Commissioner under a rent supplement contract pursuant to the provisions of Part 215 of this chapter; or

(ii) If the prepayment occurs as a result of the sale of the project to a cooperative or private nonprofit corporation or association, provided the sale is financed with a mortgage insured under § 236.40(d).

(2) With prior Commissioner consent. In all cases, except those outlined in paragraph (a)(1) of this section, a mortgage indebtedness shall not be prepaid in full and the Commissioner's controls shall not be terminated unless the Commissioner gives his prior consent to such prepayment.

(b) Partial prepayments. With the prior written approval of the Commissioner, partial prepayments may be made for the purpose of reducing succeeding monthly payments of the remaining balance as recast over the remaining portion of the original mortgage term.

(c) Optional provision. The mortgage may, if required by the mortgagee, contain a provision that, prior to the maturity and with the approval of the Commissioner, partial prepayments may be made after 30 days' written notice to the mortgagee on any principal payment date. If prepayments are made in any calendar year in excess of 15 percent of the original face amount of the mortgage, the mortgagee will be permitted to collect such reasonable charge on such excess as is agreed upon between the mortgagor and the mortgagee.

(d) Prepayment in connection with sale of units. With the prior written approval of the Commissioner, the mortgagor may sell the individual dwelling units in the project to lower income, elderly, or handicapped purchasers. The mortgagee shall not collect any charge for the prepayment of the mortgage in connection with the sale of such units.

(e) Prepayment with mortgagee approval. Where the mortgage is given to secure a loan made by a mortgagee which has obtained the funds for such loan by the issuance and sale of bonds or bond anticipation notes, or both, the mortgage may contain a provision that the mortgage indebtedness may not be prepaid in whole or in part

without prior written consent of the mortgagee and the Commissioner. The consent of the mortgagee to prepay the debt, in whole or in part, may be conditioned upon payment to the mortgagee by the mortgagor of such fees and charges which are reasonable as determined by the Commissioner and which are related to the mortgagee's cost of redeeming the bonds or bond anticipating notes sold to finance the loan.

(f) Prepayment of mortgages subject to Part 248. Mortgages which are described in paragraph (a)(1) of this section and which are, or prior to assignment to the Commissioner were, insured under this Part, may be prepaid in full only in accordance with a plan of action approved by the Commissioner pursuant to Part 248 of this chapter.

[36 FR 24643, Dec. 22, 1971, as amended at 42 FR 62132, Dec. 9, 1977; 53 FR 616, Jan. 11, 1988; 53 FR 6601, Mar. 2, 1988; 53 FR 11234, Apr. 5, 1988]

8 236.35 Late charge.

A late charge may be collected by the mortgagee for each payment to interest or principal more than 15 days in arrears, if provided in the mortgage, but such charge shall not exceed 2 cents for each dollar of the mortgagor's share of such payment. Such charge shall be separately charged to and collected from the mortgagor and shall not be deducted from any aggregate monthly payment. Such charge shall not be included in the interest reduction payment made by the Commissioner to the mortgagee pursuant to § 236.501 et seq.

8 236.40 Eligibility of miscellaneous mortgages.

(a) Transfer. A mortgage initially insured under Part 221, Subpart C of this chapter, which has been approved for the below market interest rate (§ 221.518(b) of this chapter) and which has not received the Commissioner's final endorsement, may be insured under this subpart. The principal amount of such mortgage shall not exceed that which would be applicable if the mortgage were to be insured under Part 221.

(b) Refinancing-in general. A mortgage given to refinance an existing mortgage insured under the Act may be insured under this subpart pursuant to section 223(a)(7) of the Act. The new mortgage shall be limited in amount and in term as follows:

(1) The principal of the new mortgage shall not exceed the lowest of these amounts:

(i) The original principal amount of the existing insured mortgage.

(ii) The unpaid principal amount of the existing insured mortgage, to which may be added

(a) The outstanding indebtedness incurred in connection with capital improvements made to the property which are acceptable to the Commissioner.

(b) The costs, as determined by the Commissioner, of improvements, upgrading or additions required to be made to the property.

