the reservation may be extended for one additional six month period. Preliminary reservations will also expire if the conditional commitment for mortgage insurance with which the reservations are connected expires will expire on the date of the firm commitment if the mortgage has not yet been insured under this part.

(f) Builders and developers not required to apply in accordance with paragraph (c) of this section, may apply for Section 235 assistance through applications under this part for convertible conditional commitments for new construction or sub