These regulations prescribe the policies, procedures, and authorizations for making loans to adapt existing housing to provide accessory, shared, and sheltered housing facilities. The basic objectives of the Program are: To make loans to or for the benefit of individuals with limited incomes to finance rehabilitation projects to provide housing opportunities for families of limited income by creating accessory, shared, and sheltered housing facilities; and To 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. “Accessory housing facility” means a dwelling unit with complete, independent sleeping, cooking, sanitation, and living facilities which are within or attached to, or on the same parcel as, and subordinate to, but under the same ownership as, a single-family, owner-occupied dwelling. “Act” means 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. “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. “Contract” means the written agreement between a borrower and a licensed general contractor or licensed home improvement contractor that: Is acceptable to the Department; and Describes the work to be financed by a loan made under the Program. “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. “Director” means the Director of the Division of Development Finance of the Department. “Disabled” means a person having a medically determinable physical or mental impairment which is expected to last for a substantial period of time and which causes an inability to engage in regular, sustained employment or other gainful activity. “Elderly” means a person who is 62 years old or older. “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 Housing and Community Development Article, §4-915, Annotated Code of Maryland. “Family of lower 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 Housing and Community Development Article, §4-916(b), Annotated Code of Maryland, which income limits will be less than those established for families of limited 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 Housing and Community Development Article, §4-916(b), Annotated Code of Maryland, which income limits will be less than those established for families of lower income. “Handicapped” means a person having a physical or mental impairment which is expected to be of an indefinite duration and which impedes the ability to live independently. “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. “Owner-occupant” means an owner residing or intending to reside in an eligible property which is a shared housing facility or which includes an accessory housing facility. “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 Accessory, Shared, and Sheltered Housing Program. “Program Director” means the Director of Special Loan Programs in the Division of Development Finance of the Department. “Project” means the modification, addition, repair, renovation, or improvement to an existing property in order to provide accessory, shared, or sheltered housing. “Rehabilitation plan” means the rehabilitation plan described in Regulation .20 of this chapter. Related Costs. “Related costs” means costs related to the implementation of a rehabilitation project under the Program, such as appraisal fees, architect's and engineering fees, permit and permit application fees, and other similar costs approved by the Program. “Related costs” does not include loan application fees. “Secretary” means the Secretary of Housing and Community Development. “Shared housing facility” means a single-family, owner-occupied dwelling unit adapted for common and shared living use by the owner-occupant household and at least one other family of limited income, where some or all of the sleeping, cooking, living, or sanitary facilities are shared by all of the households. “Sheltered housing facility” means a single-family, owner-occupied dwelling unit that accommodates the sheltered housing sponsor and provides sleeping and living facilities, meals, and assistance with daily activities for a rental fee to not more than 15 elderly, disabled, or handicapped persons residing in the dwelling. “Sheltered housing sponsor” means an owner residing or intending to reside upon completion of the project in a sheltered housing facility. “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. To qualify for a loan, an owner-occupant shall meet the following requirements, which shall be met jointly and separately by all applicants if there is more than one applicant: Reside, or intend to reside, in the property after completion of the rehabilitation; Hold title to the property for which the loan is made in fee simple or under a freely transferable ground rent lease; Demonstrate creditworthiness and 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. In addition to meeting those requirements set forth in §A of this regulation, to qualify for a loan to provide accessory facilities, an owner-occupant, jointly and separately if there is more than one applicant, shall either: Be a family of lower income or a family of limited income at the time the loan is made, and agree in writing to provide the accessory housing facility financed by the loan for the longer of: The term of the loan, The time during which principal and interest are unpaid, or 10 years if a family of limited income or 15 years if a family of lower income; or Agree in writing to provide the accessory facility financed by the loan for occupancy by a family of lower income or a family of limited income for the longer of: The term of the loan, The time during which principal and interest are unpaid, or 10 years if a family of limited income or 15 years if a family of lower income. In addition to meeting the requirements set forth in §A of this regulation, to qualify for a loan to provide shared housing facilities, an owner-occupant shall meet the following requirements, which shall be met jointly and separately if there is more than one applicant: Be a family of limited income; and Agree in writing that the shared housing facility provided with the proceeds of the loan shall be occupied by a family or families of lower income or a family or families of limited income for the longer of: The end of the loan term, The date on which all principal and interest and other sums due on the loan are fully paid, or 10 years if a family or families of limited income, or 15 years if a family or families of lower income. In addition to meeting the requirements set forth in §A of this regulation, to qualify for a loan to provide sheltered housing facilities, a sheltered housing sponsor shall meet the following requirements, which shall be met jointly and separately by all applicants if there is more than one applicant: Agree in writing to provide shelter, meals, and assistance with daily activities to not more than 15 persons, all of whom shall be elderly, disabled, or handicapped persons who qualify as families of limited income for the longer of: The end of the loan term, The date on which all principal and interest and other sums due on the loan are fully paid, or 10 years if the sheltered facility residents other than the borrower are families of limited income, or 15 years if families of lower income; Demonstrate that the property will be certified by the appropriate governing agency to provide sheltered care to elderly, disabled, or handicapped persons. 