These regulations prescribe the policies, procedures, and authorizations for making loans to provide indoor plumbing connecting to supply adequate water and sewage disposal systems in residential buildings. The basic objectives of the Program are to: Make loans to or for the benefit of individuals with limited incomes to finance indoor plumbing pipes, equipment, wells, septic tanks, or other on-site sewerage systems, or connection to community water and sewerage systems; and Develop the capacity of political subdivisions to administer the Program. The terms appearing in the Act shall have the meanings defined there and, in addition, the meanings used in these regulations. Terms Defined. “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: 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. “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 extremely low income” means one or more individuals residing as a household in a dwelling unit, whose total combined annual income does not exceed the limits established from time to time by the Secretary in accordance with §4-916(b) of the Act, which income limits are less than those established for families of very low income. “Family of extremely 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 §4-916(b) of the Act; and The beneficiary of the trust is an individual who resides in the residential building owned by the trust. Family of Limited Income. “Family of limited income” means one or more individuals residing as a household in a dwelling unit whose total combined annual income does not exceed the limits established from time to time by the Secretary in accordance with §4-915 of the Act. “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 §4-915 of the Act; 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, whose total combined annual income does not exceed the limits established from time to time by the Secretary in accordance with §4-916(b) of the Act, which income limits are less than those established for families of very low income. “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 §4-916(b) of the Act; 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 annual income does not exceed the limits established by the Secretary in accordance with §4-916(b) of the Act, which income limits are less 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 §4-916(b) of the Act; and The beneficiary of the trust is an individual who resides in the residential building owned by the trust. “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. Owner-occupants shall meet the following requirements which shall be met jointly and separately by all applicants if there is more than one applicant: 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. Owner-landlords shall meet the following requirements, which shall be met jointly and separately if there is more than one applicant: 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: Families of limited income until the later of the following, after completion of the improvements: The end of the loan term; The date on which all principal and interest and other sums due on the loan are fully paid; 15 years; or Such longer period as the Department or the local administrator may require; or Families of lower income until the later of the following, after completion of the improvements: The end of the loan term; The date on which all principal and interest and other sums due on the loan are fully paid; 15 years; or Such longer period as the Department or the local administrator may require; 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. Both owner-occupants and owner-landlords shall submit to the Department a proposal for the installation of the proposed improvements which complies with the requirements of MDE and other governmental entities with jurisdiction. An applicant who is suspended or debarred from the Department's programs pursuant to any action under COMAR 05.01.05 is not eligible to participate in the Program. If title to the property to be rehabilitated is held by more than one person in any form of joint tenancy, each person having an interest in the property is considered to be an applicant for purposes of these regulations. For the purposes of determining annual income, only the income of persons who permanently reside in the unit shall be used. All buildings shall meet the following requirements: 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: No or incomplete indoor plumbing, or An existing, failing septic system; 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. Buildings which are not structurally and mechanically sound may be eligible buildings if the owner of the building provides a commitment from a public or private lender to finance improvements required to make the building structurally and mechanically sound. 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 05.02.01, 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. 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. Property being purchased under a land installment contract, or other types of property are not eligible buildings. Proceeds of a loan may finance improvements which are necessary to provide adequate indoor plumbing connecting to adequate water supply and sewage disposal systems which include without limitation: 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. Proceeds of a loan may not finance any improvements which serve a nonresidential portion of a building. Maximum Loan Amount. 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. Interest Rate. The Department may establish different interest rates for loans serving occupants who are families of: Limited income; Lower income families; and Very low income. The interest rates charged on loans may not be more than private lending rates for comparable loans. Insurance. 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: Be written by companies authorized to transact business in the State; Be in force at the time of loan closing; Name the Department as named insured and loss payee as its interest may appear in a standard mortgagee endorsement attached to or printed in the policy; and Contain terms and coverage satisfactory to the Department. 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: Building shall be covered by a flood plain insurance policy in an amount equal to the sum of the loan and any other indebtedness secured by the building, naming the Department as beneficiary; and Flood plain policy may not be terminated without prior notification to the Department. Term. The term of each loan may not exceed 30 years from the date of completion of the improvements, and shall be based upon the amount of the loan, the borrower's ability to repay, and the expected economic life of the building. Periodic Payment. Except for deferred payment loans, periodic payments shall be charged which shall be applied to expenses, when applicable, interest, and principal in that order. Late Charge. Late charges, as permitted by law, may be imposed. 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(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. Appraisals. 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. Change of Borrower Eligibility. If the borrower's income changes or the borrower no longer satisfies other requirements of Regulation .04 of this chapter, the Department may, in accordance with the terms of the loan agreements between the borrower and the Department: 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. Change of Ownership. 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: Made by operation of law upon the death of a joint tenant; To a spouse upon separation or divorce; To a spouse or child; To a relative upon the death of the owner; To an inter vivos trust whereby the borrower is the beneficiary and owner of the property and provides assurances acceptable to the Department of any subsequent transfer; or A transfer for which the parties have received the prior written consent of the Department, in its sole discretion. 