These regulations prescribe the policies, procedures, and authorizations for making loans for the rehabilitation of residential buildings with four or fewer units under Housing and Community Development Article, Title 4, Subtitle 9, Annotated Code of Maryland. The basic objectives of the Program are to: Make loans to families of limited income or sponsors to finance the rehabilitation of buildings with four or fewer units to eliminate health, safety, and property maintenance deficiencies and ensure compliance with applicable codes and standards; Make loans to elderly or disabled homeowners who qualify as families of limited income, in order to provide modifications or improvements to a building with four or fewer units that make the owner's dwelling unit more accessible to or functional for the elderly or disabled occupants, if, upon completion of the improvements, the building is structurally sound and free of health and safety hazards; and Develop the capacity of political subdivisions to administer the Program. The terms appearing in Housing and Community Development Article, Title 4, Subtitle 9, Annotated Code of Maryland, have the meanings defined there and, in addition, the meanings used in these regulations. Terms Defined. “Accessory dwelling unit” means a dwelling unit which is: Within, attached to, or on the same parcel as, and subordinate to but under the same ownership as, a single family, owner-occupied dwelling; and Intended for use as a complete, independent living facility, including permanent provisions for living, sleeping, cooking, and sanitation by one household within limits established by local codes, if any, pertaining to health, building, or other relevant provisions of the law. “Act” means Housing and Community Development Article, Title 4, Subtitle 9, Annotated Code of Maryland, as amended. “Allocation” means the share of the monies appropriated annually for the Program which is reserved for each county based on an allocation formula devised by the Department, in accordance with Regulation .17 of this chapter. Amortizing Loans. “Amortizing loans” means loans with equal payments of principal and interest over the term of the loan such that the payments retire the loan by the end of the term. “Amortizing loans” includes loans with zero interest when the principal is repaid in equal monthly installments over the term. “Annual income” means total household income from all sources, including wages, investment income, Social Security, retirement, disability, and unemployment benefits less: Unusual or temporary income items as determined by the Department; and Abnormal expenses of a long-term nature, such as extraordinary medical, rehabilitation, or special education expenses. “Applicable codes and rehabilitation standards” means the construction, health, safety, fire, occupancy, livability, and other codes and standards in force in the political subdivision in which an eligible building is located and applicable to that building. “Applicant” means any person or entity applying for a loan under the Program. “Borrower” means a single family owner-occupant, nonprofit sponsor, or sponsor who receives a loan to rehabilitate an eligible building. “Closing costs” means the total of all settlement costs and fees and, when applicable, initial payments for taxes, property insurance, title examination, percolation tests, or other expense items as determined by the Department. “Contract” means the agreements between a borrower and a licensed general contractor or licensed home improvement contractor accepted by the Department setting forth the terms of performance of work to be financed by a loan made under the Program. “County” means any of the 23 counties in the State and the City of Baltimore. “Deferred payment loans” means loans which have no current payment of principal and interest, and the principal and any interest are repaid in full upon loan maturity or sale or transfer of the property. “Department” means the Department of Housing and Community Development. “Director” means the Director of Single Family Housing Programs of the Department. “Elderly” means the age limit specified by the Secretary that is 55 years old or older. Family of Limited Income. “Family of limited income” means one or more individuals permanently residing as a household in a dwelling unit in an eligible building whose combined annual income does not exceed an amount established by the Secretary in accordance with Housing and Community Development Article, §4-915, Annotated Code of Maryland. “Family of limited income” includes a trust described in 42 U.S.C. §1396P(D)(4), or a trust established for the benefit of an individual with a disability by an individual other than the beneficiary and that is funded with the assets that were never owned or controlled by the beneficiary, if: The income of the trust does not exceed an amount established by the Secretary in accordance with Housing and Community Development Article, §4-915, Annotated Code of Maryland; and The beneficiary of the trust is an individual who resides in the residential building owned by the trust. Family of Lower Income. “Family of lower income” means one or more individuals residing as a household in a dwelling unit in an eligible building, whose combined annual income does not exceed an amount established by the Secretary in accordance with Housing and Community Development Article, §4-916(b), Annotated Code of Maryland. “Family of lower income” includes a trust described in 42 U.S.C §1396P(D)(4), or a trust established for the benefit of an individual with a disability by an individual other than the beneficiary and that is funded with the assets that were never owned or controlled by the beneficiary, if: The income of the trust does not exceed an amount established by the Secretary in accordance with Housing and Community Development Article, §4-916(b), Annotated Code of Maryland; and The beneficiary of the trust is an individual who resides in the residential building owned by the trust. Family of Very Low Income. “Family of very low income” means one or more individuals residing as a household in a dwelling unit, whose combined total income does not exceed an amount determined by the Secretary in accordance with Housing and Community Development Article, §4-916(b), Annotated Code of Maryland, which income limits shall be lower than those established for families of lower income. “Family of very low income” includes a trust described in 42 U.S.C §1396P(D)(4), or a trust established for the benefit of an individual with a disability by an individual other than the beneficiary and that is funded with the assets that were never owned or controlled by the beneficiary, if: The income of the trust does not exceed an amount established by the Secretary in accordance with Housing and Community Development Article, §4-916(b), Annotated Code of Maryland; and The beneficiary of the trust is an individual who resides in the residential building owned by the trust. “General property improvements” mean nonessential improvements that enhance the comfort, convenience, and appearance of a property, but are not necessary to remove unsanitary conditions or eliminate hazards to health and safety. “Household” means an individual or a group of individuals who occupy a dwelling unit as their permanent residence. “Level I local administrator” means a political subdivision certified by the Department under Regulation .16 of this chapter. “Level II local administrator” means a political subdivision certified by the Department under Regulation .16C of this chapter. “Local administrator” means a level I or level II local administrator. “Nonprofit organization” means a political subdivision, corporation, foundation, or other legal entity, no part of the net earnings of which inures to the benefit of any private shareholder or individual holding an interest in the entity. “Nonprofit sponsor” means either a: Nonprofit organization; or Limited partnership formed for the purpose of undertaking a rehabilitation project which is eligible in whole or part for federal programs or incentives, including low-income housing tax credits, if each of the general partners qualifies as a nonprofit organization, or the following two requirements are satisfied: A general partner of the limited partnership is a wholly owned subsidiary of a nonprofit organization, and A nonprofit