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HUD   >   Program Offices   >   Public and Indian Housing   >   PIH   >   Special Applications Center (SAC)   >   Demolition and Disposition
Demolition/Disposition

Guidance

The demolition and disposition of public housing is authorized under Section 18 of the Housing Act of 1937 (the Act), as amended. HUD has promulgated a regulation, 24 CFR 970, detailing the administrative steps required to perform demolition/disposition activity in accordance with the Act. A revision to 24 CFR 970 was published in the Federal Register on October 24, 2006, and took effect on November 24, 2006. A correction to the revised 24 CFR 970 was published in the Federal Register on January 23, 2008. This webpage reflects the revised processing criteria.

Although demolition/disposition activity has always been permitted, HUD and its business partners have begun to actively pursue it as a management strategy option in the last ten years. This is due to the realization that some developments have difficulties associated not only with physical deterioration, but also with the overall deterioration of the surrounding community. It is also true that a large portion of the housing now being proposed for demolition/disposition was built in the late 1940s and early 1950s, and was built to a standard that is no longer acceptable for the general public. Developments meeting that description have very often become the housing of last resort within their communities.

Potential Reasons for Demolition/Disposition

Public Housing Agencies (PHAs) may decide to demolish or dispose of an entire development, or a portion of a development, for a variety of reasons, including:

Demolition

  • For the demolition of an entire development, the development is obsolete as to physical condition, location, or other factors, making it unsuitable for housing purposes, and no reasonable program of modifications is cost-effective to return the public housing project or portion of the project to its useful life.
  • For the demolition of a portion of a development, that portion of the development is obsolete as to physical condition, location, or other factors, making it unsuitable for housing purposes, and no reasonable program of modifications is cost-effective to return that portion to its useful life, and the demolition will ensure the viability of the remaining portion of the development by reducing density to permit better access by emergency, fire, or rescue services, or improving the marketability by reducing density to that of the neighborhood or other developments in the PHA's inventory.
HUD TDC Guidance

To evidence obsolescence for demolition of a project, PHAs must show that the necessary modification and/or rehabilitation to a project is not cost-effective. HUD generally considers modifications not to be cost-effective if costs exceed 62.5% of TDC for elevator structures and 57.14% for other types of structures.  PHAs should use the HUD TDC information associated with the year the rehabilitation cost estimate was generated.  For instance, if a rehabilitation cost estimated was generated in November 2012, but the PHA did not submit the application until January 2013, the PHA should use HUD’s 2012 TDC information.  More information about HUD’s TDC calculations, including procedures HUD uses for establishing TDC limits and procedures for the annual posting of TDC limits on HUD's webpages, can be found in PIH Notice 2011-38.   See also HUD's TDC Limits Workbook and TDC costs limits from 2013, 2012, and 2011

An Excel Version of the Total Development Cost (TDC) Addendum (HUD-52860-B) is available   here.



Disposition:
  • Due to a change in the neighborhood, the location of the development is no longer conducive to residential use.
  • The land on which the development was built is sufficiently valuable that the PHA can replace the existing development with an improved development at no cost to HUD.
     
  • Leasing the development to another entity, or transferring the title of the development via a sales contract, may be determined to be more cost-effective or efficient way for the development to be used for low-income or mixed-income housing, because that party will have access to funds not available to the PHA. (Note that a lease of more than one year is considered to be a disposition by HUD.)
     
  • The development includes vacant land or non-dwelling structures that exceeds the need of the development (after Date of Full Availability--DOFA).
     
  • The development includes vacant land or non-dwelling structures that are incidental to, or do not interfere with, the continued operation of the remaining portion of the development.
     
  • The PHA has otherwise determined that the disposition is appropriate for reasons that are consistent with its goals of the PHA and its PHA Plan and that are otherwise consistent with the U.S. Housing Act of 1937.

