Continuation of Interest Reduction Payments after Refinancing Seciton 236 Projects

AGREEMENT FOR
INTEREST REDUCTION
PAYMENTS
Section 236(b)

U.S. Department of Housing
and Urban Development

OMB Control No. 2502-0572
(exp. 10/31/2014)

Office of Housing
Federal Housing Commissioner

Public reporting burden for this collection of information is estimated to average 30 minutes per response, including the time for reviewing instructions,
searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. This agency
may not conduct or sponsor, and a person is not required to respond to, a collection of information unless that collection displays a valid OMB control
number.
Section 532 of the Department of Veterans Affairs and Housing and Urban Development, Independent Agencies Appropriations Act, 2000 (Public Law
106-74, approved October 20, 1999) (“Appropriations Act”) established Section 236(e)(2) of the National Housing Act (NHA), which authorizes the
Secretary, under certain terms and conditions, to continue the payment of Interest Reduction Payments (IRP) after the prepayment of a Section 236
mortgage. HUD uses the information provided to ensure that owners continue to maintain the projects as low-income housing resources. These
agreements will allow HUD to preserve low-incoming housing units. All transactions are subject to the requirements of HUD’s Tenant Participation in
Multifamily Housing Project Regulations at 24 CFR Part 245. This information is required to obtain benefits. HUD does not ensure confidentiality to
respondents.

AGREEMENT FOR INTEREST REDUCTION PAYMENTS
THIS AGREEMENT, made as of this ___ day of ________________, 200_, by
_________________________, a ______________________ limited partnership (hereinafter called
“Borrower”), the ______________________ (hereinafter called the “Agency”) and the SECRETARY OF
HOUSING AND URBAN DEVELOPMENT, acting by and through the Federal Housing Commissioner,
(hereinafter called the “Secretary”).
WITNESSETH
WHEREAS, the Secretary is authorized, under Section 236 of the National Housing Act, as
amended, (hereinafter referred to as “Section 236”) to make interest reduction payments with respect to a
rental or cooperative housing project owned by a private non-profit corporation or other private non-profit
entity, a limited dividend corporation or other limited dividend entity, or a cooperative housing
corporation which, pursuant to Section 236(b), is financed under a state or local program providing
assistance through loans, loan insurance, or tax abatements; and
WHEREAS, the __________ is the mortgagee of record for that certain Mortgage dated
______________________

and

recorded

______________________

in

the

official

land

records

of

______________________ County, ______________________, (the “236 Mortgage”); and
WHEREAS, the Section 236 Mortgage encumbers a multifamily residential rental development
known as “______________________ Apartments” (the “Development”) located in the City of
______________________________________________________________________________________________________________________
Page 1 of 14
form HUD-93175
(2/2008)

______________________, ______________________ County, State of _________ and title to which is recorded
in the office of the County Clerk and Recorder of ______________________ County,
______________________, in Film __, Page ____, as Document No. ______; and
WHEREAS, the 236 Mortgage secures that certain loan which is evidenced by a Mortgage Note in
the original principal amount of $_____________ dated ______________________ (the “236 Mortgage Note”)
which was made pursuant to Section 236, and as such, is subsidized in part with “Interest Reduction
Payments” made by the Secretary to the mortgagee of record, with payments made as shown on the
payment schedule attached hereto as Exhibit A; and
WHEREAS, the Agency has agreed to purchase the 236 Mortgage and 236 Mortgage Note from
the existing mortgagee, and the existing Borrower has requested HUD approval for the termination of
the mortgage insurance on the 236 Mortgage Note ; and
[If there is a change in ownership]
WHEREAS, a new Borrower, with the approval of the Secretary, will purchase the right, title and
interest of the previous Borrower in and to the Development, subject to the 236 Mortgage, and will
assume all of the previous Borrower’s obligations under the 236 Mortgage and the 236 Mortgage Note;
and
WHEREAS, at the time of purchase of the 236 Mortgage, the Agency will voluntarily terminate
the Section 236 mortgage insurance on the 236 Mortgage; and
WHEREAS, the Agency desires that the interest reduction payments under Section 236 continue
with respect to the 236 Mortgage Note after cancellation of the Section 236 mortgage insurance; and
WHEREAS, pursuant to the provisions set forth in 24 CFR Part 236, the Secretary made interest
reduction payments to the prior mortgagee, and upon termination of the Section 236 insurance, the
Agency must enter into an interest reduction payments contract with the Secretary in order to continue
the interest reduction payments because the regulations at 24 CFR Part 236 apply only to federallyinsured Section 236 notes and mortgages; and