(c) Loan closing charges.

(iii) The Commissioner's estimate of the value of the property after completion of the repairs, improvements or additions to the property, except for general or limited distribution mortgagors when the amount shall not exceed 90 percent of the Commissioner's estimate of the value of the property after completion of the repairs, improvements or additions to the property.

(2) The term of the new mortgage shall not exceed the unexpired term of the existing mortgage, except that it may have a term of not more than 12 years in excess of the unexpired term of the existing mortgage in any case in which the Commissioner determined that the insurance of the mortgage for an additional term will inure to the benefit of the applicable insurance fund, taking into consideration the outstanding insurance liability under the existing insured mortgage.

(c) Refinancing—existing project under section 202 of the Housing Act of 1959. A mortgage given to refinance a loan which was made under section 202 of the Housing Act of 1959 may be insured under this subpart, if the application for insurance is filed with the Commissioner prior to the date of project completion, or within such rea

sonable time thereafter as the Commissioner may allow.

(d) Purchase. In the case of a project financed with a mortgage insured under this subpart which involves a mortgagor other than a cooperative or a private nonprofit corporation or association and which is sold to a cooperative or a nonprofit corporation or association, a mortgage given to finance the purchase may be insured under this subpart. The insurance of such mortgage shall be governed by the following:

(1) The amount of the mortgage shall not exceed the lesser of the amounts determined by applying the formulas in paragraph (d)(1) (i) or (ii) of this section as follows:

(i) An amount, the debt service of which can be met from project income remaining after payment of all operating expenses, taxes, and required services, provided the project is operated on a nonprofit basis and the rental charges in effect at the time of purchase are not raised.

(ii) The project's actual cost at the time of completion (as determined by the Commissioner) or the project's fair market value for residential purposes as determined by the Commissioner on the basis of operating the project without the benefit of any interest reduction payments or rent supplement payments and without the controls by the Commissioner over the project imposed by the provisions in this subpart, whichever amount is the greater.

(2) Subject to limitations prescribed in paragraph (d)(1) of this section, it is intended that the mortgage will provide an amount which will enable the seller of the project to realize a net amount out of the sales proceeds sufficient to recover its investment and to retire the outstanding mortgage.

(3) The term of the mortgage may exceed the remaining term of the original mortgage on the project, but in no event may it exceed the Commissioner's estimate of the remaining economic life of the project.

30-079 0-89--20

$ 236.45 Commercial and community facilities.

(a) The project may include such nondwelling commercial and community facilities as the Commissioner determines will be adequate and appropriate to serve the occupants and the surrounding neighborhood, provided the project remains predominantly residential and any nondwelling facility included in the mortgage is found by the Commissioner to contribute to the economic feasibility of the project. In approving such facilities, the Commissioner shall give consideration to the possible effect of the project on other business enterprises in the community.

(b) In the case of a project designed primarily for occupancy by the elderly or handicapped, the project may include such related facilities as cafeterias or dining halls, community rooms, workshops, infirmaries, or other inpatient or outpatient health facilities and other essential service facilities for use by elderly or handicapped families.

§ 236.50 Supervision applicable to limited distribution mortgagors.

(a) Except as agreed to otherwise by the Commissioner pursuant to Part 248 of this chapter

(1) Dividends or other distributions as defined in the charter, trust agreement, or regulatory agreement, may be declared or made only as of or after the end of a semiannual or annual fiscal period; and

(2) The amount of any allowable distribution, or disbursement from surplus cash, shall not exceed in any one fiscal year more than 6 percent of the mortgagor's initial equity investment in the project, as determined by the Commissioner.

(b) No dividends or other distributions shall be declared or made except out of surplus cash available and remaining after:

(1) The payment of:

(i) All sums due or currently required to be paid under the terms of any mortgage or note insured or held by the Commissioner.

(ii) All amounts required to be deposited in the reserve fund for replacements.

(iii) All obligations of the project (other than the mortgage insured or held by the Commissioner) unless funds for payment are set aside or deferment of payment has been approved by the Commissioner.