organization either manages the rehabilitation project, or will be the recipient of net cash flow or the residual sale proceeds upon sale of the rehabilitation project. “Partially deferred loans” means loans for which there is periodic payment of a portion of the principal or interest, or both, due during the term of the loan with unpaid amounts accrued and repaid upon maturity of the loan or sale or transfer of the property. “Political subdivision” means any municipal corporation in Maryland subject to the provisions of Article XI-E of the Constitution, the Mayor and City Council of Baltimore, and any of the 23 counties in Maryland. “Program” means the Regular Rehabilitation Program of the Maryland Housing Rehabilitation Program. “Program Director” means the Assistant Director of Special Loan Programs in the Division of Development Finance of the Department. Repealed. “Secretary” means the Secretary of Housing and Community Development. “Shared living unit facility” means a dwelling which will accommodate two or more households when some or all of the living, dining, kitchen, or sanitary facilities are shared by the households. Single Family Owner-Occupant. “Single family owner-occupant” means an eligible borrower residing or intending to reside in an eligible building which contains one residential unit and which may contain one accessory dwelling unit financed under the Program, but which contains no other units, either commercial or residential. “Single family owner-occupant” includes a trust described in 42 U.S.C §1396P(D)(4), or a trust established for the benefit of an individual with a disability by an individual other than the beneficiary and that is funded with the assets that were never owned or controlled by the beneficiary, if: The income of the trust does not exceed an amount established by the Secretary in accordance with Housing and Community Development Article, §4-916(b), Annotated Code of Maryland; and The beneficiary of the trust is an individual who resides in the residential building owned by the trust. “Special Loan Programs Fund” means the special fund created under Housing and Community Development Article, §4-501(a)(1), Annotated Code of Maryland. “Sponsor” means an owner who receives a loan to rehabilitate a building with four or fewer units used for residential rental purposes. “Structurally sound” means not having any physical conditions serious enough to endanger the life, property, or safety of the occupants or their invitees, whether or not the building is in compliance with applicable codes and rehabilitation standards. “Subcontractor” means an entity authorized by the Department to carry out the duties and responsibilities of a local administrator under Regulation .16D(1) of this chapter and to hold and disburse funds under Regulation .16D(2) of this chapter. “Work write-up” means a description of the structural, mechanical, electrical, and other work items needed for the rehabilitation of an eligible building. To qualify as an eligible borrower under the Program, the requirements set forth in §§B and C of this regulation shall be met jointly and separately if more than one individual is applying for a loan. Single family owner-occupants shall: Be a “family of limited income” as defined in Regulation .03B(15) of this chapter; Intend to reside in the property to be rehabilitated; Own the eligible property in fee simple or under a freely transferable ground rent lease; Have the legal capacity to incur the obligations of the loan; Demonstrate credit worthiness and repayment ability acceptable to the Department; and Have income at a level that the Secretary has determined will render the applicant unable to afford or secure private financing to rehabilitate the property. Sponsors and nonprofit sponsors shall: If a business, be in good standing and be qualified to do business in Maryland; Own the eligible property in fee simple or under a ground rent; Have the legal capacity and all necessary legal and corporate authorizations to incur the obligations of the loan; Demonstrate credit worthiness and repayment ability acceptable to the Department; In the estimation of the Department be unable to afford or secure a loan from a private lending institution for the full amount required for rehabilitation and agree to use, to the extent determined by the Department, the maximum amount of private financing which the project can support consistent with the Program's purposes, without impairing the feasibility of the project; Agree in writing that all of the dwelling units rehabilitated with the proceeds of a loan shall be occupied by families of limited income until the later of: The date on which all principal or interest due on the loan is paid; or 15 years after completion of the rehabilitation; Agree to abide by the requirements of Titles VI and VII of the Civil Rights Act of 1964, and Title VIII of the Civil Rights Act of 1968; Agree to abide by all provisions of the Governor's Code of Fair Practices, COMAR 01.01.1987.20 and COMAR 01.01.1988.05, as amended from time to time; Provide satisfactory assurances that the borrower did not, within 12 months before making application for a loan under these regulations, cause a residential tenant to leave the building to be rehabilitated, except upon good cause; Agree in writing to assist with relocation of tenants to the extent required by the Department; and Agree to abide by any regulations promulgated by the Department implementing the Governor's Executive Order 01.01.1989.18, as amended from time to time, requiring recipients of State funds to maintain a workplace free of drug and alcohol abuse. Borrowers shall be in good standing and may not be under suspension or debarment from any of the Department's programs pursuant to any action under COMAR 05.01.05. Buildings shall meet the following requirements: Be located within the State; Contain not more than four residential units or shared living unit facilities for more than four households; Be properly zoned for the proposed use; Be in need of repairs or modifications considered eligible under this chapter; Have the potential to be rehabilitated, reconstructed, renovated, redeveloped, improved, or modified as determined by the local administrator; Be owned by an eligible borrower who shall provide assurance of title or evidence of ownership acceptable to the Department; and If the building is in the 100-year flood plain, as designated by the U.S. Department of Housing and Urban Development, be covered by a flood plain insurance policy which: Is an amount equal to the loan, Names the Department as beneficiary, and Provides that the policy may not be terminated without prior notification to the Department. A manufactured housing unit is eligible if it is intended for residential use by a single household, and: Is a multisectional structure fabricated after June 14, 1976, in an off-site manufacturing facility for installation or assembly at the building site; Is not less than 24 feet in width and 40 feet in length; Is not independently capable of movement and is installed permanently on an engineered foundation in conformance with COMAR 05.02.04; Has brick, wood, aluminum, or cosmetically equivalent exterior siding and a pitched composition shingle or wood shake roof; Is certified by the: United States Department of Housing and Urban Development as a manufactured home in accordance with the National Manufactured Housing Construction and Safety Standards Act of 1974, as amended, or by the Department as an industrialized building in accordance with Public Safety Article, §12-308, Annotated Code of Maryland, and Complies with all requirements set forth in COMAR 05.02.04; Is installed on real property the occupant owns in fee simple or under a freely transferable ground rent lease, and the legal title to the improvements runs with the real property; Meets all applicable zoning requirements as to number of dwelling units, lot size, and building setbacks; Is reasonably expected to have an economic life equal to or greater than the term of the mortgage. Manufactured homes which are taxed as personal property may be eligible for loans in amounts of $5,000 or less. Applications for manufactured homes shall be reviewed and approved by the Department on a case-by-case basis. Condominiums and cooperative units may be eligible buildings and shall be reviewed by the Department on a