______________________________________________________________________________________________________________________
Page 2 of 14
form HUD-93175
(2/2008)

WHEREAS, the Agency is willing to undertake the administrative duties required by Section 236
with respect to the Development pursuant to a Regulatory Agreement dated as of the date hereof,
between the Borrower [hereinafter, the existing Borrower if no transfer of title is part of the transaction,
or the new Borrower, if such a transfer does take place] and the Agency (the “Regulatory Agreement”);
and
WHEREAS, the dividends payable to the Borrower shall be limited pursuant to the terms and
provisions of said Regulatory Agreement.
NOW THEREFORE, the Secretary, the Agency and the Borrower hereby agree to enter into this
Agreement to reflect the continuation of the interest reduction payments for the Development from and
after the conversion of the federally-insured Section 236 mortgage to an agreement for an uninsured
Section 236 mortgage held by the Agency and further agree as follows:

1.

The Agency has agreed to purchase the 236 Mortgage Note in the original amount of
$_______________. The loan amortization terms of the 236 Mortgage Note, attached hereto
as Exhibit A, had been submitted to and approved by the Secretary when the loan was
initially insured by the Secretary for the aforesaid maximum amount of the loan which was
attributable to the cost of subsidized dwelling units (as such terms is defined below).

2.

The Agency represents that the Development consists of ____ dwelling units comprised of
____ zero-bedroom units,____ one-bedroom units, and ____two-bedroom units [insert greater
number of bedroom units, if appropriate] of which ____% of the dwelling units are
designated as subsidized dwelling units. The ratio of subsidized dwelling units and rooms
to unsubsidized dwelling units and rooms shall not be changed without approval of the
Secretary.

3.

The Secretary previously reserved an amount for annual interest reduction payments to be
paid under the terms of the contract as set forth in Exhibit A attached hereto. The
Secretary shall pay the interest reduction payments on a monthly basis in equal monthly

______________________________________________________________________________________________________________________
Page 3 of 14
form HUD-93175
(2/2008)

installments based upon such annual amounts in Exhibit A provided, however, that the
interest reduction payments shall not exceed the amounts set forth in Exhibit A attached
hereto for the month and year so designated; notwithstanding the forgoing, in no event
shall the annual interest reduction subsidy exceed $_______________ in any given year.
4.

The term of this Agreement for Interest Reduction Payments shall begin on the date on
which the Agency purchases the 236 Loan from the prior mortgagee. The initial interest
reduction payments shall be due on the first day of the first month following the date on
which the Agency purchases the 236 Mortgage Note. All interest reduction payments made
hereunder shall be made upon receipt of a billing containing representations of facts by the
Agency on a form prescribed by the Secretary. If the Secretary finds that an interest
reduction payment or payments made to the Agency have been excessive because of
inaccurate facts contained in the Agency's billing or other cause, the Agency shall be
obligated immediately to refund the amount that was overpaid. Adjustments in the
interest reduction payments shall also be made in the event a subsidized dwelling unit is
destroyed or rendered not habitable for any reason, unless said unit is restored or
rehabilitated within a reasonable time or unless an unsubsidized unit is designated in its
place.

5.

