# COMAR Title 05 — Department of Housing and Community Development ## Subtitle 05 — Rental Housing Programs ### Chapter 02 — Multifamily Bond Program **Authority:** Housing and Community Development Article, §2-111 and Title 4, Subtitle 2; State Finance and Procurement Article, §§5-7B-01—5-7B-10; Annotated Code of Maryland;Executive Orders 01.01.1992.27C and 01.01.1998.04 **Administrative History:** Effective date: August 20, 1975 (2:18 Md. R. 1234) **Administrative History:** Regulations .02C—M and .04A, A-1 amended effective August 2, 1982 (9:15 Md. R. 1511) **Administrative History:** Regulation .04B amended effective June 2, 1978 (5:11 Md. R. 881) **Administrative History:** Regulation .04N amended effective August 3, 1977 (4:16 Md. R. 1207) **Administrative History:** Regulations .06, .07, .09, .18, .20 amended and new Regulation .21 adopted as an emergency provision effective November 1, 1982 (9:23 Md. R. 2253) (Emergency provisions are temporary and not printed in COMAR) **Administrative History:** Regulations .06, .07I, .18B, and .20 amended, and new Regulation .21 adopted effective March 14, 1983 (10:5 Md. R. 463) **Administrative History:** Regulations .06—.17 adopted effective March 9, 1979 (6:5 Md. R. 443); repealed effective October 11, 1982 (9:20 Md. R. 1981) **Administrative History:** Regulations .06—.20 adopted effective October 11, 1982 (9:20 Md. R. 1981) **Administrative History:** Regulations .06—.21 repealed effective July 30, 1984 (11:15 Md. R. 1329) **Administrative History:** Regulations .10A and .16 amended as an emergency provision effective April 23, 1980 (7:10 Md. R. 949); adopted permanently effective September 5, 1980 (7:18 Md. R. 1735) **Administrative History:** Annotation: COMAR 05.01.05.04H(2) is within the scope of Article 41, §266DD-5 and is valid. Forestville Park v. State, 50 Md. App. 570, 439 A.2d 46 (1982). **Administrative History:** Chapter recodified from COMAR 05.01.05 to COMAR 05.05.02 **Administrative History:** Regulations .01—.05, Community Development Financing Program, repealed and new Regulations .01—.14, Multi-Family Housing Revenue Bond Financing Program, adopted effective October 30, 1989 (16:21 Md. R. 2260) **Administrative History:** Regulation .04A amended effective January 2, 1994 (20:25 Md. R. 1942); April 5, 1999 (26:7 Md. R. 538); January 21, 2002 (29:1 Md. R. 21) **Administrative History:** Regulation .06 amended effective April 12, 1993 (20:7 Md. R. 640); May 31, 1999 (26:11 Md. R. 853) **Administrative History:** Regulations .07 and .13 amended and recodified to Regulations .08 and 14, respectively, effective April 12, 1993 (20:7 Md. R. 640) **Administrative History:** Regulation .07 adopted effective April 12, 1993 (20:7 Md. R. 640) **Administrative History:** Regulations .08—.12 and .14 recodified to Regulations .09—.13 and .17, respectively, effective April 12, 1993 (20:7 Md. R. 640) **Administrative History:** Regulation .08A amended effective January 2, 1994 (20:25 Md. R. 1942) **Administrative History:** Regulation .13D adopted effective December 5, 1994 (21:24 Md. R. 1987) **Administrative History:** Regulations .15 and .16 adopted effective April 12, 1993 (20:7 Md. R. 640) **Administrative History:** Chapter revised effective July 19, 2004 (31:14 Md. R. 1077) **Administrative History:** Regulation .02 amended effective December 22, 2014 (41:25 Md. R. 1476) **Administrative History:** Regulation .04B amended effective December 22, 2014 (41:25 Md. R. 1476) **Administrative History:** Regulation .06E amended effective December 22, 2014 (41:25 Md. R. 1476) **Administrative History:** Regulations .06G amended effective April 19, 2010 (37:8 Md. R. 614) **Administrative History:** Regulation .07C amended effective October 8, 2018 (45:20 Md. R. 917) **Administrative History:** Regulation .08B, F amended effective December 22, 2014 (41:25 Md. R. 1476) **Administrative History:** Regulation .11 amended effective December 22, 2014 (41:25 Md. R. 1476) **Administrative History:** Regulation .14 amended effective December 22, 2014 (41:25 Md. R. 1476) **Administrative History:** Regulation .17 adopted effective December 22, 2014 (41:25 Md. R. 1476) #### Regulation .01 General. *COMAR 05.05.02.01* A. Authority. These regulations are adopted under the provisions of the Community Development Administration Act, Housing and Community Development Article, Title 4, Subtitle 2, Annotated Code of Maryland, as amended. B. Purpose. These regulations are intended to promote the purposes of the Act, Housing and Community Development Article, Title 4, Subtitle 2, Annotated Code of Maryland, by implementing, interpreting, making specific, and otherwise carrying out the provisions