Chapter 05. Indoor Plumbing Loan Program

“Act” refers to Housing and Community Development Article, Title 4, Subtitle 9, Annotated Code of Maryland, as amended.

“Annual income” means total household income from all sources, including wages, investment income, Social Security, retirement, disability, and unemployment benefits less:

“Borrower” means an applicant who receives a loan under the Program.

“Building” means any structure which satisfies the requirements of Regulation .05 of this chapter.

“Closing costs” means the total of all settlement costs and fees and, when applicable, initial payment for taxes, property insurance, title examination, or other expense items as determined by the Department.

“Deferred payment loan” means a loan which permits the deferral of principal or interest, or both principal and interest.

“Department” means the Department of Housing and Community Development, a principal department of the State of Maryland.

“Director” means the Director of Single Housing Programs of the Department.

Family of Extremely Low Income.

Family of Limited Income.

Family of Lower Income.

Family of Very Low Income.

“Level I local administrator” means a political subdivision certified by the Department under Regulation .16B of this chapter.

“Level II local administrator” means a political subdivision certified by the Department under Regulation .16C of this chapter.

“Loan” means a loan made under the Program.

“Local administrator” means a level I or level II local administrator.

"MDE" means the Maryland Department of the Environment.

“Mobile home” means a structure transportable in one or more sections which is built on a permanent chassis and is designed to be used as a dwelling, with or without a permanent foundation, when connected to the requisite utilities.

“Owner-landlord” means an owner of a building, who may or may not occupy the building, some or all of which is used for residential rental purposes.

“Owner-occupant” means an owner residing or intending to reside in a building which contains one dwelling unit and no other units, residential or commercial.

“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 Indoor Plumbing Loan Program.

“Program Director” means the Assistant Director of Special Loan Programs in the Division of Development Finance of the Department.

“Related costs” means costs related to the implementation of a rehabilitation project under the Program such as percolation tests, appraisal fees, engineering fees, permit and permit application fees, and other similar costs approved by the Program. Related costs do not include loan application fees.

“Secretary” means the Secretary of Housing and Community Development.

“Structurally and mechanically sound building” means a building that does not have physical conditions serious enough to endanger the life, property, or safety of the occupants or the public. A building may be structurally sound and not be in compliance with all applicable codes and 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.

Be a family of limited income;

Reside, or intend to reside, in the building;

Hold title to the building for which the loan is made in fee simple or under a freely transferable ground rent lease;

Demonstrate repayment ability, in the estimation of the Department; and

Have income at a level that the Secretary has determined renders the applicant unable to afford or secure private financing to rehabilitate the property.

If a business entity, be in good standing and qualified to do business in Maryland;

Hold title to the building in fee simple or under a freely transferable ground rent lease;

Have the legal capacity, and all necessary legal and corporate authorizations, to incur the obligations of the loan;

Demonstrate credit worthiness and repayment ability in the estimation of the Department;

In the estimation of the Department, be unable to afford or secure a loan from a private lending institution to finance the improvements;

Agree in writing that all of the dwelling units improved with the loan proceeds shall be occupied by and rented to either:

If the number of units improved with the loan proceeds is less than 2/3 of the total number of units, agree in writing to rent at least 2/3 of all units in the building to families of limited income;

Agree to abide by all 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 the provisions of the Governor's Code of Fair Practices, COMAR 01.01.1987.20 and COMAR 01.01.1988.05;

Agree to abide by any regulations promulgated by the Department implementing the Governor's Executive Order 01.01.1989.18 requiring recipients of State funds to maintain a workplace free of any drug and alcohol abuse;

Provide satisfactory assurances to the Department that in the 12 months preceding application for a Program loan, the borrower did not cause a residential tenant to leave the building except upon good cause; and

Agree in writing to assist with relocation of tenants to the extent required by the Department.

Be located within the State;

Be a structurally and mechanically sound building except as permitted under §B of this regulation;

Be in need of indoor plumbing pipes, equipment, wells, septic tanks, or other on-site sewerage system, or connection to community water and sewerage systems;

Have:

Be owned by an eligible borrower who shall provide assurance of title or evidence of ownership acceptable to the Department; and

Contain not more than 20 dwelling units.

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 05.02.01, or the standards set by the American National Standards Institute, Inc. which are incorporated by reference under 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;

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 the number of dwelling units, lot size, and building setbacks; and

Is reasonably expected to have an economic life equal to or greater than the term of the mortgage.

Wells;

Septic tanks and drain fields;

Piping from the system into the buildings;

Connection fees and assessments;

Plumbing fixtures and equipment, including fixtures for the handicapped;

Additions, modifications, and alterations required to provide adequate private space for toilet and bath facilities;

Sand mound systems;

Water treatment systems;

For owner-occupants only, related costs described in Regulation .03B(27) of this chapter, and other costs or improvements essential to implementing the required system, and consistent with the purposes of the Act as determined by the Department; and

Alternative and innovative septic and water systems which comply with the requirements of and are approved by MDE and all governmental entities having jurisdiction over those systems.