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 shall be 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 will be used. All properties shall meet the following requirements: Be located within the State; Be owned by an eligible borrower who shall provide assurance of title or evidence of ownership acceptable to the Department; When the project is complete, be in compliance with zoning requirements; and Be structurally and mechanically sound, except as permitted under §B of this regulation, such that: There are no physical conditions that endanger the life, property, safety, or welfare of the occupants or the public, and The property is in full compliance with all applicable housing codes and standards. Properties which are not structurally and mechanically sound may be eligible properties if upon completion of the improvements financed by the Program loan, the property will be structurally and mechanically sound. A manufactured housing unit is eligible if it is intended for residential use, 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 the BOCA National Building Code (1990) which is incorporated by reference under COMAR 05.02.01, or the standards set by the American National Standards Institute, Inc. which are incorporated by reference under COMAR 05.02.02; 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, 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; Is reasonably expected to have an economic life equal to or greater than the term of the mortgage. Condominiums may be eligible buildings and shall be reviewed by the Department on a case-by-case basis. Mobile homes which are taxed as personal property, cooperative units, property being purchased under a land installment contract, or other types of property are not eligible properties. Proceeds of a loan may finance the following improvements: Repairs, improvements, and modifications to existing dwelling units, to the extent required by applicable codes and standards relating to accessory, shared, or sheltered housing facilities; Additions, modifications, and improvements, including all fixtures and finishes, necessary to create accessory, shared, or sheltered housing facilities. Closing costs and related costs described in Regulation .03B(5) and (26) of this chapter, respectively, may be included in a loan to an owner-occupant. Maximum Loan Amount. The maximum loan amount, when added to any indebtedness secured by the property, may not exceed 95 percent of the after-rehabilitation value of the property. 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. Deferred loans in amounts greater than or equal to $25,000 may not exceed an amount which, when added to any prior debts secured by the property would equal 85 percent of the market value of the property after rehabilitation as determined by the Department or the local administrator unless, in the written determination of the Program Director, extraordinary or emergency circumstances justify an amount up to 95 percent of the after-rehabilitation value. 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 not to exceed 10 percent may be made to cover extraordinary and unforeseen construction problems provided the increase can be made within the limits on maximum loan amounts set forth in §§A(1)—(3) of this regulation. Closing costs as defined in Regulation .03B(4) of this chapter may be included in loans on owner-occupied dwellings, provided the loan does not exceed the limits on the maximum loan amount set forth in §§A(1)—(3) of this regulation. Interest Rate. Loans to the following borrowers shall have interest rates of not less than 4.5 percent: Owner-occupants who themselves are families of limited income or whose accessory housing tenants are families of limited income; and Sheltered housing sponsors whose tenants are families of limited income. Loans to the following borrowers may have interest rates of 4.5 percent or less: Owner-occupants who themselves are families of lower income or whose accessory housing tenants are families of lower income; and Sheltered housing sponsors whose tenants are families of lower income. Within the limits established in §B(1) and (2) of this regulation, the interest rate shall be the maximum rate based on the applicant's ability to pay. Insurance. Hazard Insurance. The owner of the building shall maintain fire and extended coverage insurance on the building at the owner's expense in an amount not less than the sum of the loan and any other indebtedness secured by the building. The hazard insurance policy shall: Be written by companies authorized to transact business in the State; Be written by companies which are reputable and financially sound, as determined by the Department; 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 mortgage endorsement attached to or printed in the policy; and Contain terms and coverage satisfactory to the Department. Flood Insurance. If the property is in the 100-year flood plain, as designated by the United States Department of Housing and Urban Development: The property 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 The 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. All loans in excess of $5,000, and all loans providing for deferred payments, shall be secured by a mortgage or deed of trust, in the form required by the Department, which shall be recorded in the land records of the county in which the property is located. The mortgage or deed of trust may be subordinate to other recorded mortgage liens provided that 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. 