case-by-case basis before loan approval. Other types of property are not eligible buildings. All of the dwelling units in sponsor-owned or nonprofit sponsor-owned residential properties shall be occupied upon completion by families of limited income until the later of the date: On which the payment of all principal and any interest on the loan is made; or 15 years after completion of rehabilitation. Loans shall be made on terms conforming to the requirements in §§B—K of this regulation. Interest Rate. The interest rate to be paid on loans may be at preferred rates set by the Department from time to time, as required by the Act. The collective interest rate charged on all loans shall be at least sufficient to cover administrative costs of the program and reasonably expected losses due to defaults. The Department may establish different interest rates available on loans serving occupants who are families of: Limited income; Lower income; and Very low income. The interest rates charged on loans may not be more than private lending rates for comparable loans. Within the limits established in §§B(3) and (4), above, the interest rate shall be the maximum interest rate based on an applicant's ability to repay. Term. The term of each loan may not exceed 30 years from completion of construction, and shall be based on the amount of the loan, the expected life of the rehabilitated building, and an applicant's ability to repay. Maximum Loan Amount. The maximum loan may not exceed an amount which, when added to any prior debts secured by or relating to the eligible building or property, or both, would equal 110 percent of the market value of the eligible building and property after rehabilitation as determined by the Department or the local administrator. For projects when 100 percent of the units are subject to a federal rent subsidy which is allocated to the project for the entire term of the loan, the 110 percent loan-to-value ratio requirement of §D(1), above, may be raised to 115 percent. If, in the determination of the Program Director, a loan increase is necessary to assure completion of the building and protect the Department's interest, an increase in the mortgage may be made to cover extraordinary and unforeseen construction problems provided the increase can be made within the limits on maximum loan amounts set forth in §D(1)—(2) of this regulation. Closing costs may be included in loans on owner-occupied dwellings, provided the loan does not exceed the limits on the maximum loan amount set forth in §D(1)—(2) of this regulation. Payments. Payments shall be applied to escrow expenses, when applicable, interest, and principal, in that order. Late Charge. Late charges, as permitted by law, may be charged. Security for Loans. Loans of $5,000 or less shall be evidenced by a promissory note and such other documents as may be required by the Department. Except as provided in §G(3)—(4) of this regulation, loans in excess of $5,000 and loans providing for deferred payments shall be secured by a mortgage or deed of trust, in the form required by the Department, which shall be recorded in the land records of the county in which the property is located. A loan to a trust described in 42 U.S.C §1396P(D)(4), may be secured by a mortgage or deed of trust on real property, or other security device acceptable to the Department. A loan in excess of $5,000 to a borrower in a housing cooperative unit may be secured by another security device acceptable to the Department. Default. Remedies upon loan default shall be exercised in the discretion of the Department and may be one or more of the remedies provided for in the loan documents or by law, such as: Adjustments to the interest rate of the loan upward or downward; Suspension or debarment from the Department's programs; Foreclosure; Accepting a deed instead of foreclosure; Appointment of a receiver; and Other legal action which protects the Department's interests. Change of Ownership. A borrower may not sell, cease to own, assign, transfer, dispose of, or lease all or any part of the property except for residential leases of not more than 3 years duration, during the loan term, without the prior written consent of the Department, except as permitted by federal law. Refinancing. The Department may not refinance existing debts related to an eligible building. Land Installment Contracts. Purchases under a land installment contract are not eligible for a loan. In addition to the conditions and requirements of Regulation .06 of this chapter, deferred loans for residential buildings of four or fewer units shall meet the requirements in §§B—E of this regulation. Eligibility. The Department may make loans with deferred payments of principal or interest or both principal and interest to: Single family owner-occupants who are families of very low income and sponsors or nonprofit sponsors of buildings occupied entirely by tenants who are families of very low income; or As determined by the Secretary, any category of borrowers necessary to achieve the purposes of the Act. Amount of Deferred Payments. Loans may provide for deferred payments of principal or interest, or both principal and interest, to the minimum extent necessary based on a borrower's ability to repay. Repayment. The loan documents shall provide for repayment of deferred amounts at the maturity date or at any earlier date established by the Department, or the local administrator, or upon any sale or other transfer of the building or any interest in the building other than a residential lease of less than 3 years duration. The Department may, but need not, charge interest on the deferred interest. Limitations. The Department may, from time to time, establish limitations on the percentage of allocations and the percentage of the annual funding appropriated to the Program which may be used for no interest and deferred payment loans. The Department may make a Program loan in the form of a grant to a single family owner-occupant that meets the requirements of this regulation. To be eligible for a grant, an applicant shall: Own and occupy the dwelling; Be a family of very low income; and Be unable to undertake the rehabilitation project without a grant as determined by the Department. A grant may provide for: No required payments; The deferral of payments; or The reduction of the principal balance owed over a period of time. The Department shall follow Regulations .09 —.15 of this chapter for approving and processing grants. A grant may be unsecured or secured by a security instrument acceptable to the Department. The Department may establish limitations: On the percentage of allocations and the percentage of the annual funding appropriated to the Program which may be used for grants; and On the maximum grant amount that may be awarded for a dwelling. In addition to the conditions and requirements of Regulations .06 and .07 of this chapter, secured loans shall meet the requirements of §§B—F of this regulation. Deed of Trust. A mortgage or deed of trust shall secure repayment of the loan by the granting of a valid lien on the eligible building and the underlying land or leasehold interest in the land. Escrow Account. If there is no prior mortgage or deed of trust requiring the payment of expenses to the mortgagee, the rehabilitation mortgage may require expense payments to the Department in escrow, consisting of 1/12 of annual real estate taxes, ground rent, property insurance premiums, and, when appropriate, other items for which payments are required by the Department. Interest need not be paid to the borrowers on escrows. Insurance. A borrower shall maintain fire and extended coverage insurance at the borrower's expense in an amount not less than the sum of the rehabilitation loan and any prior mortgage or mortgages on the property. The insurance policy or policies shall: Be written by companies authorized to transact business in the State; Be in force at the time of loan closing; Name the Department as mortgagee in a standard mortgagee clause attached to or printed in the policy; and Contain other terms and coverage satisfactory to the Program. Title Insurance. The Department, in its discretion, may require the borrower to provide a standard American Land Title Association (ALTA) Loan policy, with the Environmental Endorsement 8.1, or other form of title policy approved by the Department and the Office of the