| (a) General. Pursuant to §42(h)(6) of the Code,
after the end of the 14th year of the Compliance Period, the Development
Owner of a Development utilizing Housing Tax Credits can request that
the allocating agency find a buyer at the Qualified Contract Price.
If a buyer cannot be located within one (1) year, the Extended Use
Period will expire. This section provides the procedures for the submittal
and review of Qualified Contract Request.
(b) Eligibility. A Development Owner may submit a Qualified
Contract Request at any time after the end of the year proceeding
the last year of the Initial Affordability Period, following the Department's
determination that the Development Owner is eligible. The Initial
Affordability Period starts concurrently with the credit period, which
begins at placement-in-service or is deferred until the beginning
of the next tax year, if there is an election. Unless the Development
Owner has elected an Initial Affordability Period longer than the
Compliance Period, as described in the LURA, this can commence at
any time after the end of the 14th year of the Compliance Period.
References in this section to actions which can occur after the 14th
year of the Compliance Period shall refer, as applicable, to the year
proceeding the last year of the Initial Affordability Period, if the
Development Owner elected an Initial Affordability Period longer than
the Compliance Period.
(1) If there are multiple buildings placed in service
in different years, the end of the Initial Affordability Period will
be based upon the date the last building placed in service. For example,
if five buildings in the Development began their credit periods in
1990 and one began in 1991, the 15th year would be 2005.
(2) If a Development received an allocation in multiple
years, the end of the Initial Affordability Period will be based upon
the last year of a multiple allocation. For example, if a Development
received its first allocation in 1990 and a subsequent allocation
and began the credit period in 1992, the 15th year would be 2006.
(3) Development Owners who received an allocation of
credits on or after January 1, 2002 are not eligible to request a
Qualified Contract. (§2306.185)
(c) Preliminary Qualified Contract Request. A Development
Owner is eligible to file a pre-request any time after the end of
the year proceeding the last year of the Initial Affordability Period.
(1) In addition to determining the basic eligibility
described in subsection (b) of this section, the pre-request will
be used to determine that:
(A) the Property does not have any outstanding instances
of noncompliance, with the exception of the physical condition of
the Property;
(B) there is a Right of First Refusal (ROFR) connected
to the Property that has been satisfied;
(C) the Compliance Period has not been extended in
the LURA and, if it has, the Development Owner is eligible to file
a pre-request as described in paragraph (2) of this subsection; and
(D) the Development Owner has all of the necessary
documentation to submit a Request.
(2) In order to assess the validity of the pre-request,
the Development Owner must submit:
(A) Preliminary Request Form;
(B) Qualified Contract Pre-Request fee as outlined
in §10.901 of this chapter (relating to Fee Schedule);
(C) copy of all regulatory agreements or LURAs associated
with the property (non-TDHCA); and
(D) local code compliance report within the last twelve
(12) months or HUD-certified UPCS inspection.
(3) The pre-request will not bind the Development Owner
to submit a Request and does not start the One (1) Year Period (1YP).
A review of the pre-request will be conducted by the Department within
ninety (90) days of receipt of all documents described in paragraph
(2) of this subsection. If the Department determines that this stage
is satisfied, a letter will be sent to the Development Owner stating
that they are eligible to submit a Qualified Contract (QC) Request.
(d) Qualified Contract Request. A Development Owner
may file a QC Request anytime after written approval is received from
the Department verifying that the Development Owner is eligible to
submit the Request.
(1) The documentation that must be submitted with a
Request is outlined in subparagraphs (A) - (P) of this paragraph:
(A) a completed application and certification;
(B) the Qualified Contract price calculation worksheets
completed by a Third-Party certified public accountant (CPA). The
CPA shall certify that they have reviewed annual partnership tax returns
for all years of operation, loan documents for all secured debt, and
partnership agreements. They shall also certify that they are not
being compensated for the assignment based upon a predetermined outcome;
(C) a thorough description of the Development, including
all amenities;
(D) a description of all income, rental and other restrictions
(non-TDHCA), if any, applicable to the operation of the Development;
(E) a current title report;
(F) a current appraisal consistent with Subchapter
D of this chapter (relating to Underwriting and Loan Policy);
(G) a current Phase I Environmental Site Assessment
(Phase II if necessary) consistent with Subchapter D of this chapter;
(H) a current property condition assessment consistent
with Subchapter D of this chapter;
(I) a copy of the monthly operating statements for
the Development for the most recent twelve (12) consecutive months;
(J) the three most recent consecutive annual operating
statements;
(K) a detailed set of photographs of the development,
including interior and exterior of representative units and buildings,
and the property's grounds (including digital photographs that may
be easily displayed on the Department's website);
(L) a current and complete rent roll for the entire
Development;
(M) a certification that all tenants in the Development
have been notified in writing of the request for a Qualified Contract.
A copy of the letter used for the notification must also be included;
(N) if any portion of the land or improvements is leased,
copies of the leases;
(O) the Qualified Contract Fee as identified in §10.901
of this chapter; and
(P) additional information deemed necessary by the
Department.
(2) Unless otherwise directed by the Department pursuant
to subsection (g) of this section, the Development Owner shall contract
with a broker to market and sell the Property. The Department may,
at its sole discretion, notify the Owner that the selected Broker
is not approved by the Department. The fee for this service will be
paid by the seller, not to exceed 6 percent of the QC Price.