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. In the alternative, the staff of the Program or the local administrator may prepare a comparable appraisal but may not charge a fee. 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, 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 building with 4 or fewer units, one of which is occupied by the borrower, then the loan shall be 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 the Department's 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 instead 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 property. In addition to the conditions and requirements of Regulation .07 of this chapter, deferred loans shall meet the following additional requirements in §§B—E of this regulation. Eligibility. The following borrowers may be eligible for loans which defer payment of principal or interest or both: An owner-occupant who is a family of very low income and whose accessory housing unit tenant is a family of very low income; An owner-occupant who is a family of very low income and whose shared housing facility tenant or tenants are families of very low income; and Sheltered housing sponsors of properties occupied entirely by tenants who are families of very low income. 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 property or any interest in the property other than a residential lease of: The owner-occupied unit for less than 3 years duration, or Any other portion of the property. The Department may, but need not, charge interest on the deferred interest. Limitations. The Department, from time to time, may establish limitations on percentage or amount of funding which may be used for deferred loans. Deferred loans in amounts greater than $25,000 may not exceed an amount which, when added to any prior debts secured by or relating to the eligible building or property, or both, would equal 85 percent of the market value of the eligible building and property after rehabilitation as determined by the Department. In addition to the conditions and requirements of Regulations .07 and .08 of this chapter, secured loans shall meet the following 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 property. Escrow Account. If there is no prior mortgage requiring the payment of expenses to a mortgagee, the borrower shall 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. For all loans in excess of $30,000, 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 local 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 shall be 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. All applicants shall submit supporting documentation specified in the checklist attached to the application, including, but not limited to, 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 property; 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; One of the following: For a shared housing loan or an accessory housing loan that depends on the owner-occupant's income for eligibility, verification of the total annual income of each person in the owner-occupant's household, For a shared or accessory housing loan that depends on the tenant's income for eligibility, if there is a current tenant, the name, address, number of persons in the tenant's household, total combined annual household income, and current monthly rent, or For sheltered housing sponsor applicants a list of all current 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 3 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 that complies with all applicable governmental requirements. In addition, all sheltered housing sponsor applicants shall submit the following documentation: 3 years of operating statements for the project; 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 of zoning compliance; With the application, a description of the proposed improvements, followed by a contractor's proposal that complies with all applicable governmental requirements; Evidence of certification by the appropriate government agency to provide sheltered care to elderly, disabled, or handicapped persons; and Evidence of operating subsidies from other governmental agencies. 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. Property Evaluation. Each property for which an application is received shall be inspected for the purpose of: Determining if the property is structurally and mechanically sound, or will be upon completion of the improvements, and Evaluating the proposal for the improvements to be financed by the loan. The inspection shall be made 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 instructions for obtaining final contractor's proposals for 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 $30,000, shall forward the application package and the analysis of the loan to the Department for approval, disapproval, or modification. Approval to make a loan shall be as follows: Loans in amounts of $30,000 or less may be approved by: The level II local administrator, where the level II local administrator originates the loan, or The Program Director, where a level I local administrator or the Department originates a loan; Loans in amounts over $30,000 and under $100,000 may be approved by the Director; For loans in amounts of $100,000 or more, the following procedures apply: Loan proposals shall be submitted to the Housing Finance Review Committee established under Housing and Community Development Article, §4-208, Annotated Code of Maryland, and the Housing Finance Review Committee shall review the loan proposal and make a recommendation to the Secretary, For loans in amounts greater than or equal to $100,000 but less than $250,000, the recommendation of the Housing Finance Review Committee constitutes approval unless the loan is specifically disapproved by the Secretary, For loans in amounts of $250,000 or more, the Secretary shall determine in writing whether the loan is approved and under what loan terms after receiving the recommendation of the Housing Finance Review Committee, 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 $30,000 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 sheltered housing sponsor 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 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. Rather, 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, is 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 the 