Attorney General for an amount equal to the maximum principal amount of the loan, insuring the Department, evidencing that title to the building on the date of closing is vested in the borrower, and containing only standard exceptions and encumbrances acceptable to the Department and the Office of the Attorney General. Appraisals. At the discretion of the Program Director or the local administrator, a borrower may be required to obtain an appraisal in a form and manner acceptable to the Department from an acceptable independent fee appraiser showing a building's value before and after the proposed rehabilitation. Applicants shall bear the costs of appraisals, which may be financed by the loan for single family owner-occupants. Application Procedure Generally. The Department shall establish application processes and procedures for local administrators that will facilitate the application process and best serve the needs of the political subdivisions and the State. These procedures may be amended from time to time and shall be binding upon all applicants. Alternative procedures may not be used by local administrators without the prior approval of the Department. Application Forms. Loan applications shall be made upon standard forms prescribed by the Department. Application Fee. Upon submission of a loan application, an applicant may be required to pay an application fee in an amount determined by the local administrator, subject to approval by the Department. Documentation. An applicant shall submit with the application any documentation that the Department requires, including, but not limited to, any documentation needed to establish the eligibility and creditworthiness of the applicant. An applicant shall submit supporting documentation specified in the checklist attached to the application, which may include any of the following: A copy of the deed to the property; Copies of any existing mortgages secured by the building to be rehabilitated, or mortgage verification requests, on the form approved by the Department, signed by the applicant for each mortgage secured by the building to be rehabilitated; A copy of the first page and declarations page of all policies for fire and extended coverage insurance and, if applicable, flood insurance; A copy of the most recent real estate tax bill with the current assessed value; Verification of the total assets and annual income of each person in the household of a single-family owner-occupant applicant, and for sponsor applicants or nonprofit sponsors, a list of tenants in a building showing household name, address, number of persons in household, combined annual household income, and current monthly rent; For each of the immediately preceding 2 years, copies of the applicant's: Federal income tax returns, or when applicable, the federal reporting forms for nonprofit organizations, State income tax returns, or A signed request, on the form designated by the Department, for copies of the applicant's state income tax returns; and Sufficient information and documentation to determine the extent, if any, to which the project will change the type of use or increase the intensity of the existing use of the property. In addition, all sponsor and nonprofit sponsor applicants shall submit the following documentation: Organizational documents of the sponsor or nonprofit sponsor and a certificate of good standing; A certified personal financial statement of the applicant or principals of the sponsor or nonprofit sponsor; Three years operating statements for a rental project; For sponsors or nonprofit sponsors which are corporations, a resolution of the board of directors authorizing the application; For rental projects receiving federal Section 8 Housing Assistance, copies of the Section 8 contracts or feasibility analysis prepared by the administering agency, as applicable; Photographs of the building and site; Evidence of zoning compliance; Preliminary plans and specifications or a detailed description of the proposed improvements and an estimate of the improvement costs. Initial Eligibility Determination. Each application shall be submitted to the local administrator for initial review to make a preliminary determination of the eligibility of the applicant and the project. If an applicant is determined preliminarily to be eligible, appropriate verification forms shall be distributed, credit reports shall be obtained, and the applicant may be provided with a letter from the local administrator in the form approved by the Program acknowledging receipt of the application and notifying the applicant of the ongoing review process. If an applicant is ineligible for a loan, the applicant shall be informed in writing of the determination and the reasons for it. Building Evaluation. Each building for which an eligible application is received shall be inspected for the purpose of preparing a work write-up by: The Department; The local administrator; A nonprofit corporation, acceptable to the Program; or A licensed contractor who is acceptable to the Program. The applicant shall be provided with a copy of the work write-up or an analysis of rehabilitation proposals and instructions for obtaining the contractor's proposals to complete the work. Loan Approval. Upon receipt and approval of mortgage verifications, employment verification, credit information, the contractor's proposals which comply with the Department's standards and cost estimations, and any other pertinent data the Program considers relevant or necessary, the local administrator originating the loan shall undertake an analysis of each loan as to loan amount, interest rate, repayment provisions, and other loan terms and conditions. After completing the steps described in §C(1) of this regulation, a level I local administrator, or a level II local administrator, evaluating a loan for more than $60,000, shall forward the application package and the analysis of the loan to the Department for approval, disapproval, or modification. Approval to make a loan is as follows: Loans in amounts of $60,000 or less may be approved by the: Level II local administrator, when a level II local administrator originates the loan; or Program Director, when a level I local administrator or the Department originates a loan; Loans in amounts over $60,000 and up to $250,000 may be approved by the Director; Loans in amounts over $250,000 shall be submitted to the Housing Finance Review Committee in accordance with COMAR 05.01.07. In an emergency, when urgent action is required, the Secretary may approve loans by written determination without the recommendation of the Housing Finance Review Committee. Before a level II local administrator gives final approval and issues a loan commitment for a loan in the amount of $60,000 or less, the level II local administrator shall contact the Program and receive confirmation that funds for the loan are available. Loan Commitments. Loan commitments shall be made on forms provided by the Program. Loan commitments shall specify a time limit for closing the loan. The time limit may be extended at the discretion of the local administrator with the approval of the Program. If the loan closing does not occur within the specified time, the local administrator shall notify the applicant that the commitment is officially canceled. Rejection. If a loan application is rejected, the Department or the local administrator, as the case may be, shall notify the applicant in writing. The rejection letter shall state the reason the loan is rejected. Reconsideration. Sponsors may request reconsideration of a rejection in accordance with the procedures contained in the program guidelines. An initial decision or reconsideration of a decision is not a contested case within the meaning of the Administrative Procedure Act or COMAR 05.01.01. Withdrawal of Application. An applicant may withdraw a loan application at any time before closing by delivering written notice to the Department or the local administrator originating the loan. The applicant shall bear any costs incurred for items other than internal processing including, but not limited to, title examinations, credit reports, and appraisals. Cancellation of Application. The Program or the local administrator may cancel an application at any time during processing if the applicant fails to provide information requested by the Program which is required to evaluate