PREPAYMENTS
2014 ARHC-AHMA Convention
Yakima, WA
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PREPAYMENT – What is it?
• What is prepayment?
– When a borrower (owner) pays off their USDA Rural
Development loan early
• To protect the supply of affordable housing and
ensure that tenants do not suffer from rent
overburden or the loss of their unit, borrowers
(owners) need USDA approval before prepaying
• USDA may offer incentives to the borrower to
encourage them not to pay off early
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PREPAYMENT – Who can Prepay?
• Borrowers with loans approved prior to December
15, 1989 may be eligible to prepay
• Loans approved on/after December 15, 1989 are not
eligible to prepay.
• Incentives to avert prepayment have been on hold
since August 2012 pending re-write of the
prepayment procedure
– EXCEPTION: Borrowers who provide a written statement
that they wish to prepay without any incentives
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PREPAYMENT - Application
• Application to prepay
– Description of loan and statement of compliance with federal, State and
local laws related to prepayment
– Documentation that requirements of RCW 59.28 have been met – more
on this later
– Lease language to be used during prepayment to notify tenants certified
by attorney–HB 3, Ch. 15 Attachment 15-G
– Authorization to release information signed by Borrower
– Certifications related to notification of other government entities,
continuation of other government subsidies, and that project will continue
to be available to eligible tenants during prepayment process
– Proposed use of property after prepayment and proposed rents
– Copy of project waiting list
– Documentation of ability to prepay - cash, loan, or sale
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PREPAYMENT – RCW 59.28
• Send a notice by certified & regular mail at least 12
months before prepayment to:
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Each tenant
City Clerk (or County Clerk if unincorporated area)
Local Housing Authority
WA State Dept. of Commerce (the successor agency to the
Dept. of Community Trade and Economic Development)
• Give a copy of the notice to new tenants who move
in after original notice was given
• Post notice in a conspicuous place on site
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PREPAYMENTS – Lease Addendum
• Sample Lease Addendum language can be found in
HB 3, Ch. 15, Attachment 15-G
• Because the lease addendum modifies the lease, it
must be certified by Borrower’s attorney
[3560.156(a) ]
• Existing Tenants sign the addendum
• New tenants sign when they move in
• Keep a copy in tenant file
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PREPAYMENTS – USDA Tenant Notice
• Within 30 days of receipt of application, USDA sends a notice to
each tenant with copy to borrower/management
– Notice is also sent to other interested parties such as non-profits, public
bodies and congressional representatives
• Borrower/Management must post copy of USDA letter in public
area of project until the next prepayment notice letter is sent
• Borrower/Management must provide copy of USDA letter to new
tenants who move in after initial letter was sent
• Additional USDA notices are sent to keep tenants informed of
progress. Borrower/management must post subsequent USDA
notices in public area of project & provide copy to new tenants
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PREPAYMENTS – Tenant Meeting
• 60 Days before prepayment, USDA sends a
notice to tenants
• A tenant meeting is held to explain tenant
options
• A unit by unit inspection is performed
(required for vouchers)
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PREPAYMENTS – Tenant Options
• Letter of Priority Entitlement (LOPE) Letter
– Will move tenant to top of waiting list at another Rural
Development financed property.
– Tenants have up to one year from the date of prepayment to
request a LOPE letter.
• USDA Rural Development Vouchers
– Everyone living in the property on day of prepayment is eligible
for a voucher if
• 1) income is at or below 80% of median household income and
• 2) tenant is a US citizen or legally admitted alien
– Tenants have up to 10 months from the date of prepayment to
request an RD Voucher
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PREPAYMENTS - Vouchers
• A bit about Vouchers
– Issued to tenants (not the project)
– Portable – tenant can move & take voucher with them
– Can be used anywhere as long as the owner is willing to accept
the Voucher except at HUD Section 8 and RD rental assistance
units (because these units already have subsidy)
– The amount of the RD Voucher is calculated as:
Market Rate Rent at Prepayment
Less Tenant’s Rent at Prepayment
Equals Voucher Amount
– There is no 30% of income requirement
– The amount of Voucher cannot exceed Rent at approved apt.
.
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