The maximum loan amount, when added to any prior indebtedness secured by the building, may not exceed 95 percent of the after-rehabilitation value of the building.

If 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, then the 95 percent loan-to-value ratio required by §A(1) of this regulation may be raised to 100 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 if the increase can be made within the limits on maximum loan amounts set forth in §A(1)—(3) of this regulation.

Closing costs as defined in Regulation .03B(5) of this chapter may be included in loans on owner-occupied dwellings, if the loan does not exceed the limits on the maximum loan amount set forth in §A(1)—(3) of this regulation.

The Department may establish different interest rates for loans serving occupants who are families of:

The interest rates charged on loans may not be more than private lending rates for comparable loans.

Hazard Insurance. The owner of the building shall maintain fire and extended coverage insurance at the owner's expense in an amount not less than the sum of the loan and any other indebtedness secured by the building, and the hazard insurance policy shall:

Flood Insurance. If the building is in a 100-year flood plain, as designated by the United States Department of Housing and Urban Development, the:

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(4)—(5) 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 building is located. The mortgage or deed of trust may be subordinate to other recorded mortgage liens if the mortgagee of the mortgage gives any consents required by the prior mortgagee's loan documents or by the Department.

Loans to political subdivisions may be secured by a recorded mortgage or deed of trust on real property, or by another security device acceptable to the Department.

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.

At the discretion of the Program Director or the local administrator, borrowers may be required to obtain an appraisal in a form and manner acceptable to the Department from an acceptable independent fee appraiser showing the building's value before and after the proposed rehabilitation.

Applicants shall bear the costs of appraisals, which may be financed in the case of a loan made to an owner-occupant.

Increase the interest rate up to a rate set by the Program from time to time;

Accelerate the payment of the entire principal and interest due; or

If the income of the individuals served by the loan changes, increase or decrease the interest rate to a rate permitted by §B of this regulation.

If the loan finances improvements for a residential rental building, except for an owner-occupied building with four or fewer residential units, then the borrower may not sell, cease to own, assign, transfer, mortgage, pledge, encumber, grant a security interest in, or dispose of all or any part of the building or the borrower's interest in the building, or lease the dwelling unit in which the owner-occupant resides, during the loan term, without the prior written consent of the Department.

If the loan finances improvements for a residential building with four or fewer units, one of which is occupied by the borrower, then the loan is due and payable in full upon the sale, encumbrance, or other transfer of the building or any interest in the building, including a lease of the owner's unit for more than 3 years, unless the transfer is made to a person who will occupy the owner's unit and the transfer is:

Adjustments to the interest rate of the loan upward or downward;

Suspension or debarment from the Department's programs;

Foreclosure;

Accepting a deed in lieu of foreclosure;

Appointment of a receiver; and

Other legal action which protects the Department's interests.

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.

The borrower is a family of extremely low income;

The Secretary determines that the borrower does not have sufficient income to repay at that time, which determination need not be made on a case-by-case basis; and

In cases of deferral, upon the transfer of the property for consideration, in the Program's estimation there is not enough equity in the property available for repayment.

The 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 credit worthiness of the applicant.

Applicants shall submit supporting documentation specified in the checklist attached to the application, which may include any of the following:

In addition, owner-landlord applicants shall submit the following documentation:

Each application shall be submitted to the local administrator for an 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 the applicant is ineligible for a loan, the applicant shall be informed in writing of the determination and the reasons for it.

Each building for which an application is received shall be inspected for the purpose of determining structural and mechanical soundness and evaluating the adequacy of the proposed improvements by:

The applicant shall be provided with a copy of an analysis of the contractor's proposal submitted as required in Regulation .10D(2)(g) of this chapter, and instructions for obtaining the contractor's proposals to complete the work.

Upon receipt and approval of all acceptable contractor's proposals and all other 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:

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 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 time specified, the local administrator shall notify the applicant that the commitment is officially canceled.

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.

Withdrawn applications may not be reinstated. A new application is required.

The Program or the local administrator may cancel an application at any time during processing if the applicant fails to provide any information requested.

Notification of the cancellation of an application shall be in writing.

A canceled application may be reinstated upon the applicant's written request within 60 days following the date of the cancellation. After that time, a new application, together with supporting documents, may be required.

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.

Credit reports;

Appraisal fees, if applicable;

Recording fees, taxes, and charges, if applicable;

Required survey charges, if applicable;

The cost of title examination and title insurance premiums, if required;

Administrative fees;

The cost of property and judgment reports;

Inspection fees; and

Other reasonable and customary charges or fees authorized by the Department.