the request. Notification of the cancellation of an application shall be made in writing. A cancelled application may be reinstated upon the applicant's written request within 60 days following the date of the cancellation. Any time after 60 days following cancellation, a new application with supporting documents may be required. Time and Place. The loan closing shall be scheduled at a time acceptable to the applicant and the local administrator through a closing officer serving the applicant's area and otherwise acceptable to the local administrator. Loan Documents. Loan document forms shall be provided by the Program and may not be altered by the local administrator. Loan documents shall be executed on behalf of the Department by the officer or employee authorized to do so by the Department. Charges and Fees. The Department or the local administrator may charge and collect from the borrower reasonable and customary amounts acceptable to the Department for the following items: Credit reports; Appraisal fee, if applicable; Recording fees and recording taxes or other charges incident to recordation; Required survey charges, if applicable; Cost of title examination and title insurance, if required; Administrative fee; Property and judgment report fees; Inspection fees; and Other reasonable and customary charges or fees authorized by the Department. Points. Points may not be charged to the applicant on any loan under the program. Mortgageable Items. Closing costs, program charges, and fees may be allowed as mortgageable items for owner-occupants or for nonprofit sponsors. Sponsors that are not nonprofit organizations are required to pay for closing costs, program charges, and fees. Taxes and Assessments. Taxes and assessments against the property which are due and payable shall be paid at or before closing. Except as provided in §G of this regulation, loans shall comply with §§B—F of this regulation. Applicable Codes and Standards. The goal of the Program is to assure that all properties rehabilitated under the Program meet health, safety, fire, occupancy, and other codes and standards in force in the political subdivision in which an eligible building is located and applicable to that building. If these codes and standards do not exist or are considered by the Secretary to be insufficient to promote the purpose of the Act, then the codes and rehabilitation standards prescribed in COMAR 05.04.02 shall be in force for the purposes of the Program. Eligible Rehabilitation Work. Eligible rehabilitation work includes work done to address the following: Health and safety violations, including structural defects; Major system deficiencies; Exterior deficiencies; Interior deficiencies; Weatherization and energy conservation; Handicapped modifications; or Creation of accessory dwelling units, if the habitable floor area of the unit created does not exceed a percentage acceptable to the Department of the habitable floor area of the existing property to which the unit is added. Eligible Work—General Property Improvements. General property improvements may: Only be financed under the Program if the loan for the general property improvement is made in: Connection with a loan to bring a building into conformance with the applicable codes and standards as set forth in §B of this regulation; and Accordance with the restrictions in §D(2) and (3) of this regulation; Not exceed 40 percent of the total loan amount; Not be funded with the proceeds of deferred payment loans; Include, but are not limited to: Additions, provided the addition does not exceed 240 square feet, exclusive of passageways and bathrooms; Alterations and remodeling; Enlargement of rooms; The finishing of spaces within the building such as an attic, porch, or basement; Remodeling kitchens, including the purchase and permanent installation of appliances; and Fences and landscaping. A loan may not provide for materials, fixtures, equipment, or landscaping of a type or quality which exceeds that customarily used in the locality for buildings of the same general type as the one being rehabilitated. Unapproved or untested materials and systems are not eligible costs except when they are used as part of a demonstration or pilot program approved by the Department. Water Supply and Sewage. A loan may not be approved unless safe, sanitary, and adequate water supply and sewage disposal are available or will be provided through the rehabilitation financed by the loan. Code Enforcement. Any action taken by the Department or the local administrator to prepare or review work write-ups, evaluate the property, or review and approve plans and specifications is to ensure the Department and the local administrator of the adequacy of the proposed work. These actions are not intended to substitute for or ensure compliance with appropriate State and local building codes. Compliance with applicable codes and obtaining required permits and licenses are the responsibility of the borrower and contractor. If the owner is elderly or disabled and resides in the building, and the improvements make the building more accessible to or functional for the elderly or disabled owner, then the building shall be structurally sound and free of health and safety hazards, whether or not applicable codes and rehabilitation requirements are met. General Requirements. Contractors and subcontractors: Shall be licensed by the Maryland Home Improvement Commission or meet other State and local licensing requirements necessary to do the rehabilitation. Shall be qualified to do business in Maryland. Shall be able to demonstrate the capability to complete the rehabilitation as determined by the Department as evidenced by previous professional rehabilitation experience. May not be under a suspension or debarment order for any of the Department's programs pursuant to any action under COMAR 05.01.05. Shall agree in the contract to: Perform all work in conformance with the contract and all applicable laws, local codes, and Departmental rehabilitation standards in a competent, workman-like manner, equal to the standards of the industry. Failure of the work write-up to include any work required by local codes or standards does not relieve the contractor of the responsibility of complying with local codes and standards. Payment for any additional cost to complete work not included in the approved work write-up is the obligation of the borrower. A borrower may apply to the local administrator for a loan increase to cover some or all of the increased cost. Any loan increase shall be subject to approval or disapproval in accordance with the provisions of these regulations. The Department has no obligation under the contract to pay for increased costs. Comply with all applicable laws, ordinances, and regulations relating to the protection and safety of persons and property. Furnish all labor, materials, and equipment, and obtain all licenses, permits, insurance coverage, and workers' compensation as may be required to complete the rehabilitation. Not assign the contract without prior written consent of the owner and approval by the local administrator. In addition to all remedies and guarantees provided by law, make all necessary repairs, replacements, and corrections of any nature or description, interior or exterior, structural or nonstructural, as become necessary by reason of faulty workmanship or material, which appear within a period of 1 year from the date the notice of completion is filed, at its sole cost and expense, provided, however, that if any longer guarantee period is specified for any particular materials or workmanship under the plans and specifications, or under any subcontract, or in connection with any manufactured unit which is installed in the structure, or under the laws of the State, the longer period governs. Agree to complete all specifications of the work write-up within the completion date as specified in the contract. Shall indemnify and hold the Department and any local administrator harmless from all liability and loss because of injury to or death of any individual or damage to any property which may occur or be alleged to occur during performance of the contract as a direct or indirect result of any act or omission, whether intentional, negligent or otherwise, by the contractor, subcontractors, or their agents, servants, and employees. The contractor shall defend all