The Borrower covenants and agrees with respect to each subsidized dwelling unit of the
Development that:
(a)

Unless HUD agrees to permit a basic rental charge and fair market rental charge
pursuant to 236(f)(1)(A)(ii)(II) and (iii)(II), the Borrower has established or shall
establish for each such dwelling unit (i) a basic rental charge determined on the
basis of operating the Development with even monthly payments of principal and
interest with respect to the 236 Mortgage Note, bearing interest at one percent per
annum for an amortization period set forth in the 236 Mortgage Note, and (ii) a fair
market rental charge determined on the basis of operating the Development with

______________________________________________________________________________________________________________________
Page 4 of 14
form HUD-93175
(2/2008)

even monthly payments of principal and interest and fees and charges with respect
to the 236 Mortgage Note as approved by the Secretary based upon an amortization
period set forth in the 236 Mortgage Note. (Payments required to be made under
the _________________ Note described above may be included in the cost of
“operating the Development” for the purpose of the foregoing rental calculation.)
Such basic rental charges and fair market rental charges, as approved by the
Agency, will be provided to the Secretary for HUD’s approval.
(b)

Any revisions in the basic rental or fair market rental for any subsidized dwelling
unit shall be made or approved by the Agency and shall be submitted to HUD for its
approval, as further provided below in this paragraph (b). The Agency shall make or
approve rental revisions in conformity with applicable Federal statutes, HUD
regulations and the Regulatory Agreement, and directives and applicable state law
and regulations, and shall notify the Secretary in writing of every such revision.
The Secretary shall not unreasonably withhold approval of rent revisions made or
approved by the Agency. Notice of approval or disapproval of any revision shall be
given within thirty days of the date of receipt of the Agency's notification to the
Secretary of the revision. The Agency has furnished the Secretary copies of such
State and local laws and regulations and shall inform him of any changes in such
laws and regulations.

(c)

The section 236 rent charged for each subsidized unit plus utility allowance, which
include all utilities except telephone, will be equal to 30% of the tenant’s adjusted
annual income or the basic rental, whichever is greater, but in no event is the rental
charged to exceed the fair market rental.

(d)

The Borrower shall limit admission to those families whose incomes do not exceed
the lower of the applicable income limits that are set by the Secretary pursuant to
the Section 236 Regulations and applicable program requirements or by the Agency.

______________________________________________________________________________________________________________________
Page 5 of 14
form HUD-93175
(2/2008)

The Borrower shall comply with the provision of any applicable federal, state or local
law prohibiting discrimination in housing on the ground of race, ancestry, color,
creed, national origin, disability, marital status, familial status, age or sex, including
Title VI of the Civil Rights Act of 1964 (Public Law 88-352, 78 Stat. 241, 42 U.S.C.
2000d, et dwq.), the Fair Housing Act (Title VIII of the Civil rights Act of 1968, as
amended, 42 U.S.C. 3535(d), 3600-3620), section 504 of the Rehabilitation Act of
1973 (29 U.S.C. 794), and all requirements imposed pursuant to the Regulations of
the Department of Housing and Urban Development (24 CFR Part 107) issued
pursuant to Executive Order 11063. The Borrower shall require that contractors
and subcontractors engaged in the construction or rehabilitation of the Development
provide equal opportunity for employment without discrimination as to race, sex,
marital status, color, disability, religion, national origin or ancestry.
(e)

The Borrower shall not restrict occupancy by reason of the fact that there are
children in the family, unless the Development, or a portion thereof, has been
designed for an elderly family. A project or portion of a project designed for the
elderly can be restricted to a family where the head of household or spouse is 62
years of age or older. For such project or portion of a project, a single person 62
years of age or older shall be deemed a family. In no case, however, can an elderly
family be discriminated against in admissions because of children in that family who
are 18 years of age or younger.

(f)

No tenant of a subsidized dwelling unit shall be permitted to rent more than one
unit in the Development at any given time without the prior written approval of the
Secretary and the Agency.

(g)

On forms approved by the Agency, the Borrower shall obtain from each prospective
tenant of a subsidized dwelling unit a certification of income and an annual

______________________________________________________________________________________________________________________
Page 6 of 14
form HUD-93175
(2/2008)

recertification of income from all such tenants who are paying less than fair market
rental.
(h)

In a manner prescribed by the Agency, the Borrower shall obtain written evidence
substantiating the information given on such tenants' annual recertifications and
shall retain the evidence in its files for three years. If any annual recertification
reveals a change in adjusted income whereby such a tenant would be eligible for a
lower or higher rent, such adjustment in rent charged shall be made, provided that
the adjusted rent for any such unit shall be the basic rental or an amount equal to
30% of the tenant's income, whichever is greater, but shall never exceed fair market
rental.