(2) The segregation of:

(i) An amount equal to the aggregate of all special funds required to be maintained by the project.

(ii) All tenant security deposits held. (c) The right to any allowable distribution or disbursement from surplus cash shall be cumulative.

(d) No distribution of any kind may be made from borrowed funds.

[36 FR 24643, Dec. 22, 1971, as amended at 53 FR 11234, Apr. 5, 1988]

§ 236.55 Rental charges.

(a) Approved rental charges. The Commissioner will establish, and the mortgagor will maintain, a Basic Rent and Market Rent for each dwelling unit. On the basis of information that the mortgagor provides on a form prescribed by the Commissioner, the Commissioner will determine the rents for the project, using the sum of the project's operating costs and debt service (as calculated by the Commissioner), and the owner's return on investment, with adjustments for vacancies, the project's non-rental income, and other factors that the Commissioner deems appropriate.

(b) Monthly Rental Charge. Monthly rental charges shall be calculated as follows:

(1) Tenant Rent for qualified tenants whose initial lease is effective on or after May 1, 1983. The Tenant Rent payable by a Qualified Tenant shall be the greater of the Basic Rent or 30 percent of the tenant's Adjusted Monthly Income, but not more than the Market Rent. In the case of tenant paid utilities, the Utility Allowance may not reduce the Tenant Rent below 25 percent of Adjusted Monthly Income.

(2) Tenant Rent for qualified tenants whose initial lease was effective before May 1, 1983. The Tenant Rent shall be calculated in accordance with paragraph (b)(1) of this section, except that instead of 30 percent, the per

(3) Limitation on tenant's monthly rental payment. In no event shall the monthly rental exceed the HUD-approved market rental.

(c) Special Conditions. (1) For purposes of this section, a family is considered to be a Qualified Tenant whose initial lease was effective before May 1, 1983 only if the family resided on April 30, 1983, in a unit under the Section 236 program paying a rent less than the Market Rent or in a unit receiving Rent Supplement assistance, and its participation in the programs at a below Market Rent (including receipt of Rent Supplement assistance) has been continuous thereafter; or a family that resided on July 31, 1982 in a unit with the benefit of Section 8 Housing Assistance Payments, and its participation in the Section 8, Rent Supplement, or Rental Assistance Payments Program has been continuous thereafter. A family shall not be disqualified if, after that date, it moved from one unit to another unit within the same project.

(2) So long as a Qualified Tenant whose initial lease was effective before May 1, 1983 continues to receive assistance in the same project, its Tenant Rent shall not be increased by more than 10 percent during any 12-month period as a result of (i) application of the percentages in paragraph (b)(2) of this section; and (ii) application of the revised definitions in §§ 236.2 and 236.3.

(3) So long as a Qualified Tenant whose initial lease was effective on or after May 1, 1983 but which was in occupancy on September 30, 1984, continues to receive assistance in the same project, its Tenant Rent shall not be increased by more than 10 percent during any 12-month period as a result of application of the changes in the definitions contained in §§ 236.2 and 236.3 from definitions of compara

ble terms in regulations in effect immediately before October 1, 1984.

(4) For the purpose of paragraphs (c) (1) through (3) of this section, the "same project" includes units in buildings located on adjacent sites that are managed as one project.

(5) The limitations contained in paragraphs (c) (2) and (3) of this section do not apply to portions of increases in Tenant Rent that are attributable to increases in the Basic Rent or decreases in the Utility Allowance, or to increases in income or changes in family composition or family circumstances that are unrelated to the factors set out in paragraphs (c) (2) and (3) of this section.

(6) In order to facilitate administration of the limitations provided in paragraphs (c) (2) and (3) of this section, upon any regular or interim reexamination of a tenant who was in occupancy on September 30, 1984, the owner shall continue to collect and verify information that would have been taken into account in calculating Annual Income and Adjusted Income as defined in regulations in effect immediately before October 1, 1984, as if such regulations were in effect at the date of such reexamination.

(7) The limitations prescribed in paragraphs (c)(2) and (3) of this section shall be applied in accordance with procedures prescribed by HUD.