(3) Within ninety (90) days of the submission of a
complete Request, the Department will notify the Development Owner
in writing of the acceptance or rejection of the Development Owner's
QC Price calculation. The Department will have one (1) year from the
date of the acceptance letter to find a Qualified Purchaser and present
a QC. The Department's rejection of the Development Owner's QC Price
calculation will be processed in accordance with subsection (e) of
this section and the 1YP will commence as provided therein.
(e) Determination of Qualified Contract Price. The
CPA contracted by the Development Owner will determine the QC Price
in accordance with §42(h)(6)(F) of the Code:
(1) distributions to the Development Owner of any and
all cash flow, including incentive management fees and reserve balance
distributions or future anticipated distributions, but excluding payments
of any eligible deferred developer fee. These distributions can only
be confirmed by a review of all prior year tax returns for the Development;
(2) all equity contributions will be adjusted based
upon the lesser of the consumer price index or 5 percent for each
year, from the end of the year of the contribution to the end of year
fourteen or the end of the year of the request for a QC Price if requested
at the end of the year or the year prior if the request is made earlier
than the last year of the month;
(3) these guidelines are subject to change based upon
future IRS Rulings and/or guidance on the determination of Development
Owner distributions, equity contributions and/or any other element
of the QC Price; and
(4) the QC Price calculation is not the same as the
Minimum Purchase Price calculation for the ROFR.
(f) Appeal of Qualified Contract Price. The Department
reserves the right, at any time, to request additional information
to document the QC Price calculation or other information submitted.
If the documentation does not support the price indicated by the CPA
hired by the Development Owner, the Department may engage its own
CPA to perform a QC Price calculation and the cost of such service
will be paid for by the Development Owner. If a Development Owner
disagrees with the QC Price calculated by the Department, a Development
Owner may appeal in writing. A meeting will be arranged with representatives
of the Development Owner, the Department and the CPA contracted by
the Department to attempt to resolve the discrepancy. The 1YP will
not begin until the Department and Development Owner have agreed to
the QC Price in writing.
(g) Marketing of Property. By submitting a Request,
the Development Owner grants the Department the authority to market
the Development and provide Development information to interested
parties. Development information will consist of pictures of the Development,
location, amenities, number of Units, age of building, etc. Development
Owner contact information will also be provided to interested parties.
The Development Owner is responsible for providing staff to assist
with site visits and inspections. Marketing of the Development will
continue until such time that a Qualified Contract is presented or
the 1YP has expired. Notwithstanding subsection (d)(2) of this section,
the Department reserves the right to contract directly with a Third
Party in marketing the Development. Cost of such service, including
a broker's fee not to exceed 6 percent, will be paid for by the existing
Development Owner. The Department must have continuous cooperation
from the Development Owner. Lack of cooperation will cause the process
to cease and the Development Owner will be required to comply with
requirements of the LURA for the remainder of the Extended Use Period.
A prospective purchaser must complete all requirements of an ownership
transfer request and be approved by the Department prior to closing
on the purchase. The Department will then assess if the prospective
purchaser is a Qualified Purchaser. Responsibilities of the Development
Owner include but are not limited to the items described in paragraphs
(1) - (3) of this subsection. The Development Owner must:
(1) allow access to the Property and tenant files;
(2) keep the Department informed of potential purchasers;
and
(3) notify the Department of any offers to purchase.
(h) Presentation of a Qualified Contract. If the Department
finds a Qualified Purchaser willing to present an offer to purchase
the property for an amount at the QC Price, the Development Owner
must agree to enter into a commercially reasonable form of earnest
money agreement or other contract of sale for the property and provide
a reasonable time for necessary due diligence and closing of the purchase.
Although the Development Owner is obligated to sell the development
for the QC Price pursuant to a QC, the consummation of such a sale
is not required for the LURA to continue to bind the Development for
the remainder of the Extended Use Period. Once the Department presents
a QC to the Development Owner, the possibility of terminating the
Extended Use Period is removed forever and the Property remains bound
by the provisions of the LURA.
(1) The Department will attempt to procure a QC only
once during the Extended Use Period. If the transaction closes under
the contract, the new Development Owner will be required to fulfill
the requirements of the LURA for the remainder of the Extended Use
Period.
(2) If the Department fails to present a QC before
the end of the 1YP, the Department will file a release of the LURA
and the Development will no longer be restricted to low-income requirements
and compliance. However, in accordance with §42(h)(6)(E)(ii)
of the Code, for a three (3) year period commencing on the termination
of the Extended Use Period, the Development Owner may not evict or
displace tenants of Low-Income Units for reasons other than good cause
and will not be permitted to increase rents beyond the maximum tax
credit rents. Additionally, the Development Owner should submit evidence,
in the form of a signed certification and a copy of the letter to
be created by the Department, that the tenants in the Development
have been notified in writing that the LURA has been terminated and
have been informed of their protections during the three (3) year
time frame.
(3) Prior to the Department filing a release of the
LURA, the Development Owner must correct all instances of noncompliance
with the physical condition of the Property.
(i) Compliance Monitoring during Extended Use Period.
For Developments that continue to be bound by the LURA and remain
affordable after the end of the Compliance Period, the Department
will implement modified compliance monitoring policies and procedures.
Refer to the Extended Use Period Compliance Policy in Subchapter F
of this chapter (relating to Compliance Monitoring) for more information.
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