(i)

Except to the extent that the Secretary has specifically authorized the Borrower to
retain such amounts, the Borrower shall remit to the Secretary on or before the
tenth day of each month the amount by which the rent collected on each subsidized
dwelling unit exceeds the approved basic rental for each unit if any, in the same
manner as prescribed for similar Section 236 projects, which remittance shall be
accompanied by a monthly report on a form approved by the Secretary. A monthly
report shall be filed and a copy forwarded to the Agency even if no remittance is
required. In no event will the excess rents directly or indirectly flow back to the
Project unless authorized by HUD. The Agency shall not have any direct or indirect
responsibility relating to the collection and/or remittance of Section 236 excess
payments, provided however the Agency shall retain the right to enforce such
collection against the Borrower to assure that the interest reduction payments are
not terminated under paragraph 7 hereof.

(j)

The Borrower shall maintain accurate records and accounts in such form and
manner as the Agency may prescribe, including compliance with Subpart H of Part

______________________________________________________________________________________________________________________
Page 7 of 14
form HUD-93175
(2/2008)

205 of title 24 of the Code of Federal Regulations and shall make such records and
accounts available for inspection and audit by the Secretary at any time.
(k)

The Borrower shall not sell, convey or transfer the Development, except to a
purchaser who is approved by the Secretary and the Agency and is entitled to
participation under Section 236(b) and who assumes the duties and obligations
under this Agreement.

(l)

Subject to HUD requirements, each of the dwelling units in the Project shall be
available for rental to members of the general public. None of the dwelling units in
the Project shall at any time be utilized on a transient basis, shall ever be leased or
rented for less than thirty (30) days or shall ever be used for other than housing
purposes. The Project shall not be used as a hotel, motel, dormitory, fraternity,
sorority house, rooming house, hospital, nursing home, sanitarium, rest home, or
trailer park or court for use on a transient basis.

(m)

The borrower will not initiate or cause any involuntary displacement

of a tenant

(except for cause as set out in the tenant’s lease) due to this transaction or any
financing, LIHTC or state or local agency requirements.
(n)

The borrower will, at all times, maintain the property in a condition which is decent,
safe and sanitary, and in good repair in accord with Subpart G of Part 205 of title 24,
of the Code of Federal Regulations.

6.

The Agency covenants and agrees that without the prior written approval of the Secretary
it will not assign the 236 Mortgage or the 236 Mortgage Note; except that, in connection
with any new financing, the Agency may assign or pledge the 236 Mortgage, and/or the 236
Mortgage Note, this Agreement, and the proceeds of payments hereunder and its rights
hereunder as security to its noteholders or bondholders or to a trustee without such prior
written approval of the Secretary, or sell a participation interest in the 236 Mortgage and

______________________________________________________________________________________________________________________
Page 8 of 14
form HUD-93175
(2/2008)

the 236 Mortgage Note to a trustee, so long as the Agency shall remain the record holder of
the 236 Mortgage.

7.

(a)

The Secretary shall terminate payments under this Agreement if
(i)

the 236 Mortgage is extinguished;

(ii)

the Project ceases to be owned by an eligible owner under Section 236;

(iii)

the Agency is no longer mortgagee of record and the Secretary has not
approved the Agency’s successor as mortgagee of record; or,

(iv)

the Agency does not meet its obligation to monitor the operation and
condition of the Project pursuant to Section 236 or does not certify, in a
manner acceptable to the Secretary, that it is satisfying this requirement.