(d) Adjustments in Utility Allowances. When the project owner requests HUD approval of a rent increase, an analysis of the project's Utility Allowances must be included. Such data as changes in utility rates and other facts affecting utility consumption must be provided as part of this analysis to permit appropriate adjustments in the Utility Allowances. In addition, when approval of a utility rate change would result in a cumulative increase of 10 percent or more in the most recently approved Utility Allowances, the project owner must advise the Secretary and request approval of new Utility Allowances. (See 24 CFR Part 245 for the procedure for tenant comment in the rent increase process, which includes changes in the Utility Allowances.)

(e) Application of terms. In the case of a cooperative project, the term rent

as used in this subpart shall mean the charges under the occupancy agreement of members of the cooperative.

(Information collection requirements contained in this section have been approved by the Office of Management and Budget under control numbers 2502-0204; requirements contained in paragraph (a) are approved under control number 2502-0324; and requirements contained in paragraph (d) are approved under control numbers 2502-0352 and 2502-0354.

[41 FR 42950, Sept. 29, 1976, as amended at 43 FR 23568, May 31, 1978; 48 FR 13980, Apr. 1, 1983; 48 FR 16674, Apr. 19, 1983; 49 FR 29591, July 23, 1984; 51 FR 20273, June 4, 1986; 51 FR 21861, June 16, 1986]

§ 236.56 Determination of project feasibility-fair market rentals.

(a) In the determination of project feasibility prior to issuing a commitment for mortgage insurance under this part, the fair market rentals estimated in accordance with § 236.55(a)(2) shall be at a level that can be expected to attract nonsubsidized tenants, who will pay fair market rentals, and shall not exceed the rentals obtainable for reasonably comparable nonsubsidized rental dwelling units similarly located. Adjustments may be made in such rentals to reflect additional management services such as increased tenant screening, counseling, and income certification and recertifications.

(b) In determining the feasibility of a project to be located in a deteriorating residential neighborhood, the Commissioner may determine a project to be feasible with estimated fair market rental levels in excess of those than can be expected to attract nonsubsidized tenants in that neighborhood provided that:

(1) The estimated fair market rentals do not exceed estimated fair market rentals obtainable in comparable projects in more stable neighborhoods, and

(2) The proposed project can be expected to contribute to the stabilization or improvement of the neighborhood.

[37 FR 7157, Apr. 11, 1972]

§ 236.60 Excess rental charges.

The mortgagor shall agree to pay monthly to the Secretary the total of all rental charges collected in excess of the Basic Rent in accordance with instructions prescribed by the Secretary. [51 FR 21861, June 16, 1986)

§ 236.65 Mortgagor's oath as to selection of tenants and transient occupancy. The mortgagor shall certify under oath to the Commissioner, that as long as the Commissioner is the insurer, holder or reinsurer of the mortgage, the mortgagor will not:

(a) In selecting tenants for the project covered by the mortgage, discriminate against any family because there are children in the family.

(b) Rent, permit the rental or permit the offering for rental of the housing or any part thereof, covered by such mortgage, for transient or hotel purposes. For the purposes of this certificate, the term "rental for transient or hotel purposes" shall mean (1) rental for any period less than 30 days, or (2) except in the case of a project designed primarily for occupancy by elderly or handicapped persons, any rental which includes the provision of customary hotel services such as room service for food and beverages, furnishing and laundering of linens, maid service and bellboy service.

(c) Sell the project, unless the purchaser also agrees to comply with the requirements of paragraphs (a) and (b) of this section.

§ 236.70 Occupancy requirements.

(a)(1) In the processing of applications for admission, the housing owner will determine eligibility following procedures prescribed by the Commissioner.

(2) If the owner has units authorized to be assisted under a tenant-based subsidy program (e.g., Rent Supplement, Rental Assistance Payments, section 8 Loan Management Setaside), the owner must use good faith efforts to fill units first with applicants eligible for that type of subsidy, provided that the number of units authorized for that subsidy would not be exceeded and provided that there is sufficient funding for the unit.