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Condo Conversions Under
PLR 200703024
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The PLR Was Published OnJanuary 19, 2007
• Each tenant, granted a right of first refusal, can buy that unit, along with all the tenants in the property, upon the conversion of Section 42 rental property to condominiums. The ownership plan can be implemented after the compliance period ends. All tax credits taken will not be recaptured.
• The Agency can terminate the existing LURA after the compliance period terminates and substitute a new LURA for rental and home ownership.
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Agency Support
• A conversion does not diminish the affordable housing pool;• Tenants will be more committed to stay to conversion date,
keeping property in better condition;• Prior to conversion, the owner has the incentive to maintain the
property;• Following the conversion, tenants, as owners, have the
incentive to maintain the property;• MHDC will not have to use new allocations of housing tax
credits or other resources;• The property’s use for affordable housing is maintained and
extended; and• Home ownership is advanced.
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Major PLR Guidelines
• The Mathematical Formula setting the home’s sales price is derived from the maximum monthly LITC rent. The new monthly payment pays the mortgage and the condominium fee.
• No displacement can occur after the conversion process starts.
• The extended use period was extended from 15 years to 30 years.
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The PLR’s Redacted Facts
1. The sales price is $79,500 for the 1BR and $89,500 for the 2BR (including one parking space).
2. The condominium fee is all inclusive.
3. The tenancy rent credit is 1% of the sales price for each full year of occupancy.
4. Any home re-sales must be to a then income eligible Section 42 buyer.
5. The re-sale price is capped at the original sales price plus 10%, compounded per year.
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Agency’s Baseline1. MHDC has issued a Baseline memorandum detailing
implementation rules that include:
i. No ongoing tenant income re-certifications after conversions;
ii. Non-tenant and resale home buyers are income certified on the date of the sale contract;
iii. HOA manager must be Section 42 experienced;iv. All units must be owner occupied; andv. The qualified contract period can be by-passed.
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2. The Baseline sets forth PLR criteria for other 1990 – 1995 project conversions:
i. MHDC must approve all PLR conversions;ii. Once approved, all leases must include a tenant right of
first refusal;iii. A physical needs assessment must be prepared;iv. A sales schedule and HOA management plan must be
submitted;v. No conversion will be approved if there are material
Form 8823 violations; andvi. MHDC will continue to monitor the property’s physical
condition.
3. Nixon Peabody Reliance Letter.
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PLR Sponsor Imposed Requirements
• Common paymaster for mortgage payment and condominium fee;
• Mandatory home ownership counseling course; and
• HOA management company will have entry rights to fix common elements and make unit repairs.
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Each Agency Must Adopt the PLR
• Nixon Peabody Reliance Letter.• Each Agency may specify its own approval process.
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Downtown Kansas City, MO
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Quality Hill Projects
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Phase II-B
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Phase II-B
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Before
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After
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Before
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After
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Phase II-B
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Special Home Buyer Incentives• 1% Per Annum Credit To Tenant For Occupancy Up
To 10 Years.• Homeowner Down Payment/Closing Grant From City
of $3,000 per Home.• Real Estate Tax “Freeze”.• CRA End Loan Programs
(A) Bank Of America
(B) HFA (First Time HFA Financing).
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Other Issues
• Local and State condominium conversion laws.• Partner Consents.• Lender Consents.
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• Each Agency must approve the PLR.
• The “politics” of affordable/workforce Home Ownership are positive and real.
• The math must “work” for the homebuyers and the developer.
• Conversions are not easy.
• Most post compliance period properties may not fit into the PLR.
Take Aways
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CONTACT INFORMATION
Gregory N. Doran, Esq.
Nixon Peabody LLP
401 9th Street, NW
Suite 900
Washington, DC 20004
(202) 585-8266
gdoran@nixonpeabody.com
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