Dispositions to allow for public housing mixed-finance development pursuant to 24 CFR 905.604

The revision to 24 CFR 970 that was published on October 24, 2006, and took effect November 24, 2006, included a new provision at 24 CFR 970.3(12) which provides that dispositions for mixed-finance housing developed in accordance with 24 CFR 905.604 are NOT subject to 24 CFR 970. However, these dispositions are still subject to Section 18 of the Housing Act of 1937 (the Act). Accordingly, the SAC intends to process these disposition applications under a "streamlined" review process to verify the PHA is in compliance with the requirements of Section 18 of the Act. While the SAC is not providing an exact turn-around time for these disposition requests, the reduced submission requirements for PHAs will greatly expedite the SAC's review process.

Lease Dispositions

HUD considers a disposition of public housing property to include both sales of fee title and ground leases longer than 1 year. Therefore, a PHA may apply and receive a Section 18 disposition approval from the SAC for a ground lease of public housing property for any duration between 1 year and 99+ years. If a ground lease terminates or expires prior to the length of time in which the PHA would have been required to operate the property as public housing as indicated in the chart below, the PHA must record a new Declaration of Trust (DOT) on against the property in favor of HUD.

Acquisition or Development Funds Property acquired or developed with funds from the U.S. Housing Act of 1937 must be operated as public housing for a 40-year period that begins on the date on which the project becomes available for occupancy, as determined by HUD. This 40-year period is extended if PHA receives other funding, such as Capital Funds or Operating Funds.
Capital Fund Property modernized or receiving assistance of Capital Funds from the U.S. Housing Act of 1937 must be operated and maintained as public housing for a 20-year period that begins on the latest date on which modernization is complete or assistance is provided with Capital Funds covered by the Capital Fund ACC Amendment. The 20-year requirement may extend the use of the property as public housing beyond the original 40-year ACC requirement or beyond any requirement incurred as a result of receiving Operating Funds.
Operating Fund Property that receives Operating Funds from the U.S. Housing Act of 1937 must be operated as public housing for a 10-year period beginning upon the conclusion of the fiscal year for which such amounts were provided. The 10-year requirement may extend the use of the property as public housing beyond the original 40-year ACC requirement or beyond any requirement incurred as a result of receiving Capital Funds.

Resident Consultation/Offer of Sale

Resident consultation is required both at the development level, at the Housing Authority-wide level and with the Resident Advisory Board (RAB) for all applications. A description of the manner in which resident consultation was accomplished must be included with the application. Copies of any written comments received, as well as the responses to those comments, must also be included with the application. For some proposed disposition activities, the Housing Authority must offer the development, or the portion of the development affected by the proposed disposition activities, to:

  • The resident organization in place for that development.
  • Any group representing the residents of the development that has expressed a previous interest in the development.

Replacement Housing Plan (RHP)

Except for disposition of developments based on the value of the property, replacement housing plans are no longer required as part of an application for Demolition/Disposition.

Resident Relocation

The Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, as amended (URA) does not apply to Section 18 actions. However, Section 18 of the Act and 24 CFR Part 970 contain similar, but distinct, requirements for the relocation of residents.

When a development is demolished or disposed of pursuant to Section 18 of the Act and the use of certain HUD funds in the development would also make section 104(d) of the Housing and Community Development Act of 1974 applicable, the notice requirements at 24 CFR 970.21(e) apply. Such notice must also explain to the tenant the assistance available under section 104(d) (which includes offering the choice of assistance calculated at section 104(d) or URA levels). See chapter 7 of HUD Handbook 1378 and Example #7 on Exhibit 7-2 of chapter 11 of HUD Handbook 1378 which provides:

Example 7: A Public Housing Authority (PHA) obtains approval to demolish a 20 unit public housing project from the HUD Special Applications Center (SAC) under Section 18 of the United States Housing Act of 1937. The PHA plans to construct lower-income housing on the site using various assistance programs including HOME. Section 18 approval exempts the public housing demolition projects from the URA. The PHA obtains CDBG funds from the City to assist in the demolition. The City also provides HOME funds to construct some lower-income housing on the site. While the demolition and reconstruction as planned may constitute one “project,” the use of federal funds for demolition in this project would not cause the URA to apply because of the statutory exemption from the URA provided under Section 18.

The URA is not triggered by the use of CDBG or HOME funds in this project because of the Section 18 exemption.  The PHA must provide relocation assistance to the tenants who are required to move for the demolition under the relocation provisions of Section 18.  In addition, because of the use of CDBG and HOME funds in this project, section 104(d) requires that lower-income tenants who are required to move for this demolition project must also be offered the choice of relocation assistance payments calculated under either section 104(d) or the URA.

