HB-2-3560

3.1 INTRODUCTION

This chapter provides an overview of the essential responsibilities for property

management. In general, the borrower is responsible for providing management acceptable to

the Agency both in terms of staff qualifications and management practices. The borrower must

Section 1 of this chapter deals specifically with property management, including Agency

approval of the proposed management agent and management certification. It also describes the

Agency’s requirements regarding items that must be addressed in the borrower’s management

plan; and civil rights and accessibility requirements, self-evaluations, and transition plans.

Section 2 discusses the requirements for acceptable management entities and the

Agency’s procedures for reviewing and approving new management entities. It also outlines

the Agency’s procedures for removing unacceptable management entities.

Section 3 describes the program requirements regarding allowable management fees to be

SECTION 1: PROJECT MANAGEMENT [7 CFR 3560.102]

3.2 OVERVIEW OF PROJECT MANAGEMENT RESPONSIBILITIES

Borrowers must provide management acceptable to the Agency as a condition of loan or

grant approval. The borrower requirements listed in this chapter may be complied with by the

borrower or a person designated in writing by the borrower. Acceptable management will be

documented in the management plan and management certification.

3.3 THE MANAGEMENT PLAN [7 CFR 3560.102(b)]

only, not about management agent central office functions.

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Requirements for Submitting a Management Plan

required items identified in Attachment 3-A in sufficient detail to enable the Agency to

effectively monitor project performance.

Contents of a Management Plan

items presented in Attachment 3-A.

Agency Review of a Proposed Management Plan

contain policies that violate Agency regulations and that it provides adequate details

regarding the items in Attachment 3-A for the Agency to effectively monitor project

maintain a management plan acceptable to the Agency. A borrower’s failure to maintain

an acceptable plan is grounds for Agency termination of the management agent. This

management plan will remain the guiding management document, as long as it accurately

reflects project operations, and the borrower remains in compliance with Agency rules

and regulations.

operations change and are no longer consistent with the current management plan on file

with the Agency. The Agency should expect to see a modified management plan when:

• Program requirements change; or

HB-2-3560

• Changes in subsidy levels or types occur (e.g., HUD Section 8 is converted to Rental

must submit a new management plan that addresses the items listed in Attachment 3-A.

discrepancy in writing and indicate that the existing plan is no longer acceptable. Upon

receiving notice that project operations are not consistent with the current management

plan, borrowers must take one of the following actions within 60 days from the date of

the Agency’s letter:

• Revise the management plan to accurately reflect housing operations;

• Take actions to ensure that the management plan is followed; or

• Advise the Agency in writing of the action taken.

certification to the Agency every 3 years stating that the project operations are consistent

with the current management plan and that the plan is adequate to ensure project

compliance with the loan documents and the applicable requirements of this part (see

Attachment 3-B).

Agency Notification to the Borrower

• Deny the use of an IOI firm when the Agency determines that using the firm is not in

management agreement, it does not eliminate the need for the borrower and the

management agent to execute a management agreement. By executing the management

certification, the borrower and the agent are assuring Agency staff that an acceptable

agreement has been executed. Agency staff may review this agreement during the

supervisory visit.

Borrowers operating owner-managed projects are not required to execute a management

agreement.

• A new management agent is proposed; or

• A management agreement expires, and a new agreement is executed or renewed.

days prior to the date of the proposed change. The Agency will return the approved or

denied certification within 60 days of receipt.

3.5 SELF-EVALUATIONS AND TRANSITION PLANS

transition plans that set forth the steps necessary to complete such changes.

Borrowers may become liable for fines and penalties imposed by enforcement agencies,

loss of tax credits, or legal actions if found in non-compliance with civil rights laws. The

Agency does not impose these fines and penalties, but will follow regulatory, supervisory,

servicing procedures and loan eligibility requirements when non-compliance is found.

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• Borrowers who have had complaints filed against them, when the Agency determines

• Borrowers transferring ownership.

• Borrowers of projects receiving rehabilitation or equity loans, when the Agency

• Borrowers receiving loans after January 1, 2001, if a self-evaluation has not been

have policies and practices that do not discriminate against persons with disabilities.

