(a) Replacement Reserve Account (§2306.186). The
Department will require Development Owners to provide regular maintenance
to keep housing sanitary, safe and decent by establishing and maintaining
a reserve for replacement account for the Development in accordance
with Tex. Gov't Code, §2306.186. The reserve account must be
established, in accordance with paragraphs (3) - (6) of this subsection,
and maintained through annual or more frequent regularly scheduled
deposits, for each Unit in a Development of 25 or more rental Units
regardless of the amount of rent charged for the Unit. If the Department
is processing a request for loan modification or other request under
this subchapter and the Development does not have an existing replacement
reserve account or sufficient funds in the reserve to meet future
capital expenditure needs of the Development as determined by a history
of uncorrected UPCS violations, ongoing issues related to keeping
housing sanitary, safe, and decent, an account balance below the annual
reserve deposit amount as specified in this section, or as indicated
by the number or cost of repairs included in a third party Physical
Needs Assessment (PNA), the Development Owner will be required to
establish and maintain a replacement reserve account or review whether
the amount of regular deposits to the replacement reserve account
can be increased, regardless of the number of Units at the Development.
The Department shall, through cooperation of its divisions responsible
for asset management and compliance, ensure compliance with this section.
The duties of the Development Owner under this section cease on the
date of a change in ownership of the Development; however, the subsequent
Development Owner of the Development is subject to the requirements
of this section and any additional or revised requirements the Department
may impose after reviewing a Development's compliance history, a PNA
submitted by the Owner, or the amount of reserves that will be transferred
at the time of any property sale.
(1) The LURA requires the Development Owner to begin
making annual deposits to the replacement reserve account on the later
of the:
(A) Date that occupancy of the Development stabilizes
as defined by the First Lien Lender or, in the absence of a First
Lien Lender other than the Department, the date the Property is at
least 90% occupied; or
(B) The date when the permanent loan is executed and
funded.
(2) The Development Owner shall continue making deposits
into the replacement reserve account until the earliest of the:
(A) Date on which the owner suffers a total casualty
loss with respect to the Development or the date on which the Development
becomes functionally obsolete, if the Development cannot be or is
not restored;
(B) Date on which the Development is demolished;
(C) Date on which the Development ceases to be used
as a multifamily rental property; or
(D) End of the Affordability Period specified by the
LURA, or if an Affordability Period is not specified and the Department
is the First Lien Lender, then when the Department's loan has been
fully repaid or as otherwise agreed by the Owner and Department.
(3) If the Department is the First Lien Lender with
respect to the Development or if the establishment of a Reserve Account
for repairs has not been required by the First Lien Lender or Bank
Trustee, each Development Owner receiving Department assistance for
multifamily rental housing shall deposit annually into a separate,
Development-specific Reserve Account through the date described in
paragraph (2) of this subsection as follows:
(A) For New Construction and Reconstruction Developments,
not less than $250 per Unit. Withdrawals from such account will be
restricted for up to five years following the date of award except
in cases in which written approval from the Department is obtained
relating to casualty loss, natural disaster, reasonable accommodations,
or demonstrated financial hardship (but not for the construction standards
required by the NOFA or program regulations); or
(B) For Adaptive Reuse and Rehabilitation Developments,
the greater of the amount per Unit per year either established by
the information presented in a Scope and Cost Review in conformance
with Chapter 11, Subchapter D of this title (relating to Underwriting
and Loan Policy) or $300 per Unit per year.
(4) For all Developments, a PNA must be conducted at
intervals that are consistent with requirements of the First Lien
Lender, other than the Department. If the Department is the First
Lien Lender, or the First Lien Lender does not require a Third Party
PNA, a PNA must be conducted at least once during each five-year period
beginning with the 11th year after the awarding of any financial assistance
from the Department. PNAs conducted by the Owner at any time or for
any reason other than as required by the Department in the year beginning
with the 11th year of award must be submitted to the Department for
review within 30 days of receipt by the Owner.
(5) Where there is a First Lien Lender other than the
Department or a Bank Trustee as a result of a bond trust indenture
or tax credit syndication, the Development Owner shall comply with
the lesser of the replacement reserve requirements of the First Lien
Lender or the requirements in paragraph (3) of this subsection. In
addition, the Department should be listed as a party to receive notice
under any replacement reserve agreement entered into by the Development
Owner. The Development Owner shall submit on an annual basis, within
the Department's required Development Owner's Financial Certification
packet, requested information regarding:
(A) The reserve for replacement requirements under
the first lien loan agreement (if applicable) referencing where those
requirements are contained within the loan documents;
(B) Compliance with the first lien lender requirements
outlined in subparagraph (A) of this paragraph;
(C) If the Owner is not in compliance with the lender
requirements, the Development Owner's plan of action to bring the
Development in compliance with all established reserve for replacement
requirements; and
(D) Whether a PNA has been ordered and the Owner's
plans for any subsequent capital expenditures, renovations, repairs,
or improvements.
(6) Where there is no First Lien Lender but the allocation
of funds by the Department and Tex. Gov't Code, §2306.186 requires
that the Department oversee a Reserve Account, the Development Owner
shall provide at their sole expense an escrow agent acceptable to
the Department to act as Bank Trustee as necessary under this section.
The Department shall retain the right to replace the escrow agent
with another Bank Trustee or act as escrow agent at a cost plus fee
payable by the Development Owner due to breach of the escrow agent's
responsibilities or otherwise with 30 days prior notice of all parties
to the escrow agreement.
(7) Penalties and Non-Compliance. If the Development
Owner fails to comply with the replacement reserve account requirements
stated in this paragraph, and request for extension or waiver of these
requirements is not approved by the Department, then a penalty of
up to $200 per dwelling Unit in the Development and/or characterization
of the Development as being in default with this requirement, may
be imposed. Causes include:
(A) A Reserve Account, as described in this section,
has not been established for the Development;
(B) The Department is not a party to the escrow agreement
for the Reserve Account, if required;
(C) Money in the Reserve Account:
(i) is used for expenses other than necessary repairs,
including property taxes or insurance; or
(ii) falls below mandatory annual, monthly, or Department
approved deposit levels;
(D) Development Owner fails to make any required deposits;
(E) Development Owner fails to obtain a Third-Party
PNA as required under this section or submit a copy of a PNA to the
Department within 30 days of receipt; or
(F) Development Owner fails to make necessary repairs
in accordance with the Third Party PNA or §10.621 of this chapter
(relating to Property Condition Standards).
(8) Department-Initiated Repairs. The Department or
its agent may make repairs to the Development within 30 calendar days
of written notice from the Department if the Development Owner fails
to complete necessary repairs indicated in the submitted PNA or identified
by Department physical inspection. Repairs may be deemed necessary
if the Development Owner fails to comply with federal, state, and/or
local health, safety, or building code requirements. Payment for necessary
repairs must be made directly by the Development Owner or through
a replacement Reserve Account established for the Development under
this section. The Department or its agent will be allowed to produce
a Request for Bids to hire a contractor to complete and oversee necessary
repairs. In the event the circumstances identified in subparagraphs
(A) or (B) of this paragraph occur, funds withdrawn must be replaced
from Cash Flow after payment of Cont'd... |