  • Tenants must be offered relocation payments as calculated under the URA (because of the section 104(d) requirement to do so).
  • Since the displaced tenants occupied subsidized housing under the public housing program, comparable replacement housing offered under both the URA and section 104(d) may be other public or assisted housing (including Housing Choice Vouchers), which may result in no cash payments to the affected tenants, if their rent/utility burden remains the same.

The CDBG/HOME recipient (the City) is responsible for assuring compliance with the one-for-one replacement requirements of section 104(d) as described in 24 CFR 42.375.

Method of Sale/Future Use Information

If a PHA is proposing to dispose of public housing property in order to allow for the development of other housing, the PHA should provide detailed information to the SAC about that future housing development (i.e. name of acquiring entity, number of ACC units, number of low-income housing units, number of market-rate units, etc.). An example of the chart that will be included in SAC's approval documents is as follows:

Development Name, Development Number
Building/s: xx, Units: xx, Acres: xx

Total Units to be Redeveloped: xxx

Less than 80% of Area Median Income

 

 

ACC

Non-ACC

Market Rate

Rental

Xx

Xx

Xx

For Sale

Xx

Xx

Xx

Acquiring Entity (Rental units)

e.g., ABC Development, LLC

Acquiring Entity (For Sale units)

e.g., XYZ Corporation, LLC

Method of Sale

e.g., Negotiated Sale at less than FMV, Ground Lease for XX Years etc.

Sale Price

e.g., $250,000, Donation, Nominal etc.

Lease Price

$xx per year

Purpose

e.g., Development of Mixed-Income Housing, LIHTC Units, Day Care Center

 - Download the SAC Approval Chart (MS-Word)

Property Approved for Disposition at Below Fair Market Value - Future Use of Property

If the SAC's disposition approval is for an amount at less than FMV, the SAC approval documents will specify the approved future use of the property. The PHA is responsible for ensuring that the approved future use is complied with for the length of time in which the PHA would have been required to operate the property as public housing as indicated in the chart below:

Acquisition or Development Funds Property acquired or developed with funds from the U.S. Housing Act of 1937 must be operated as public housing for a 40-year period that begins on the date on which the project becomes available for occupancy, as determined by HUD. This 40-year period is extended if PHA receives other funding, such as Capital Funds or Operating Funds.
Capital Fund Property modernized or receiving assistance of Capital Funds from the U.S. Housing Act of 1937 must be operated and maintained as public housing for a 20-year period that begins on the latest date on which modernization is complete or assistance is provided with Capital Funds covered by the Capital Fund ACC Amendment. The 20-year requirement may extend the use of the property as public housing beyond the original 40-year ACC requirement or beyond any requirement incurred as a result of receiving Operating Funds.
Operating Fund Property that receives Operating Funds from the U.S. Housing Act of 1937 must be operated as public housing for a 10-year period beginning upon the conclusion of the fiscal year for which such amounts were provided. The 10-year requirement may extend the use of the property as public housing beyond the original 40-year ACC requirement or beyond any requirement incurred as a result of receiving Capital Funds.

If a PHA's plans change and the PHA no longer wants the property to be used as approved by the SAC, the PHA must apply to the SAC for an amendment to the disposition approval.

HUD Field Offices are not authorized to approve an amendment of the use of the property. However, HUD Field Offices may monitor the term of the future use for compliance with the disposition approval documents. If HUD finds that the property is not being used according to the approved use, it may take any actions it deems to be appropriate, including actions related to the PHA's enforcement of any reversion/termination provisions in the disposition documents. If the property does revert to PHA ownership, the PHA must record a new Declaration of Trust (DOT) on the property for the duration for which the PHA was required to operate the property as public housing had the property not been disposed.

