2005 California Health and Safety Code Sections 51475-51484 CHAPTER 10. MULTIFAMILY HOUSING

51475.  (a) The Legislature finds and declares:
   (1) Significant amounts of housing built to serve lower income
households and families is disappearing from the housing market.
This phenomenon is due to government policies that allow prepayment
of mortgages, termination of use restrictions and nonrenewal of
subsidy contracts and to changes in market forces which increase
property values and create pressure to convert to middle or upper
income housing or other commercial uses.  These conversions displace
lower income tenants who have very limited options for relocating in
comparable affordable housing.
   (2) There are nearly 2,000 rental housing projects built in this
state prior to 1980 under Section 236, Section 221(d)(3) and Section
8 programs of the United States Department of Housing and Urban
Development and the Section 515 Program of the federal Farmers' Home
Administration, containing approximately 123,000 units subject to
potential conversion to higher market rent housing or condominium
units which will result in the displacement of lower income tenants.
   (3) It is in the public interest to preserve and expand our
existing affordable lower income housing stock.
   (b) It is the intent of the Legislature to provide a flexible and
expeditious source of mortgage financing for bridge loans and gap
financing to preserve and expand existing afforable lower income
rental housing stock.
51476.  The agency shall administer a program for the preservation
of multifamily housing under authority of this chapter with funds
made available by the California Housing Bond Act of 1990.
51477.  There is hereby created in the State Treasury an Affordable
Housing Preservation and Rehabilitation Fund.  "Fund" as used in this
chapter means the Affordable Housing Preservation and Rehabilitation
Fund.  Notwithstanding the provisions of Section 13340 of the
Government Code, all moneys in the fund are continuously appropriated
to the agency without regard to fiscal years, for expenditure
pursuant to this chapter and for defraying the actual administrative
costs of the agency incurred pursuant to this chapter.
Notwithstanding Section 16305.7 of the Government Code, any interest
earned or other increment derived from investments made from moneys
in the fund shall be deposited in the fund.
51478.  All of the powers granted under this chapter are cumulative
with powers of the agency under other provisions of this part, and
this chapter constitutes an alternative method to issue bonds and to
make mortgage loans pursuant to the provisions of this chapter.
51479.  In administering a program for the preservation of
multifamily housing hereunder, the agency may segregate funds
available for these purposes into separate accounts as necessary to
reflect the different types of assistance authorized by this chapter.
51480.  (a) (1) Mortgage lending authorized by this chapter shall be
for multifamily rental housing developments at risk of conversion.
For the purposes of this chapter, multifamily rental housing
developments at risk of conversion shall include any of the
following:
   (A) Federally assisted housing for which the low-income use
restriction may terminate or be substantially modified within four
years.
   (B) State or locally assisted housing for which the low-income use
restrictions may terminate or be substantially modified within four
years.
   (C) Other privately owned housing serving at least 30 percent
lower income tenants which is demonstrated to be at risk of
converting to other residential or nonresidential use within four
years resulting in the displacement of lower income tenants.
   (2) For the purposes of this chapter, "substantially modified"
means any change to use restrictions which would result in reducing
the number of units originally required to be set aside for lower
income tenants or reducing the time the units are required to be set
aside for lower income tenants.
   (b) Mortgage lending authorized by this chapter for multifamily
rental housing developments at risk of conversion shall include the
following:
   (1) Loans for the acquisition of an existing multifamily rental
housing development for a temporary period prior to and pursuant to a
plan made or approved by the agency for permanent  financing and any
necessary rehabilitation of the multifamily rental housing
development.  Loans made pursuant to this paragraph shall not exceed
90 percent of the value of the property and the costs of holding the
housing for a period of up to three years and shall accrue simple
interest at a rate of 3 percent per annum.  All principal and accrued
interest shall be due and payable not later than three years from
the date of the loan, or earlier upon sale, refinancing, syndication,
or permanent loan closing.  The board may extend the term of the
loan for one additional year based on a finding that additional time
is needed to secure permanent financing for the development.  The
loan shall be subject to a regulatory agreement with an occupancy
restriction for the assisted units for 40 years.
   (2) Loans for acquisition or acquisition and rehabilitation
secured by a lien junior to other permanent financing for a
multifamily rental housing development pursuant to a plan made or
approved by the agency for permanent financing and any necessary
rehabilitation of the multifamily rental housing development.  Loans
made pursuant to this paragraph shall be made upon terms and
conditions determined by the board, but in an amount which, when
added to debt secured by a lien senior to the loan, does not exceed
90 percent of the value of the property or if the property is
rehabilitated, 90 percent of the after rehabilitation value.  The
amount included in an acquisition and rehabilitation loan for
rehabilitation shall not exceed $5,000 per unit.  The number of
assisted units shall be at least equal to the proportion of project
cost financed pursuant to this chapter to total project cost.  Loans
made pursuant to this paragraph shall be for a term of not less than
40 years and shall bear simple interest at a rate of 3 percent per
annum.  The board may extend the term of the loan for an additional
10 years as long as the rental housing development is operated in a
manner consistent with the regulatory agreement. The board, in its
discretion, may provide for the current payment of interest or for
the accrual of interest over the term of the loan.  All principal and
any accrued interest shall be due and payable at the end of the loan
term, or earlier upon sale, refinancing or syndication of the
property unless the agency determines the proceeds obtained from a
refinancing or syndication are necessary to maintain the housing
development in accordance with the terms and conditions of the
regulatory agreement or otherwise further the purposes of the
chapter.  The loan shall be subject to a regulatory agreement with an
occupancy restriction for the assisted units for 40 years.
