At the discretion of the PJ, a CHDO may retain some or all of the proceeds from a CHDO development activity. The PJ must stipulate in its written agreement with the CHDO whether the CHDO may retain project proceeds or return them to the PJ.
CHDO project proceeds are funds resulting from:
- Permanent financing of a CHDO project that is used to pay off a CHDO-financed construction loan.
- Sale of CHDO-sponsored rental housing toa second non-profit.
- Sale of CHDO-developed homeownership housing.
- The principal and interest payments from a loan to a buyer of CHDO-developed homeownership housing.
If authorization is given by a PJ for a CHDO to retain project proceeds, then proceeds must still be used for HOME-eligible activities or other low-income housing activities. A PJ determines how the proceeds can be used in the written agreement with the CHDO.
- A PJ may establish more stringent requirements, than those required by the HOME Final Rule on the use of CHDO proceeds.
- A PJ may have a flexible policy on the use of proceeds that differs from CHDO to CHDO, or even from project to project.
- CHDO project proceeds are not considered HOME program income and are not subject to program income requirements.
- However, CHDO project proceeds that are returned to the PJ are considered program income and are subject to HOME program income requirements.
- If a CHDO is acting as a subrecipient, the funds generated from HOME-assisted activities are program income and are subject to HOME program income requirements.
- HOME funds recaptured because housing no longer meets affordability requirements are not considered proceeds and are subject to the requirements on program income.
Once CHDO project proceeds are used by the CHDO for eligible activities, there are no further HOME requirements. Funds generated from the use of CHDO proceeds are not considered CHDO proceeds.
Examples of CHDO Project Proceeds
The PJ may have a flexible policy that differs from CHDO to CHDO, or even from project to project, on the use of proceeds.
- Uptown, Inc., a certified CHDO, develops a small subdivision of 35 single-family homes for sale to low-income homebuyers. The PJ has provided the CHDO with HOME assistance totaling $350,000 for construction of the units. The purchasers of the units obtain first mortgage financing from private lenders, which will repay the CHDO's construction loans and other development debt. The PJ has determined, through an assessment of Uptown, Inc.'s track record and capacity, that Uptown, Inc. may retain project proceeds for future low-income housing activities, which include a homebuyer counseling program and additional development of affordable homeownership housing. These specific activities are detailed in the written agreement between the PJ and Uptown, Inc.
- The Smith County PJ works with six CHDOs. Four of them are small developers who have difficulty covering pre-development costs. Smith County decides to permit each of these CHDOs to retain project proceeds. The People for Progress CHDO is a multicounty developer with a substantial portfolio and a multi-million dollar operating budget. Smith County decides to require People for Progress to return project proceeds to the county, where the proceeds must then be treated as program income.
- The Elm Street CHDO has developed two projects for which Smith County has permitted it to retain project proceeds. Elm Street explains to Smith County that Elm Street's third project will complete its development agenda for its service area. Smith County decides to require the return of proceeds from its third project.