Use of Proceeds

Sales Proceeds from Section 18 Dispositions

PHAs may realize gross proceeds from a disposition action. With HUD approval, PHAs are permitted to use proceeds to pay the reasonable costs of the disposition, including costs associated with relocation of displaced residents and remediation costs. Pursuant to Section 18(a)(5)(A) and unless waived by HUD (24 CFR 970.9(b) and 5.110), PHAs must use any remaining net proceeds to retire outstanding debt used to finance the original development. The SAC automatically assumes that PHAs wish to request a waiver to repay outstanding obligations issued to finance the original development and will begin the process of obtaining any necessary waivers from HUD's Assistant Secretary of Public and Indian Housing (PIH) upon receipt of a disposition application from a PHA.

If any net proceeds remain after the disposition costs and debt (if applicable) have been paid, with written HUD-approval, the PHA may use net proceeds for any eligible purpose listed under Section 18(a)(5) of the Act, which provides that proceeds may be used for: (i) the provision of low-income housing or to benefit the residents of the PHA; or (ii) leveraging amounts for securing commercial enterprises, on-site in public housing projects of the PHA, that are appropriate to serve the needs of the residents. The Act defines low-income housing as decent, safe, and sanitary dwellings assisted under the Act. Accordingly, the provision of low-income housing under Section 18(a)(5) of the Act is limited to public housing units under an ACC or housing assisted by the Housing Choice Voucher Program.

PHAs anticipating net proceeds from a disposition should include a narrative description of how they intend to use the net proceeds in their disposition applications. The SAC will review the use specified by the PHA and, if it complies with the Act, approve the use. Once HUD approves a disposition application and the PHA's stated intended use for net proceeds, the PHA cannot change its use of those proceeds without the prior written consent of HUD. PHAs are also advised that pursuant to 24 CFR 970.35, they must report the use of net proceeds to their HUD Field Office by providing a financial statement showing how the funds were expended by item and dollar amount.

A non-exhaustive list of some of the acceptable uses of sale proceeds from a Section 18 disposition include: (1) repair or rehabilitation of existing ACC units; (2) development and/or acquisition of new ACC units; (3) provision of social services for PHA residents; (4) implementation of a preventative and routine maintenance strategy for specific single-family scattered-site ACC units; (5) modernization of a portion of a residential building in the PHA's inventory to develop a recreation room, laundry room, or day-care facility for PHA residents; and (6) funding of a HUD-approved homeownership program authorized under Section 32, 9, 24 or any other Section of the Act, for assistance to purchasers, for reasonable planning and implementation costs, and for acquisition and/or development of homeownership units; (7) leveraging of proceeds in order to partner with a private entity for the purpose of developing mixed-finance public housing under 24 CFR 905.604.

If a PHA is proposing to use net proceeds for the acquisition or development of new ACC units, it should indicate the approximate number of units it plans to develop. If a PHA is proposing to rehabilitate existing ACC units in its inventory, it should include the development number(s) of those units, the number of units to be rehabilitated, a budget, and a statement of work. If the PHA is proposing to provide social services or other benefits to its residents, the PHA should include information on the number of families it will service and what services it will provide.

See Use of Proceeds:  Overview and Frequently Asked Questions 

Dispositions at Less than Fair Market Value: Requirement Reversion Clause or Use Agreement

Although HUD normally requires PHAs to dispose of public housing property for not less than fair market value (FMV), HUD may approve a disposition at less than FMV if a PHA is able to demonstrate to HUD that the disposition will result in a commensurate public benefit and will be in the best interest of the PHA and its residents. However, as a condition of any below FMV disposition HUD will require either that a use agreement be recorded against the property or that the disposition documents (e.g. deed, ground lease, etc.) contain a reverter clause in order to ensure that the property is used for the purposes proposed in the PHA’s application and outlined in HUD’s disposition approval—generally for a period not less than 30 years.  If a PHA has preferred reverter or use agreement language that it would like to use in its disposition documents, it should submit that language to the SAC as part of its disposition application.   

Demolition/Disposition Technical Assistance Package

Technical assistance, in the form of a Demolition/Disposition Technical Assistance Package for application preparation, is available and can be downloaded from this site. Please note that Form HUD-52680 is included in the package. Technical Assistance is also available from Special Applications Center Management

Local Approvals

PHA Board Resolution: Applications must receive formal approval from the Housing Authority's Board of Commissioners in the form of a resolution. The resolution must be dated after the date of the last resident meeting, after the date of all letters of support from appropriate local government officials, and after the offer of sale, if applicable.