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. At the discretion of the Department or the level II local administrator for loans to owner-occupants only, program charges, closing costs described in Regulation .03B(5) of this chapter, and related costs described in Regulation .03B(26) of this chapter, may be mortgageable items. Taxes and Assessments. All taxes and assessments against the property which are due and payable shall be paid at or before closing. General Requirements. All 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 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, which may not exceed 12 months from the date of the loan closing unless a longer period is approved in writing by the Department; Shall indemnify and hold the Department harmless from all liability and loss because of injury to or death of a 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. Borrowers may not act as their own general contractors. Sheltered housing sponsors may act as general contractors only with the prior written approval of the local administrator. Application forms will be provided upon request and shall be submitted and approved before submission of the proposal. Approval shall be conditioned on an assurance of completion acceptable to the Department. An owner-occupant may not act as general contractor. Assurance of Completion. For loans in excess of $50,000, either 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 Farmer's Home Administration; May not be disbarred or suspended pursuant to COMAR 05.01.05 as amended from time to time; 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 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. 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 may not be 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; The owner; and The 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 costs to the contractor. The borrower shall be 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 the Department harmless from all loss, claim, cost, or damage of every kind, nature, and description arising from or related to the contract documents. All 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; The demonstrated experience and reliability of the contractor; The amount of the loan; The 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 or the subcontractor for the loan. 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 Program Director; 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; Payment of draws shall be requested by the borrower, and loan funds may be disbursed to the borrower upon request except for final draws or as otherwise provided for in §E of this regulation. Loan Accounts. Loan funds shall be held in a non-interest-bearing account established by the local administrator or the subcontractor and approved by the Department. The account may be: An account with a depository institution that is separate from the other operating accounts of the local administrator or subcontractor; An account with a depository institution that is not separate from the other operating accounts of the local administrator or subcontractor using a separate reconciled general ledger account for all Program funds; An escrow account or attorney's trust account held and managed by an escrow agent if the escrow agent meets the following minimum criteria to the satisfaction of the Department: Any employee of the escrow agent with access to the account shall be covered by a fidelity bond, or insured with employee dishonesty liability insurance, in an amount not less than $100,000, The escrow agent shall provide the local administrator or the subcontractor, if any, and the Department with the quarterly 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 local administrator or the subcontractor shall provide the Department with quarterly statements of all loan funds in a loan account. The Department shall review these quarterly statements and shall reconcile the loan balances in the records of the local administrator or the subcontractor with the loan balances in the records of the Department. If the quarterly 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 valid purchase requisitions not to 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 where the entire cost of the project is $30,000 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 shall be final. Final Payment. Final payment shall be made as set forth in §E(2)—(5) of this regulation. The borrower shall submit to the local administrator a certificate of completion, executed by the borrower and contractor, certifying that all work has been completed in accordance with the contract documents. Upon final inspection and receipt and approval of the certificate of completion, final payment shall be processed. Borrower's Refusal to Make Final Payment. 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 in §F(4)(b)—(d) of this regulation. The local administrator may require the borrower to explain in writing within 10 days why the local administrator should not make direct payment to the contractor. If the borrower responds within the 10-day period and requests a meeting, the local administrator shall hold a meeting at which the borrower shall present the borrower's objections to requesting or releasing the final payment. The local administrator, in its discretion, may then either approve or disapprove direct payment to the contractor or the borrower. If the local administrator receives written notice that subcontractors, materialmen, or suppliers have not been paid for work done or material supplied to and for the project, and all loan funds have not yet been disbursed, the local administrator shall retain an amount equal to the lesser of all funds not yet disbursed and the amount sufficient to satisfy the claims until satisfactory evidence of satisfaction and release by the subcontractors, materialmen, or suppliers is presented. The contractor shall promptly pay or bond any liens established. Retainage. The local administrator shall retain until final payment 10 percent of the contract proposal costs for all projects for which the borrower is responsible for interim project inspections. The local administrator, at its discretion, may elect to retain until the 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 shall be 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 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 and 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 housing assistance plan, a local comprehensive plan, or 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 $30,000 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; and The subcontractor provides the local administrator and the Department with quarterly 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. Periodically, at the request of the Department, each local administrator shall submit a rehabilitation plan satisfactory to the Department as outlined in Regulation .20 of this chapter, and shall agree in writing to administer the Program in conformance with these regulations and with any other procedures prescribed by the Department. 