   (c) (1) In making mortgage loans pursuant to this chapter, the
agency shall consider the public benefit to be derived from the loan,
and the amount of loan shall not exceed the amount necessary to
ensure the preservation and or expansion of lower income housing
consistent with paragraph (2).
   The loan amount shall be limited to the total amount required,
when considered with other available financing and assistance, in
order to achieve all of the following:
   (A) Enable the acquisition or acquisition and rehabilitation of
assisted rental housing units.
   (B) Ensure that rents for assisted units are in accordance with
program requirements.
   (C) Operate in compliance with all other program requirements.
   (D) Allow a debt service coverage ratio in an amount sufficient to
satisfy the requirements of other lenders providing financing for
the rental housing development, but not to exceed 115 percent.
   (2) In making loans pursuant to this chapter, the agency shall do
the following:
   (A) Establish application forms and materials.
   (B) Accept applications at any time and make loan commitments at
scheduled meetings of the board.
   (C) Ensure that the housing development meets minimum threshold
requirements relating to the capability of the applicant to develop
and manage the housing development.
   (D) Ensure that the housing development is economically feasible
and complies with the program requirements of this chapter.
   (E) Use the following preferences in evaluating the housing
developments and making loan commitments:
   (i) The smallest percentage of the maximum allowable rents for
lower income tenants.
   (ii) The longest period of affordability.
   (iii) The least permanent displacement of lower income tenants.
   (iv) The greatest number of units consisting of three or more
bedrooms.
   (v) The greatest number of units for single room occupancy for
very low income tenants.
   (vi) The maximum use of private, local, federal, and other
financing.
   (vii) The greatest impact on the availability of affordable
low-income housing in a community.
   (F) In making loans pursuant to this subdivision, the agency shall
consider variances in market conditions relating to the cost of
developing rental housing.
   (d) (1) All loans made pursuant to this section shall be subject
to a regulatory agreement executed by the borrower and recorded in
the office of the county recorder of the county in which the property
is located.
   (2) The regulatory agreement shall contain at least all of the
following:
   (A) Restrictions on occupancy of units within the housing
development to meet the requirements of paragraphs (1) and (2) of
subdivision (b).
   (B) Provisions governing tenant selection to ensure occupancy by
lower income  tenants.
   (C) Provisions governing occupancy standards and rental
agreements.
   (D) Provisions for setting rents pursuant to subdivision (g).
   (E) Provisions limiting distribution of earnings pursuant to
paragraphs (1) and (2) of subdivision (l).
   (F) Provisions specifying the conditions under which the agency
and any intended beneficiary may enforce the regulatory agreement.
   (3) The regulatory agreement shall be recorded against the
property and shall be deemed a covenant running with the land and
shall be binding upon the sponsor and any and all successors in
interest in case of sale or transfer of the housing development for
the original term of the loan, regardless of any prepayment of the
loan, except when the sale or transfer is a result of a foreclosure
by the first lienholder.
   (e) Not less than 20 percent, nor more than 40 percent, of the
assisted units financed pursuant to paragraph (3) of subdivision (a)
shall be available on a priority basis to elderly or handicapped
persons.
   (f) (1) No loan shall be made pursuant to this section if, as a
result of the loan, the aggregate number of units in the housing
development available to persons of low and very low income would be
less than the number of those units available prior to making the
loan.
   (2) No loan shall be made pursuant to this section unless the
number of low- and very low income units is equal to or exceeds 30
percent of the total units in the housing development, except that a
loan may be made when the number of units is equal to or exceeds 20
percent of the total units when the housing development was
originally financed using tax-exempt bond proceeds and the housing
sponsor agrees to increase the number of low- and very low income
units to 30 percent of the total units as the units become available.
   (g) (1) For all units not receiving assistance payments under
Section 8 of the United States Housing Act of 1937, as amended (42
U.S.C. Sec. 1437f), or other rental assistance payments, the
respective rent for each assisted unit existing prior to loan
assistance shall be the base rent for that unit.  The base rent for
each occupied unit may be annually increased in accordance with the
inflation index specified in subdivision (h).