Local Government Consultation: The PHA must obtain a letter from each appropriate local government official with jurisdiction over the affected development that the local government supports the proposed demolition/disposition action. In addition, the PHA must include in its application to the SAC a description of the process of its consultation with local government officials which summarizes the dates, meetings, and issues raised by the local government officials, and the PHA?s responses to those issues.

Phased Demolition Applications

Due to the potential impact on a PHA's asset-repositioning fee (or phase out of operating subsidy) based on the relocation date in the PHA's demolition or disposition application, a PHA may wish to demolish (or dispose of) different buildings in one development in multiple phases (e.g. a PHA has three high-rise buildings or scattered-site units in one development that it wishes to demolish pursuant to a staggered timeline). Rather than submitting an application for a partial demolition or partial disposition (which may trigger additional statutory or regulatory requirements), a PHA may do this by breaking down the submission of ONE demolition and/or disposition application into multiple application numbers in PIC (e.g. so that each phase of the demolition and/or disposition will have a different DDA number). However, if the same supporting documentation applies to all application (DDA) numbers, the PHA need only submit supporting documentation (e.g. board resolution, government consultation, etc.) with only one application. By creating a separate application number for each phase, the PHA will be able to designate a separate relocation date(s) for the buildings/units for each phase. HUD will approve the removal for all of the units in a development at the same time and up-front, even though a PHA will be able to implement the removal (and relocation) in stages. A PHA can also request that a HOPE VI or Choice Neighborhood demolition be broken down into multiple application numbers. In HUD's approval documents for such a removal, the different relocation dates will be referred to by application number. An example is as follows:

Number of days after HUD approval that the PHA will begin relocation of residents
Application Number (for Phase of Application) Number of Days
DDA0001111 90
DDA0001112 180
DDA0001113 270
See also PIH Notice 2011-18: Guidance on the Asset-Repositioning Fee Under 24 CFR 990.190(h) and Guidance on Re-occupying Public Housing Units Proposed or Approved for Demolition, Disposition, or Transition to Homeownership.

Application Review and Approval

SAC will accept only electronic submissions made via the PIC Inventory Removals module. For those applications, which cannot be made electronically, they may be sent to the SAC for review. For any applications or attachments sent as paper to SAC applicants should also send copies of the application to their local HUD field office.

Field Office Input

Since the SAC is working for the local Field office, it will be asking their opinion of the application. The Field also has the responsibility to sign-off on any environmental reviews conducted in connection with the application. SAC will be documenting its review file by asking the field to provide the information in a document similar to the one below:

 - Field Office Certification Demo-Dispo (MS-Word, 31KB)

Submission requirements

The Executive Director's signature on the certification page may be FAXed or scanned and attached electronically to the rest of the application.

Note: When attaching supporting documents to the application, PIC users can attach documents with filenames with spaces provided filenames are no longer than 25 characters (including file type ending, e.g., ".doc"), and as long as filenames conform to Windows Explorer file naming rules: filenames with spaces must be enclosed in quotation marks.

Example:
Filename as shown in MS Word: PIC FAQ Ideas.doc
Filename to attach to PIC application: "PIC FAQ Ideas.doc";

For hard copy applications, applicants should submit one original of the application to the Special Applications Center in Chicago for review and a copy of the application to their local Public Housing servicing office. The address for the SAC is listed below:

Special Applications Center
US Department of Housing and Urban Development
77 West Jackson Boulevard
Room 2401
Chicago, IL 60604-3507
Telephone: (312) 353-6236
Fax: (312) 886-6413

PHA Reporting Requirements and HUD Monitoring

Pursuant to 24 CFR § 970.35, in addition to entering information about the actual completion of the demolition/disposition action in IMS/PIC, PHAs must submit reports (in the form and number required by their local HUD Office of Public Housing) reporting on the demolition/disposition action, including, if applicable, the amount and use of disposition proceeds, along with any additional information that the HUD Office may require to monitor the demolition/disposition action. A sample report is available here (MS-Excel).

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