• With the assistance of interested persons, including persons with disabilities or

• After consultation with interested persons, including disabled persons or

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• Maintain a record of the self-evaluation for at least three years. The record must be

Transition Plans

• Identify physical obstacles in the borrower’s facilities that limit the accessibility

• Describe in detail the methods that would be used to make the facilities accessible;

• Specify the schedule for taking the steps necessary to achieve full program

Oklahoma, Puerto Rico, South Carolina, Tennessee, Texas, Virgin Islands;

WEST: Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico

Oregon, Utah, Washington, Wyoming.

Add-On Fees

project characteristics and conditions that require additional management effort

beyond the activities covered by the base fee portion of the management fee. The

add-on fee is applicable to all revenue producing units regardless of occupancy status.

Agents may not take add-on fees for management of properties with workout agreements except under limited

circumstances, and solely at the Agency’s discretion. If it is demonstrated that conditions at the property are

beyond the management agent’s control, the Agency may agree to allow the management agent to take add-ons

fees for the circumstances listed in Exhibit 3-4.

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for the specified fiscal year.

and the state is unappealable.

• Overseeing the implementation laws, regulations, policies, and procedures

Charges covered by the management fee must be listed in the project’s Management Plan. A

breakdown of items that are to be paid from the management fee can be found in

Attachment 3-D.

services at a reasonable cost and seek the most advantageous terms for the project.

Generally, expenses charged to project operations, whether for management agent

services or other expenses, must be reasonable, typical, necessary and show a clear

benefit to the residents of the property. Services and expenses charged to the property

must show value added and be for authorized purposes. If such value is not apparent,

the service or expense should be examined.

typical for the area, of gross potential basic rents and revenues (i.e., referred to as

gross potential rents in industry publications) highlight a need for closer review for

unnecessary expenditures. Budget approval is required, and project resources may not

always permit an otherwise allowable expense to be incurred if it is not fiscally

prudent in the market.

commissions generated by transactions using project funds to the project.

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3.9 OVERVIEW

Insurance protects the asset against loss or damage. Borrowers without adequate

insurance coverage are financially responsible for:

• Property damage;

• Losses due to employee dishonesty or error; and

all projects located in certain regions of the country where earthquakes are prevalent.

The coverage amount should be for 100 percent of the replacement cost of the project.

Deductible

named as a loss payee. The deductible should be no more than 10 percent of the

coverage amount.

Required Coverage

not exceed 5 percent of the total insured value.

construction or reconstruction after an insured loss.

centralized heating, ventilating, and air-conditioning (HVAC) equipment in operation.

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Loss or Damage Covered

prone to these geological phenomena is 100 percent of the replacement cost of the

Deductible

incurred due to a property loss during a 12-month period.

Coverage Requirements

of business income or rent in the event of a property loss that causes one or more units to

be uninhabitable for a period of time. Business income coverage may be obtained in one

of two forms:

• War or military action;

• Nuclear hazard;

• Volcanic eruptions;

• Fraudulent or dishonest acts committed by the insured;

• Dispersal, release, or escape of contaminants or pollution (biological or chemical

• Terrorism.

• The building is in such a state of disrepair that the cost of insurance would be

D. Exemptions

• When a loan is made to an individual or a general partnership, and that individual or

• For the general partners of a limited partnership, unless one or more of its general

3.23 SPECIAL SERVICING REQUIREMENTS FOR SECTION 514 ON-FARM

LABOR HOUSING

utilities to eligible tenants residing in the housing if the requirement that the owner execute a

loan agreement had been waived. If there had been no waiver of the loan agreement

LH to sign a loan agreement. By signing this agreement, the owners of on-farm LH reaffirmed

their obligation not to charge rent or utilities to eligible tenants. Owners who sign the

agreement must obtain the Government’s prior approval for charging rent, utilities, refundable

deposit charges or cleaning fees. Charges must be reasonable and approved in accordance with

the procedure. Borrowers not meeting these requirements will be requested to comply with

these requirements. Borrowers unwilling or unable to do so may be subject to the RHS

initiating appropriate servicing action to seek compliance.

changes. Borrowers should arrange to request rent changes during periods when migrant

residents can be readily contacted. Making requests during the off-farm season when tenants

are not occupying the units does not excuse the borrower from the responsibility to make

effective notification to tenants. Tenants must also receive notice of any approved charges

authorized by the Agency prior to imposing charges. Borrowers imposing unauthorized charges

must be notified, in writing by the Agency, that they must roll back rates retroactively to the last

authorized level. The borrower must give tenants a rebate or credit for the unauthorized

charges.

made by a landlord to an eligible tenant household for the use and occupancy of the housing and

includes utilities (i.e., electricity, heat, water, waste disposal, etc.) or the requirement that the

tenant pay the utilities directly to the utility provider.