   (2) For all units receiving project-based payments under Section 8
of the United States Housing Act of 1937 or other rental assistance
payments, at the time these payments cease to be available, base
rents shall be established as follows:  rents for units occupied by
tenants earning less than 35 percent of median income shall be no
more than 30 percent of 35 percent of median income adjusted for
family size appropriate for the unit, rents for units occupied by
tenants earning between 35 percent and 50 percent of median income
shall be 30 percent of 50 percent of median income adjusted for
family size appropriate for the unit, rents for units occupied by
tenants earning between 51 percent and 80 percent of median income
shall be 30 percent of 60 percent of median income adjusted for
family size appropriate for the unit.  The base rent for each unit
may be annually increased in accordance with the inflation index
specified in subdivision (h).
   In determining the loan amount, the agency shall ensure that these
rent levels are achieved at the time the rental assistance payments
cease, taking into account the projected date for cessation of the
rental payments.  The agency shall require that sponsors make every
effort to seek renewal of the rental assistance payments if renewal
is possible.
   (3) Upon vacancy of an assisted unit, the rent for that unit shall
be the last rent charged pursuant to paragraph (1) or (2).  The rent
for units may be annually increased in accordance with the inflation
index specified in subdivision (h).
   (4) For the life of the project, the sponsor shall maintain the
assisted units in the proportion of tenants with incomes less than 35
percent of median income, between 35 percent and 50 percent of
median income, and between 51 percent and 80 percent of median income
as existed in the project at the time of application.  Upon request
of the sponsor, the agency may allow vacated units originally
occupied by tenants earning less than 35 percent of median income to
be rented to tenants earning up to 50 percent of median income,
adjusted for family size, in the event the agency determines that the
base rent is not affordable to tenants below 35 percent of median
income.
   (h) Rents for units financed pursuant to this section may be
automatically increased by the sponsor annually according to an
inflation index to be determined by the board.  The inflation index
shall reflect anticipated annual changes in rental housing
development operating costs from the base year in which rents are
initially established for the housing development.  Any sponsor may
appeal to the agency in writing for a greater adjustment in rents
necessary to ensure the fiscal integrity of the housing development;
the request on appeal shall be deemed approved unless rejected by the
agency within 60 days from the date of receipt of the appeal.
   (i) Not less than 20 percent of funds made available to the agency
for the purposes specified in this section shall be made available
for loans in rural areas.
   (j) (1) If a multifamily rental housing development assisted by
this chapter is not economically feasible, the sponsor, with the
approval of the agency, may remove one or more assisted units from
the occupancy requirements for a period of time necessary for the
development to again become economically feasible.
   (2) For purposes of paragraph (1), "economically feasible" means
that project revenue equals or exceeds project operating expenses,
excluding any return on investment.
   (3) For purposes of paragraph (2), "operating expenses" means the
reasonable expenses necessary to operate and maintain the project in
habitable condition, including debt service, taxes, and reasonable
reserves.
   (4) For purposes of this paragraph, debt service shall not include
the portion of payments of principal and interest attributed to any
excess refinanced principal over the outstanding principal of the
loan that was refinanced, except to the extent the excess was used
for the rehabilitation of the project.
   (k) To the extent that any provisions of this section relating to
use and rent restriction conflict with the requirements of federal
law, the requirements of federal law shall prevail for the period the
project is subject to federal restrictions.
   (l) A loan made pursuant to paragraph (1) or (2) of subdivision
(b) may be assumed if the terms, conditions, and requirements of the
regulatory agreement are maintained.
   (m) (1) A nonprofit sponsor, other than a governmental agency, may
distribute earnings from assisted and nonassisted units in an amount
no greater than 8 percent of the nonprofit sponsor's actual
investment in the housing development.  A for-profit sponsor may
chose between the following options:
   (A) It may distribute earnings from assisted and nonassisted units
in an amount no greater than 8 percent of its actual investment in
the housing development.
   (B) It may forgo distribution of earnings from assisted units and
not be subject to any limitation on the amount of distribution it
receives from nonassisted units.
   (2) The housing sponsor shall apply any earnings in excess of the
amount eligible to be distributed under paragraph (1) to reduce rent
of assisted units or to increase the number of assisted units.
51481.  Mortgages made by the agency under authority of this chapter
shall be secured by a first deed of trust, or by a deed of trust
junior to a first deed of trust if it is necessary to accomplish the
purposes of this chapter.  Except as otherwise specified in this
chapter, the principal amount of, and the conditions of mortgage
loans, shall be determined by the board.
51482.  The agency shall adopt policies by resolution of the board
for the admission of tenants, termination of tenancies, and
eligibility of developers of housing financed under this part.
51483.  The agency shall consult with an outside advisory committee
to assist in the implementation of this chapter.  The advisory
committee shall be comprised of individuals who are knowledgeable
about housing finance, the conversion of subsidized housing, the
operation of low-income multifamily rental housing, the needs of
lower income tenants and the intent and objectives of this chapter.
51484.  The agency shall have all powers granted under authority of
this part to make commitments and execute agreements with developers,
other lenders, and any public or private entity in making mortgage
loans authorized by this chapter.