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 in lieu of foreclosure; Appointment of a receiver; and Other legal action which protects the Department's interests. Refinancing. The Department may not refinance existing debt related to an eligible building. In addition to the conditions and requirements of Regulation .07 of this chapter, deferred loans shall meet the requirements in §§B—F 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. The Department may defer payments of principal or interest, or both principal and interest, to the minimum extent required based on the borrower's capacity 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. Forgiveness of Deferred Payments. The Program may forgive deferred payments or portions of deferred payments at any time during the term of the loan if: 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. Limitations. The Department, from time to time, may establish limitations on percentage or amount of funding which may be used for deferred loans. In addition to the conditions and requirements of Regulations .07 and .08 of this chapter, secured loans shall meet requirements in §§B—D of this regulation. Deed of Trust. The deed of trust shall secure repayment of the loan by the granting of a valid lien on the building. Escrow Account. If there is no prior mortgage requiring the payment of expenses to a mortgagee, the borrower may be required to make monthly expense payments, in escrow, to the Department 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 borrowers on escrowed monies except as required by law. 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. Procedure — In General. The Department shall establish application procedures for loan administrators to follow, 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 are binding upon all borrowers. Alternative procedures may not be used without the prior approval of the Department. Application Forms. Applications shall be made upon standard forms prescribed by the Department. Application Fee. Upon submission of a loan application, the applicant may be required to pay an application fee in an amount set by the local administrator, subject to approval by the Department. Documentation. 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: A copy of the deed to the property; A copy of all existing mortgages or mortgage verification requests, on the form approved by the Department, signed by the applicant for each mortgage secured by the building; 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 which sets forth the current assessed value of the building and the property; Verification of the total assets and annual income of each person in the household of an owner-occupant applicant, or, for owner-landlord applicants, a list of all tenants in a building showing household name, address, number of persons in the household, total combined annual household income, and current monthly rent; For the 2 years immediately preceding the application: If self-employed, copies of federal income tax returns, or, if a nonprofit organization, the applicable federal reporting forms; Copies of State income tax returns; or A request signed by the applicant, on the form designated by the Department, for copies of the applicant's State income tax returns; and With the application, a description of the proposed improvements, followed by a contractor's proposal which complies with all applicable MDE and other governmental requirements. In addition, owner-landlord applicants shall submit the following documentation: If applicable, certified copies of the organizational documents of the owner-landlord and a certificate of good standing; Certified financial statements of the applicant and, if applicable, certified financial statements of its principals; 3 years of operating statements for the project; If applicable, resolutions of the board of directors or consents of all of the partners authorizing the application; For projects receiving federal subsidies, copies of all contracts or feasibility analyses prepared by the administering agency, as applicable; Photographs of the building and site; Evidence that the property is a separate subdivided lot and a separate tax lot, if the building has more than four dwelling units; and Evidence of zoning compliance. Initial Eligibility Determination. 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. Building Evaluation. 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 Department; The local administrator; A nonprofit corporation acceptable to the Program or the local administrator; or A licensed contractor who is acceptable to the local administrator or the Department. 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. Loan Approval. 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: Loans in amounts of $60,000 or less may be approved by: The level II local administrator, when the level II local administrator originates the loan; or The 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; and 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 time specified, 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. Each month, the Program Director shall provide the Housing Finance Review Committee with a report listing all owner-landlord loan applications rejected by the Program during the preceding month. Reconsideration. Applicants who are rejected 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, State Government Article, Title 10, Annotated Code of Maryland, 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. Withdrawn applications may not be reinstated. A new application is required. Cancellation of Application. 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. Time and Place. The loan closing shall be scheduled at a time and place mutually 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 shall charge and collect from the borrower reasonable and customary amounts acceptable to the Department for the following items: 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. Points may not be charged to the applicant on any loan under the Program. Mortgageable Items. Program charges, closing costs, and related costs may be 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 related costs. Taxes and Assessments. Taxes and assessments against the property which are due and payable shall be paid at or before closing. General Requirements. Contractors and subcontractors: 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: Perform all work: In conformance with the contract and all applicable laws, local codes, and Departmental rehabilitation standards, whether or not covered by the work write-up and drawings for the work, and In a competent, workmanlike manner, equal to the standards of the industry; Comply with all applicable laws, ordinances, and regulations relating to the protection and safety of persons or 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 of the local administrator; In addition to all remedies and guarantees provided by law, and at the contractor's expense, make all necessary repairs, replacements, and corrections of any nature or description, interior or exterior, structural or nonstructural, as shall become necessary by reason of faulty workmanship or material, which appear within: 1 year from the date the notice of completion is filed, A longer period if any longer guarantee period is specified for any particular materials or workmanship under the plans and specifications, under a subcontract, in connection with any manufactured unit which is installed in the structure, or A longer period, if Maryland law so provides; Complete all specifications of the proposal within the completion date as specified in the contract; 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. Minority Contractors. 