suits or claims involving those in this subsection at the contractor's sole cost and expense. Minority Contractors. The Department encourages the use of minority contractors in all jurisdictions for all projects, and requires compliance with the Department's Minority Business Participation Plan. Copies of the Department's plan shall be made available to sponsors and contractors. Identity of Interest. Sponsors or nonprofit sponsors may act as general contractors only with the prior written approval of the Department or the local administrator. Application forms shall be provided upon request and shall be submitted and approved before submission of the proposal. Approval is conditioned on an assurance of completion acceptable to the Department. An owner-occupant may not act as a general contractor. Assurance of Completion. The Department or the local administrator, at its discretion, may require: Performance and payment bonds; A letter of credit in the amount of 25 percent of the rehabilitation contract cost and an assurance of completion agreement; or Other assurances of completion acceptable to the Department. It shall be agreed by both the contractor and the owner that all communications which bear upon the content or performance of the contract shall be in writing. Contractors performing work covered by a rehabilitation loan may not be on the unacceptable risk determination list of the Department of Housing and Urban Development or the United States Department of Agriculture Rural Development, and any previous experience with the Program shall have been satisfactory. Contractors that do not perform up to program requirements may be suspended or debarred under COMAR 05.01.05. Permits. If required by local codes, building permits shall be obtained and posted at the project before the beginning of construction. All other permits, if any, required by State or local government also shall be secured before construction begins. Contract Documents. Work done, materials supplied, and construction procedures employed shall comply with all contract documents, applicable codes and standards, including those set forth in these regulations, and those general specifications established by the Department. The Department's general requirements and specifications guidelines shall be furnished on request. Contract documents include without limitation: Rehabilitation contract agreement; Change orders; Work write-ups; Instructions to bidders; Specifications; Drawings; and Contractor's proposal. There shall be no modification of any contract documents without the prior written consent of the Department or the local administrator, as evidenced by an approved change order, executed by: The contractor; and The property owner. Inspections. The local administrator or an agent authorized by the local administrator and acceptable to the Program may conduct inspections to determine the required scope of work, to verify payments, and to facilitate construction problems and disputes and arbitration procedures. Construction Disputes. If disputes between the contractor and borrower occur, the Department shall recognize the findings of the Maryland Home Improvement Commission and the Consumer Protection Division of the Office of the Attorney General. Termination of Contracts. Contracts may be terminated for cause in accordance with the loan documents and contract documents. Monitoring. The local administrator shall monitor loans and disbursement of loan funds during rehabilitation to assist borrowers and to assure that loan funds are properly used. Based on Program guidelines, the local administrator shall determine the frequency and level of inspections during rehabilitation taking into consideration: The capability of the borrower; The demonstrated experience and reliability of the contractor; The amount of the loan; The availability of local technical assistance; and Other factors considered relevant by the Department. The local administrator may charge borrowers a fee for inspections during rehabilitation, as approved by the Department. Payments Generally. Loan funds shall be disbursed in full at the closing of the loan to an account held on behalf of the borrower by either the political subdivision that is the local administrator for the loan or the subcontractor. The loan funds shall be held in an account established under §C of this regulation. The local administrator or the subcontractor shall disburse the loan proceeds in accordance with the requirements of §B(3)—(5) of this regulation. Loan funds may not be disbursed if payments of interest or escrows required by the loan documents are in arrears. Payments of draws shall be by joint payee check issued to the borrower and contractor unless an alternative payment method is approved by the Program Director. Except as provided in §D of this regulation, payments shall be made only for work completed. Payments may not be made for material delivered to the site but not installed in the project. Loan Accounts. Loan funds shall be held in a non-interest-bearing account established by the local administrator or the subcontractor and approved by the Department. The account may be: An account with a depository institution that is separate from the other operating accounts of the local administrator or subcontractor; An account with a depository institution that is not separate from the other operating accounts of the local administrator or subcontractor using a separate reconciled general ledger account for all Program funds; An escrow account or attorney's trust account held and managed by an escrow agent if the escrow agent meets the following minimum criteria to the satisfaction of the Department: Any employee of the escrow agent with access to the account shall be covered by a fidelity bond, or insured with employee dishonesty liability insurance, in an amount not less than $100,000; The escrow agent shall provide the local administrator or the subcontractor, if any, and the Department with any statements required under §C(2) of this regulation; and Any other requirements established by the Department; or Another type of account approved by the Department. The Department may require the local administrator or the subcontractor to provide periodic statements to the Department of all loan funds in an account. If the statements do not correspond with the Department's records of loan funds in the account, the local administrator or the subcontractor shall work with the Department to reconcile the differences. The Department may revoke, at any time, its approval of any loan account established under this regulation. Advance Payments. Advances or down payments may be made to contractors to purchase materials delivered on site or valid purchase requisitions not to exceed 20 percent of the contract costs. Progress Payments. Progress payments may not be made until the borrower has delivered satisfactory evidence, such as receipts or bills, of the amount of the payment requested. Progress payments may not be made without an inspection to verify completion of the work, except at the discretion of the Department or the local administrator, when the entire cost of the project is $60,000 or less. At a minimum, however, the local administrator shall verify completion of the work before disbursing the final payment, as described in §F of this regulation. If a borrower's request for payment is refused, the local administrator shall notify the borrower. The determination of the local administrator as to percentage of work completed is final. Final Payment. Final payment shall be made as follows: A borrower shall submit to the local administrator a certificate of completion, executed by the borrower and contractor, certifying that all work has been completed in accordance with the contract documents. Upon final inspection and receipt and approval of the certificate of completion, final payment shall be processed. If, in the opinion of the local administrator, the contractor has satisfied the contract and the borrower refuses to request or release the final payment, then the local administrator may follow the following procedure: The local administrator may require the borrower to explain in writing within 10 days why the local administrator should not make direct payment to the contractor; If the borrower responds within the 10-day period and requests a meeting, the local administrator