The term “rent” is also clarified to include any deductions or off-sets made to a tenant’s wages

for the use of a LH dwelling. Rent does not include bona-fide wage changes or reductions

unrelated to retaining rent-free housing benefits. Agency officials should seek to obtain and

document the following:

• A meeting with the tenants residing in the labor housing should be convened,

• If the borrower is unable to provide utility bills, contacting the utility company to

• A review of the borrower’s farm and home plan and other financial records to

reimbursement or crediting of improper charges to those residents affected. This includes

Within 30 days of sending any letter to the borrower citing unapproved rent charges, officials

apparent. Corrective action such as reimbursement or credits should be taken.

Utility allowance documentation: corrective action should include gathering the

required information prior to any approval actions.

Loan agreement: corrective action should include a written demand to execute the

agreement. Failure to comply with such request warrants forwarding a problem case report to

the Leadership Designee. This type of non-compliance may require more aggressive servicing

actions including additional supervisory visits. Failure to execute the loan agreement may be a

sign that other compliance deficiencies exist. Scheduling a supervisory visit as soon as

possible but usually not later than three months after the failure is warranted to verify whether

• Documents needed to verify eligibility to reside in labor housing dwelling units.

• Documents showing compliance that tenants are being charged for rent, utilities,

• Evidence that taxes and insurance are paid.

• Evidence that the property is decent, safe, sanitary, and free from health and

• Evidence of a management plan, when appropriate.

borrowers. This is especially appropriate under circumstances where unapproved shelter cost

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b) Identify the supervisory relationships, and to whom the incumbent of the position

responsible for the day-to-day operation of the project is accountable.

c) Describe the conditions when the management agent must consult the owner before

taking any action.

d) Identify the person or position in the owner's organization that is the key contact for the

management agent.

e) Describe the type of decisions to be made by this contact person.

a) Describe hiring practices of management and their conformance with equal employment

opportunity requirements.

b) Include a staffing plan for the project.

c) Describe the lines of authority, responsibility, and accountability (internal controls)

d) Describe the standards and plans for training and familiarizing employees with their

Describe how such training will generally be achieved.

e) Describe how the Tenant Service Coordinator will assist with resourcing free tenant services or

available funding sources for tenants (i.e., assessing tenant needs, educating tenants on availability

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Fair Housing Marketing Plan” requirements.

c) Describe how the units will be advertised. Indicate minimum levels planned regardless

members of the public that have sight or hearing impairments.

e) Describe the kinds of reasonable accommodation the project can readily provide such as

changing water faucets, kitchen equipment, doorknobs, assigning handicap parking

spaces, etc.

structural modification of an apartment unit is practical and feasible to reasonably

accommodate a tenant or household member who has a disability.

g) Provide a sample waiting list.

occupancy and how this waiting list will be maintained.

will be provided to benefit occupants.

collections from use of the equipment.

vending machines.

equipment in use (i.e., language and computer learning classes).

requirements.

a) Briefly describe the type of project accounting methods (i.e., cash or accrual) and records

that will be used, how will they be maintained, and which staff position will prepare and

maintain them.

b) Describe how interest earned on project reserve funds will be prorated and accounted

form.

d) Identify which staff member or position will be responsible for the preparation and

submission of the quarterly and annual reports required by Rural Development.

e) Provide assurance or explanation that the person or firm who will perform and prepare

the annual audit, or verification of review, is not associated with the project, other than to

perform the audit or review.

the management fee, which are included in project operations, and which are pro-

rated along with the methodology used in pro-rating between management agent

fees and project operations. Some property responsibilities are completed at the

property and some offsite. Agent responsibilities may be performed at the

property, the management office, or at some other location.

a) Describe the plan to inform and encourage tenants/members in use of energy

conservation practices they can use in their unit to save utility expense (and thus

minimize utility allowances and conserve rental assistance).