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. Identity of Interest. 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. Assurance of Completion. The Department or the local administrator, in its sole discretion, may require: 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. In order to be binding, all communications between the contractor and the owner concerning the content or performance of the contract shall be in writing. Contractors performing work financed by a Program 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; 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. Code Compliance. The Department or local administrator's preparation or approval of work write-ups, evaluation of the property, and review and approval of plans and specifications are for the benefit of the Department only. 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. Permits. If required by MDE or by local law, building or rehabilitation permits shall be obtained and posted at the project before the beginning of construction. Contract Documents. 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: Rehabilitation loan agreement; Change orders; Certification of structural and mechanical soundness; Instructions to bidders; Specifications; Drawings, if applicable; and Contractor's proposal. 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: Contractor; Owner; and Local administrator. Borrower and Contractor. 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. Inspections. The local administrator shall conduct inspections to determine the required scope of work, verify payments, mediate construction problems and disputes, and facilitate 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 applicable provisions of 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; Demonstrated experience and reliability of the contractor; Amount of the loan; Availability of the 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 following requirements: 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 Senior Manager; and Except as provided in §D of this regulation, payments shall be made only for work completed, and 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 the 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 the 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 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 for valid purchase requisitions which do not exceed 10 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 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. 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: 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 promptly shall 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 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 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 local administrator. Payment for Additional Work. Payment for any additional cost to complete work not included in the approved contract proposal 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 costs. Any loan increase is subject to approval or disapproval in accordance with the provisions of these regulations. The Department has no obligation to pay for increased costs. Construction Disputes. 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. Termination of Contracts. Contracts may be terminated for cause in accordance with the loan documents, contract documents, and Program policies and procedures. Closeout Procedures. 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. General. The Department recognizes that the most effective housing programs of this kind are those administered at the local level. Therefore, each political subdivision is encouraged and expected to develop the capacity to originate and administer Program loans. While the Department has the authority to originate and administer loans, the Department does not plan to operate a program for a political subdivision. The Department reserves the right, however, to originate or administer Program loans at its discretion. 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 provide staff 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, and 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 of 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; 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; Closing out loan accounts; and Providing financial information to loan servicers and the Department. 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 K 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; The subcontractor provides the local administrator and the Department with periodic statements of: All loan funds held and disbursed by the subcontractor under Regulation .15C(2) 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 the local administrator is administering the loans in a manner inconsistent with the intent of the Program. Special Requirements for Local Administrators and Their Subcontractors. 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. 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. Owner-Occupants. 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. Owner-Landlords. 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. A borrower, 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 borrower, contractor, local administrator, or subcontractor in the connection with any property financed or assisted under the Program. Each borrower, 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; 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. It is the intent of the Department that Program funds be distributed Statewide. Monies appropriated to the Program shall be made available Statewide on a first-come, first-served basis. 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 in §A of this regulation shall be open to the inspection of representatives of the Department or other agencies of the State during reasonable working hours. Combining with Other Loans and Grants. Program loans may be made in conjunction with other federal or State loan or grant programs, if the requirements of the Act and these regulations are met. The Program shall be administered to the extent possible to ensure maximum use of available federal funds. 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, local administrators, or other Program participants obtain from borrowers or applicants. Delegation. The Secretary may delegate to the Director, the Program Director, 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 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 criminal 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, 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. Housing and Community Development Article, §§4-910 and 4-927, Annotated Code of Maryland Effective date: Regulations .01—.15 adopted as an emergency provision effective August 28, 1986 (13:20 Md. R. 2193); emergency status extended at 14:2 Md. R. 123; emergency status expired March 1, 1987 Regulations .01—.15 adopted effective March 1, 1987 (14:4 Md. R. 413) Chapter recodified from COMAR 05.01.22 to COMAR 05.04.05 Regulations .02—.06 amended effective April 12, 1993 (20:7 Md. R. 639) Regulation .03B amended effective February 22, 1999 (26:4 Md. R. 272); November 29, 1999 (26:24 Md. R. 1855) Regulation .04A amended effective September 25, 1995 (22:19 Md. R. 1471) Regulations .07—.15 repealed and Regulations .07—.22 adopted effective April 12, 1993 (20:7 Md. R. 639) Regulation .09D amended effective February 22, 1999 (26:4 Md. R. 272); November 29, 1999 (26:24 Md. R. 1855) Regulation .11C 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 .18A amended effective February 22, 1999 (26:4 Md. R. 272) Chapter revised effective July 12, 2010 (37:14 Md. R. 938) Regulation .18 amended effective March 16, 2015 (42:5 Md. R. 485)