shall hold a meeting at which the borrower shall present the borrower's objections to requesting or releasing the final payment; The local administrator, in its discretion, may then either approve or disapprove direct payment to the contractor or the borrower. If the local administrator receives written notice that subcontractors, materialmen, or suppliers have not been paid for work done or material supplied to and for the project, and all loan funds have not yet been disbursed, the local administrator shall retain an amount equal to the lesser of all funds not yet disbursed and the amount sufficient to satisfy the claims until satisfactory evidence of satisfaction and release by the subcontractors, materialmen, or suppliers is presented. The contractor shall promptly pay or bond any liens established. Retainage. The local administrator shall retain until final payment 10 percent of the contract proposal costs for all projects for which the borrower is responsible for project inspections. The local administrator, at its discretion, may elect to retain until final payment 10 percent of the contract proposal costs for any other project, taking into consideration: The type of project; The contractor's experience; and Other factors the Program considers relevant. The retainage shall be released at final payment upon verification that all contracted rehabilitation items are complete and acceptable to the Department. Closeout Procedures. After final payment is made, the local administrator or the subcontractor shall reconcile all receipts and disbursements and prepare a close-out statement. A copy of the close-out statement shall be forwarded to the Program and the servicer. General. The Department recognizes that the most effective housing rehabilitation programs are those administered at the local level. Therefore, each political subdivision is encouraged and expected to develop the capacity to originate and administer loans from its allocation. While the Department may originate and administer loans from its reserve or from the allocation to a political subdivision that is not certified under §B or C of this regulation, the Department may not operate a program for that political subdivision, and shall make loans in that case only if, and to the extent that, the Department at its sole discretion determines it to be feasible. Certification of Level I Local Administrators. The Department may certify a political subdivision to originate and administer loans when the political subdivision meets the following minimum criteria to the satisfaction of the Department: The political subdivision shall be able to perform adequately the functions of the following positions: A rehabilitation director, experienced in operating a rehabilitation program, supervising employees, and dealing with the public; A building inspector, experienced in residential rehabilitation, cost estimation, writing specifications, blueprint reading, residential inspections, and trained to understand and apply the appropriate codes and rehabilitation standards; A loan underwriter, experienced in mortgage lending and financial processing of loans; and Clerical and administrative staff trained to ensure prompt and efficient processing of applications, draw schedules, and other required items; The rehabilitation staff or the political subdivision shall be capable of: Determining local rehabilitation needs evidenced by completion of a consolidated plan, a local comprehensive plan, or a local housing plan; Establishing a rehabilitation program, evidenced by prior experience in the development and operation of a rehabilitation program; Evaluating loan applications; and Monitoring both the loans and the work done under those loans; and The political subdivision shall execute and comply with the terms of an agreement required by the Department. Certification of Level II Local Administrators: The Department may certify a political subdivision to originate and administer loans in any amount as well as approve loans in the amount of $60,000 or less, when: The political subdivision meets the criteria outlined in §B of this regulation to the Department's satisfaction; and The Department determines that the rehabilitation staff of the political subdivision is capable of: Evaluating, recommending, approving, or rejecting loans; Scheduling and executing loan closings; Monitoring construction activities; Subcontracting Program Administration. A political subdivision may subcontract its duties and responsibilities as a local administrator under this chapter, except as provided in §D(2) and (3) of this regulation, with the approval of the Department. The duties described in §§B and C of this regulation may be carried out by staff of the local administrator or its subcontractor. A political subdivision may not subcontract the holding and disbursement of loan funds described in Regulation .15B and H of this chapter except to a subcontractor which meets the following criteria to the satisfaction of the Department: The subcontractor meets the criteria of §§B and C of this regulation; Any employee of the subcontractor with access to the loan funds shall be covered by a fidelity bond, or insured with employee dishonesty liability insurance, in an amount not less than $100,000; If required by the Department, the subcontractor provides the local administrator and the Department with periodic statements of: All loan funds held and disbursed by the subcontractor under Regulation .15 of this chapter, and The balance of funds on hand; The subcontractor provides the local administrator and the Department with an annual audit conducted by an independent certified public accountant and prepared in accordance with generally accepted auditing standards; and The subcontractor complies with any other requirements established by the Department. Regardless of any subcontracting, the Department shall continue to hold the political subdivision directly responsible for fulfilling all of its duties and responsibilities as a local administrator. Revocation of Certification. The Department reserves the right and expects to monitor periodically the loan administration of certified local administrators, and may revoke certification upon determination that a local administrator is administering the loans in a manner inconsistent with the intent of the Program. Special Requirements for Certified Local Administrators and Their Subcontractors. Certified local administrators and their subcontractors shall maintain financial records of loan disbursements for at least 3 years, and shall make them available for review by the Department at all reasonable times and as set forth in Regulation .20 of this chapter. A noncomplying loan approved by a level II local administrator shall either be amended, with the borrower's concurrence, to comply with the Program's requirements, or purchased from the Department by the political subdivision. Local Administration Fee. The Department may, at its sole discretion, pay a local administrator an annual fee for administering loans made under the Program. Department Authority. When the Department, in its sole discretion, administers a loan, the Department has the authority that a local administrator would have under these regulations, in addition to its authority as the Department. Annual Allocation. The Department shall allocate annually the funds available to the Program among the political subdivisions and to a reserve held by the Department to ensure that all areas of Maryland are served. Up to 25 percent of the total monies available for the Program may be held in reserve and not allocated to the counties, out of which reserve the Department may either itself originate loans or from time to time reallocate these funds to the counties. The allocations to the political subdivisions shall take into account those factors in Housing and Community Development Article, §4-911, Annotated Code of Maryland. The Department shall notify, in writing, each political subdivision of its allocation. At the end of each calendar quarter, the Department may evaluate the allocations in relation to demand for loans as evidenced by applications for loans, and may reallocate the funds among the counties in accordance with demand. The Department may notify a county in writing of any reallocations of funds. The chief elected official of any political subdivision which has