Shall be licensed by the State, the local political subdivision, or the Maryland Home Improvement Commission, as applicable, to do the work required under the contract;

Shall be qualified to do business in the State of Maryland;

Shall be able to demonstrate to the satisfaction of the Department the ability to complete the rehabilitation work, which evidence may include previous professional rehabilitation experience;

May not be suspended or debarred from the Department's programs pursuant to any action under COMAR 05.01.05;

Shall agree in the contract to:

Shall indemnify and hold the Department harmless from all liability and loss because of injury to or death of any person 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, and defend all suits or claims involving the above at its sole cost and expense.

The Department encourages the use of minority contractors for all projects in all jurisdictions, and requires compliance with the Department's Minority Business Participation Plan for all projects with rehabilitation contract costs of $200,000 or more.

Copies of the Department's plan shall be made available to sponsors and contractors.

Owner-landlords may act as general contractors only with the prior written approval of 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 general contractor.

100 percent performance and 100 percent 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.

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;

May not be disbarred or suspended pursuant to COMAR 05.01.05; and

Shall have performed all previous work financed by the Program in a manner satisfactory to the Director.

Work done, materials supplied, and construction procedures employed shall comply with all contract documents and applicable codes and standards, including those set forth in these regulations and any others established by the Department or MDE. Contract documents include, without limitation:

There shall be no modification of any contract document without the prior written consent of the Department or the local administrator, as evidenced by an approved change order executed by the:

The borrower and the contractor shall cooperate to facilitate timely performance of the rehabilitation work and selection of materials.

The borrower shall provide the contractor access to the property during normal business hours, and shall permit the contractor to use existing utilities for the execution and completion of work, at no cost to the contractor.

The borrower is responsible for removing and replacing rugs, furnishings, and other personal property, unless otherwise provided in the contract documents.

The borrower and the contractor shall protect and maintain the property and improvements in accordance with the contract documents.

The borrower and the contractor shall each, in writing, hold and save the Department harmless from any loss, claim, cost, or damage of every kind, nature, and description arising from or related to the contract documents.

Communications relating to content or performance of the contract shall be in writing, and copies sent to the Program.

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:

The local administrator may charge borrowers a fee for inspections during rehabilitation, as approved by the Department.

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 following requirements:

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:

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 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.

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 local administrator when the entire cost of the project is $60,000 or less, or otherwise by the Department. 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 shall be made as set forth in §F(2)—(5) of this regulation.

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.

Final payment shall be processed upon final inspection and receipt and approval of the certificate of completion.

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 procedure described below:

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 promptly shall pay or bond any liens established.

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 interim project inspections.

The local administrator, at the Administrator's discretion, may elect to retain until final payment 10 percent of the contract proposal costs for any other project, taking into consideration:

The retainage shall be released at final payment upon verification that all contracted rehabilitation items are complete and acceptable to the local administrator.

The local administrator and the Department shall coordinate with the borrower and the contractor to resolve any dispute concerning workmanship, the quality of materials, damaged property, the completion schedule, and other matters pertinent to the contract documents.

The local administrator and the Department shall recognize the findings of the Maryland Home Improvement Commission and the Consumer Protection Division of the State Office of the Attorney General, if the dispute is submitted to their arbitration.

After final payment or payout is made, the local administrator or the subcontractor shall reconcile all receipts and disbursements.

A copy of the closeout statement shall be forwarded to the Program and the servicer.

The political subdivision shall be able to provide staff to perform adequately the functions of the following positions:

The rehabilitation staff of the political subdivision shall be capable of:

The political subdivision shall execute and comply with the terms of an agreement required by the Department.

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:

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 K of this chapter, except to a subcontractor which meets the following criteria to the satisfaction of 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.

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 .21 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.

Periodically, at the request of the Department, each local administrator shall agree in writing to administer the Program in conformance with these regulations and with any other procedures prescribed by the Department.

At initial occupancy, each owner-occupant shall submit to the Department a signed certificate of annual income for each member of the household 18 years old or older, along with verification documentation acceptable to the Department.

After initial occupancy, the Department may require each owner-occupant to periodically submit to the Department a signed certificate of annual income for each member of the household 18 years old or older, along with verification documentation acceptable to the Department.

Before initial occupancy, owner-landlords shall obtain, from all those who will occupy a dwelling unit, a completed and signed income certification form. Borrowers shall certify to the Department at initial closing and on the schedule described below that each household residing in a building unit has an annual income that does not exceed the then current income limits. The certification of the borrower shall show the current rent being charged for each unit. The borrower shall retain records documenting the information in the initial and annual income certifications for 3 years. The Department reserves the right to inspect income certification records held by the borrower at any time.

After initial occupancy, the Department may require each owner-landlord to periodically submit to the Department a signed certificate that each household residing in a building unit has an annual income that does not exceed the then current income limits, along with verification documentation acceptable to the Department.

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;

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.

Conformance to the requirements of any federal, State, or local programs used in connection with a loan 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.