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 administrating 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. Any 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 submit a rehabilitation plan satisfactory to the Department as outlined in Regulation .20 of this chapter, and 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 shall have the authority that a local administrator would have under these regulations, in addition to its authority as the Department. Certification of Borrower's Household Income. At initial occupancy, and at least every 5 years after that, each borrower 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. The exception set forth in §A(1) of this regulation does not apply to accessory loan borrowers whose eligibility depends on tenant household income. Certification of Each Tenant's Household Income. Before initial occupancy and at least every 5 years after that, borrowers shall obtain a completed, signed income certification from all persons who occupy, or will occupy, the property as accessory, shared, or sheltered housing tenants. Borrowers shall certify to the Department at initial closing, and annually after that, 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. The requirement set forth in §A(2) of this regulation does not apply to accessory loans if eligibility for the loan depends on the borrower's household income. 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 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, as amended. The Americans with Disabilities Act of 1990, as amended; State Government Article, Title 20, Annotated Code of Maryland, as amended; and Executive Order 01.01.1989.18, Drug and Alcohol Free Workplace, and any Department or State regulations adopted or to be adopted to carry out the requirements of that Order. Covenants implementing the requirements of this regulation, including affirmative action measures, shall be included in appropriate agreements between the Department and other parties. 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. Applications by a political subdivision for use of Program funds shall comply with a rehabilitation plan periodically prepared by the political subdivision and submitted to the Department. A rehabilitation plan includes the following: Documentation that a political subdivision is capable of satisfying the requirements to be a level I or level II local administrator as described in Regulation .16 of this chapter; A map of the jurisdiction showing the location and boundaries of neighborhood revitalization areas, and any other areas in which loans will be used in conjunction with federal programs assisting the rehabilitation of housing; As an attachment, any locally approved plans or programs or neighborhood revitalization with supporting data, including a description of housing conditions, general social and economic characteristics, and identification of public improvements or services recently implemented or planned for the area; and A description of the manner in which funds are to be used. A rehabilitation plan shall be prepared and submitted to the Department before certification as a local administrator, and shall be updated as may be requested periodically by the Department. Borrowers, contractors, and subcontractors shall maintain such books, accounts, and records, and shall file with the Department such financial and other reports as the Department may from time to time require. The books, accounts, and records shall be open to the inspection of representatives of the Department or other agencies of the State during reasonable working hours. Books, accounts, and records of a borrower shall be maintained and made available for inspection for 3 years past the date of termination of the contractual relationship between the borrower and the Department. Books, accounts, and records of contractors and subcontractors shall be maintained and made available for inspection for 3 years past the date of termination of the contractual relationships between them and the borrower. Combining with other Loans and Grants. Program loans may be made in conjunction with other federal or State loan or grant programs, provided the requirements of the Act and these regulations are met. The Program shall be administered to the extent possible to ensure maximum utilization 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. Any 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, shall be 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 any emergency situation would be inequitable or contrary to the purposes of the Act. Housing and Community Development Article, §§4-910 and 4-926, Annotated Code of Maryland Effective date: Regulations .01—.15 adopted as an emergency provision effective August 28, 1986 (13:20 Md. R. 2190); emergency status extended at 14:2 Md. R. 123 Regulations .01—.15 adopted effective March 1, 1987 (14:4 Md. R. 413) Chapter recodified from COMAR 05.01.20 to COMAR 05.04.08 Regulations .02, .03, .06, and .07 amended effective June 7, 1993 (20:11 Md. R. 912) Regulation .03B amended effective February 22, 1999 (26:4 Md. R. 273); November 29, 1999 (26:24 Md. R. 1856) Regulations .04, .05, and .08—.15 repealed and Regulations .04, .05, and .08—.22 adopted effective June 7, 1993 (20:11 Md. R. 912) Regulation .04A amended effective November 20, 1995 (22:23 Md. R. 1799) Regulation .09D amended effective February 22, 1999 (26:4 Md. R. 273); November 29, 1999 (26:24 Md. R. 1856) Regulation .15 amended effective February 22, 1999 (26:4 Md. R. 273) Regulation .16D amended effective February 22, 1999 (26:4 Md. R. 273) Regulation .18 amended effective March 16, 2015 (42:5 Md. R. 485) Regulation .18A amended effective February 22, 1999 (26:4 Md. R. 273)