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• For the demolition of an entire development, the development is obsolete as to physical condition, location, or other factors, making it unsuitable for housing purposes, and no reasonable program of modifications is cost-effective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• For the demolition of a portion of a development, that portion of the development is obsolete as to physical condition, location, or other factors, making it unsuitable for housing purposes, and no reasonable program of modifications is cost-effective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 allow the remaining portions of the development to be the partial 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.

• 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 in support of Housing developed pursuant to 24 CFR 941 (Subpart F)

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 941 (Subpart F) 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 Subpart F disposition requests, the reduced submission requirements for PHAs will greatly expedite the SAC’s review process

The submission requirements dispositions of public housing in support of housing development pursuant to Part 941 can be found in the new HUD-52860 (10/2007). Because the SAC need only verify that the PHA is in compliance with the Section 18 of the Act and not 24 CFR 970, the submission requirements for these dispositions are considerably less than those required for other dispositions. Thus, the SAC intends to process these disposition applications under a "streamlined" review process. 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.

Frequently Asked Questions: 24 CFR 941 Subpart F dispositions (MS-Word, 40 KB)

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) or use restriction on the property in favor of HUD.

• the PHA’s plans for the future use of the property (e.g. ACC units, other low-income housing units); and
• the correct form of DOT/use restriction that the PHA should record against the property. HUD may require that a DOT/use restriction contain certain use provisions and/or provisions which prohibit the PHA from selling or otherwise encumbering the property without HUD approval.

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 (Uniform Act or URA) often does not apply to Section 18 actions. However, there still are requirements for the relocation of residents as well as record keeping duties an HA must perform to demonstrate due diligence. The Office Of Community Planning and Development (CPD) relocation staff have assisted SAC by preparing the guidance materials below, to meet these needs. This guidance should be used by HA's to formulate their relocation plans, as well as by Field Offices in their monitoring of an HA's Section 18 implementation.

Section 18 TA & Recordkeeping Policy (This document is currently under revision. Thank you for your patience)

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:

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:

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 housing (that will include ACC units) under 24 CFR 941 (Subpart F).

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.

Sales at Less than Fair Market Value: Requirement of Reverter Clause

Although HUD normally requires PHAs to dispose of public housing property for not less than fair market value (FMV), HUD may approve a sale 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 or the federal government. However, as part of its approval of such a negotiated sale at less than FMV, HUD will require that the disposition documents (e.g. deed, ground lease, etc.) contain a reverter clause to ensure that the property will be used for the purposes outlined in the disposition application for the period that the Declaration of Trust (DOT) on the property would have remained but for the disposition. The reverter clause will provide that if the property is not used for the intended purposes for this period, it shall revert to the PHA. If a PHA has preferred reverter language that it would like to use in its disposition documents, it is encouraged to submit that reverter language to the SAC as part of its disposition application.

If a PHA is proposing to dispose of public housing property at FMV, HUD will not require a reverter clause.

Sale Proceeds and Asset Management (Section 18 Disposition)

In its written approval letter, the SAC will restrict the use of any proceeds that a PHA may realize from a Section 18 disposition to a specific low-income housing purpose (e.g. ACC, Section 32, or Section 8). Accordingly, under asset management, proceeds from Section 18 dispositions will always be restricted program assets and will always maintain their federalized identity.

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.

Go to the Demolition/Disposition Technical Assistance Package page.

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 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:

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

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) 886-9754
Fax: (312) 886-6413