(b)

The Secretary shall have the discretion to terminate interest reduction payments at
any time under this Agreement if either of the following events occurs:
(i)

Upon default by the Borrower or the Agency under any provision of this
Agreement; or

(ii) If an action of foreclosure is instituted by the Agency, except that in the event
the Agency:
(1)

gives to the Secretary advance written notice of its

intention to

institute such foreclosure; and
(2)

submits to the Secretary in advance a plan, acceptable to
the Secretary, providing for continued eligibility of the
Development for receiving the benefits of Section 236;

(c ) The Secretary shall have the discretion to decrease the amount of the
monthly IRP payment if the number of units in the project available for
rental by tenants also decreases. Any such decrease in the IRP payment
shall be, to the extent possible, in proportion to the decrease in the available
______________________________________________________________________________________________________________________
Page 9 of 14
form HUD-93175
(2/2008)

units.

In the event the Secretary deems necessary the termination or decrease of payments under
this Agreement, he shall give prior written notice thereof to the parties indicated in
Paragraph 12 hereof stating the reasons therefor and providing for a reasonable period to
cure.
8.

If interest reduction payments are terminated or to be terminated pursuant to Paragraph 7
herein, such payments may be reinstated or continued by the Secretary at his discretion
and on such conditions as he may prescribe.

9.

This Agreement shall terminate (a) when the 236 Mortgage Note is paid in full, or (b) at the
option of, and upon written notice from, the Secretary after the expiration of one year from
the date of the termination of payments in accordance with Paragraph 7 hereof, unless such
payments have been reinstated in accordance with Paragraph 8.

10.

Except as provided under Paragraphs 5(k) and 6 of this Agreement, the rights and
obligations under this contract are not assignable by the Agency or by the Borrower without
prior written approval of the Secretary. In the event of any assignment not permitted
hereunder, the Interest Reduction Payments shall terminate unless the Secretary agrees in
writing to reinstate them.

11.

The Borrower is an eligible mortgagor pursuant to Section 236(b) of the National Housing
Act and is entitled to a semiannual distribution as limited by the terms of a Regulatory
Agreement dated as of the date hereof between the Borrower and the Agency.

12.

Except as otherwise provided herein, all notices, demands, requests, instructions,
certifications and any other form of communication required or permitted to be given
hereunder in order to be binding on the recipient must be given in writing addressed as
follows (or to such other address as any party hereto shall specify by notice to the other
parties):

______________________________________________________________________________________________________________________
Page 10 of 14
form HUD-93175
(2/2008)

If to HUD:

Department of Housing and Urban Development
Attention: Director of Multifamily Housing
Address
City, State & Zip

If to the Agency:

______________________ Agency of Housing
Attention: _________________, Executive Director
Address
City, State & Zip

If to Borrower:

Name
Address
City, State & Zip

13.

This Agreement may be executed in any number of counterparts, each of which shall be an
original, but all of which together shall constitute one instrument.

14.

The Mortgagor agrees to accept Section 8 project-based assistance on the same terms and
conditions as the existing Section 8 assistance for as long as this assistance is offered by the
Secretary during the remaining term of this Agreement.

IN WITNESS WHEREOF, the parties hereto have set their hands and as of the day and year
above written.
BORROWER:
By:

_____________________,
a ______________________ limited partnership
By:

_____________________, its
general partner
By:

_____________________
Name:
Title:

______________________________________________________________________________________________________________________
Page 11 of 14
form HUD-93175
(2/2008)

Signature page for ______________________ Apartments Interest Reduction Payments Agreement between
the ______________________ and the Secretary of Housing and Urban Development.
MORTGAGEE:
______________________
_____________________________________
By:
_______________
Its:
_______________

______________________________________________________________________________________________________________________
Page 12 of 14
form HUD-93175
(2/2008)

HUD SIGNATURE PAGE
SECRETARY OF HOUSING AND URBAN
DEVELOPMENT acting by and through the
FEDERAL HOUSING COMMISSIONER
_____________________________________________
By:
______________________________________
Its:
Authorized Agent

______________________________________________________________________________________________________________________
Page 13 of 14
form HUD-93175
(2/2008)

Exhibit A
IRP Schedule
[Amortization Schedule of 236 Loan, including
Amount and Term of Interest Reduction Payments]

______________________________________________________________________________________________________________________
Page 14 of 14
form HUD-93175
(2/2008)