been notified of an allocation and which desires to participate in the Program shall, as a condition precedent to disbursement of funds from its allocation, submit a letter to the Department within 45 days after receipt of notice of its allocation indicating the intent of the political subdivision to participate in the program. If a political subdivision fails to comply with the provisions of §B of this regulation or is unable to comply, the Department may itself originate and administer loans from the fund allocated to the political subdivision or reallocate the funds to another political subdivision. A sponsor, nonprofit sponsor, contractor, local administrator, or subcontractor may not discriminate on the basis of race, color, religion, national origin, sex, marital status, physical or mental disability, sexual orientation, or age, except with regard to age as permitted under the federal Housing for Older Persons Act, as amended from time to time, or other similar federal laws, in any aspect of the Program, or in any aspect of employment by any sponsor, nonprofit sponsor, contractor, local administrator, or subcontractor in connection with any property financed or assisted under the Program. Each sponsor, nonprofit sponsor, contractor, local administrator, and subcontractor shall comply with all applicable federal, State, and local laws and Department policies and programs regarding discrimination and equal opportunity in employment, housing, and credit practices, and drug and alcohol free workplaces, including: Titles VI and VII of the Civil Rights Act of 1964, as amended; Title VIII of the Civil Rights Act of 1968, as amended; The Fair Housing Amendments Act of 1988, as amended; The Department’s Minority Business Enterprise Program, as amended; The Americans with Disabilities Act of 1990, as amended; State Government Article, Title 20, Annotated Code of Maryland, as amended; and Executive Order 01.01.1989.18, Drug and Alcohol Free Workplace, and any Department or State regulations adopted or to be adopted to carry out the requirements of that Order. Covenants implementing the requirements of this regulation, including affirmative action measures, shall be included in appropriate agreements between the Department and other parties. Borrowers, contractors, and subcontractors shall maintain such books, accounts, and records, and shall file with the Department such financial and other reports as the Department may from time to time require. The books, accounts, and records shall be open to the inspection of representatives of the Department or other agencies of the State during reasonable working hours. Program Guidelines. The Department may establish from time to time detailed Program guidelines containing underwriting standards, loan processing requirements, and other requirements or matters relating to the financing of loans or to the Program. Copies of these guidelines shall be available for examination at the offices of any local administrator and at the Department's principal office. The Department, upon request, shall provide copies to the public for a reasonable charge. Fees. The Department may charge commitment fees, application fees, closing fees or other fees, charges, or penalties to applicants, borrowers, or other individuals or entities that participate in the Program. The Department may restrict the fees and charges that servicers, political subdivisions, local administrators, or other Program participants obtain from borrowers or applicants. Delegation. The Secretary may delegate to the Director, the Program Directors, or to any other official or employee of the Department the authority to execute or approve any program documents or loan documents, including loan commitments and agreements with the local administrators. In addition, through the agreement with the local administrator, specific staff members for the local administrator may be authorized by the Department to execute loan documents on behalf of the Department. False Statements. A borrower who knowingly makes or causes to be made a false statement or report, whether in the nature of an understatement or overstatement of financial condition or any other fact material to the Department or the local administrator originating the loan, is subject to immediate acceleration of the loan, in addition to the penalties authorized by Housing and Community Development Article, §4-933, Annotated Code of Maryland. Waiver. The Secretary may waive or vary particular provisions of these regulations to the extent that the waiver is not inconsistent with the Act if: Conformance to the requirements of any federal agency in connection with any rehabilitation with respect to which federal assistance is sought necessitates waiver or variance of a regulation; or In the determination of the Secretary, the application of a regulation in a specific case or in an emergency situation would be inequitable or contrary to the purposes of the Act. Housing and Community Development Article, Title 4, Subtitles 5 and 9, §§4-704—4-706,Annotated Code of Maryland;Executive Order 01.01.1992.27C Effective date: August 3, 1977 (4:16 Md. R. 1207) Regulations .03, .04A, C, .05B, .06A, .07H, .08B, .09A amended effective June 16, 1978 (5:12 Md. R. 965) Regulations .03, .04A, .05B, .06A, .07G, .08, .09A, F, .10C amended effective March 23, 1979 (6:6 Md. R. 509) Regulations .03E, M, .04C, .05B, .06A, B, .07I, .08B amended effective October 5, 1979 (6:20 Md. R. 1627) Regulations .03G, M; .06A; .08B; .10C; and .12B amended effective September 5, 1980 (7:18 Md. R. 1737) Regulation .05C adopted effective June 16, 1978 (5:12 Md. R. 965) Regulation .14D repealed effective September 5, 1980 (7:18 Md. R. 1737) Chapter revised effective October 25, 1982 (9:21 Md. R. 2104) Regulation .02A amended effective February 11, 1985 (12:3 Md. R. 243) Regulation .03B amended effective February 11, 1985 (12:3 Md. R. 243); April 22, 1985 (12:8 Md. R. 800) Regulation .04 amended effective February 11, 1985 (12:3 Md. R. 243) Regulation .05B, C, E amended effective February 11, 1985 (12:3 Md. R. 243) Regulation .05D amended effective April 22, 1985 (12:8 Md. R. 800) Regulations .06—.10 amended effective February 11, 1985 (12:3 Md. R. 243) Regulation .10A amended effective April 22, 1985 (12:8 Md. R. 800) Regulations .11—.13 amended effective February 11, 1985 (12:3 Md. R. 243) Regulation .15B amended effective February 11, 1985 (12:3 Md. R. 243) Regulations .17 and .18 repealed and new Regulations .17 and .18 adopted effective February 11, 1985 (12:3 Md. R. 243) Chapter recodified from COMAR 05.01.08 to COMAR 05.04.01 Regulations .01—.18 repealed and new Regulations .01—.21 adopted effective July 22, 1991 (18:14 Md. R. 1609) Regulation .02 amended effective February 22, 1999 (26:4 Md. R. 272) Regulations .02—.19 and .21 amended effective November 9, 1992 (19:22 Md. R. 1986) Regulation .03B amended effective February 22, 1999 (26:4 Md. R. 272); November 29, 1999 (26:24 Md. R. 1855) Regulation .04B amended effective February 22, 1999 (26:4 Md. R. 272) Regulation .05A amended effective January 2, 1994 (20:25 Md. R. 1941); February 22, 1999 (26:4 Md. R. 272); April 5, 1999 (26:7 Md. R. 537) Regulation .08E amended effective February 22, 1999 (26:4 Md. R. 272); November 29, 1999 (26:24 Md. R. 1855) Regulation .09D amended effective January 2, 1994 (20:25 Md. R. 1941); February 22, 1999 (26:4 Md. R. 272) Regulation .10C amended effective February 22, 1999 (26:4 Md. R. 272); September 29, 2003 (30:19 Md. R. 1329) Regulation .11E amended effective September 29, 2003 (30:19 Md. R. 1329) Regulation .12 amended effective February 22, 1999 (26:4 Md. R. 272) Regulation .14B amended effective September 29, 2003 (30:19 Md. R. 1329) Regulation .15 amended effective February 22, 1999 (26:4 Md. R. 272) Regulation .15E amended effective September 29, 2003 (30:19 Md. R. 1329) Regulation .16C amended effective September 29, 2003 (30:19 Md. R. 1329) Regulation .16D amended effective February 22, 1999 (26:4 Md. R. 272) Regulation .19A amended effective February 22, 1999 (26:4 Md. R. 272) Chapter revised effective April 5, 2010 (37:7 Md. R. 569) Regulation .06D amended effective July 4, 2016 (43:13 Md. R. 712) Regulation .07-1 adopted effective July 4, 2016 (43:13 Md. R. 712) Regulation .15D amended effective July 4, 2016 (43:13 Md. R. 712) Regulation .19 amended effective March 16, 2015 (42:5 Md. R. 485)