of the Act within their scope. In particular, they are intended to provide basic information to sponsors of community development projects, public purpose projects, energy conservation projects, solar energy projects, and home improvement projects and will be supplemented by manuals and program directives from time to time. C. Scope. (1) This chapter applies to loans made or purchased by the Administration with the proceeds of revenue bonds and those funds derived from payments or prepayments on these loans, as authorized by Housing and Community Development Article, Annotated Code of Maryland, §§4-211(a)(10) and (b), 4-225—4-227, and 4-244—4-252. Loans made or purchased under this chapter shall be made or purchased to finance multi-family community development projects, public purpose projects, energy conservation projects, solar energy projects, and home improvement projects undertaken by private, public, or quasi-public sponsors, consistent with the intent of local governing bodies. This chapter also applies to loans financed by the Administration by purchase of a security guaranteed by the Government National Mortgage Association which security is backed by an insured loan financing a multi-family community development project or public purpose project. (2) Ordinarily subject to these regulations are loans for home improvement projects, solar energy projects, or energy conservation projects when the project is being acquired and improved with revenue bond proceeds. The Administration will have a first lien security position in the project. Other home improvement, solar energy, and energy conservation loans for existing projects secured by subordinate liens will be financed ordinarily under COMAR 05.04.10. #### Regulation .02 Definitions. *COMAR 05.05.02.02* A. In this chapter, the following terms have the meanings indicated. B. Terms Defined. (1) “Act” means Housing and Community Development Article, Title 4, Subtitle 2, Annotated Code of Maryland, as amended. (2) “Administration” means the Community Development Administration, a unit of the Division of Development Finance of the Department of Housing and Community Development. (3) “Annual income” means annual income as defined by the United States Department of Housing and Urban Development at 24 CFR §5.609. (4) Community Development Project. (a) “Community development project”: (i) Means any undertaking or project, or portion of an undertaking or project, including lands, buildings, and improvements, real, mixed, and personal properties or interest that is planned, acquired, owned, developed, constructed, reconstructed, rehabilitated, repaired, renovated, or improved for the purpose of promoting sound community development; (ii) Shall provide for existing or new housing which is or which will be occupied in substantial part by families of limited incomes, or if the project is financed with taxable bonds, at least 20 percent are families of limited incomes; and (iii) Shall provide improvements such as streets, roads, sewer and water lines, and other public or private facilities intended for commercial, educational, cultural, recreational, community, or other civic purpose, as may be needed to support new or existing housing. (b) If other public or private facilities as referred to in §B(4)(a)(iii) of this regulation are not needed to support new or existing housing, they may be included in a community development project if they comprise less than a substantial part of the community development project, unless it is determined by the Secretary that sound community development is promoted by including a greater proportion of public or private facilities. (5) “Construction completion” means satisfactory completion of all items in the construction contract, as approved by the Administration, and the acceptance of the project by the local jurisdiction as evidenced by final certificates of occupancy or their equivalent. (6) “Construction loan closing” means that time at which a sponsor executes a note, a building loan agreement, regulatory agreement, mortgage, and other security instruments deemed necessary by the Administration to secure the repayment of the Administration's construction loan. (7) “Department” means the Department of Housing and Community Development, a principal department of the State. (8) “Distressed area” means a geographically defined area or areas of any municipality or county designated by the Secretary at the request of the municipality or county, taking into consideration factors including: (a) The availability, cost, and condition of housing and neighborhood facilities, including the age and number of abandoned and substandard structures; (b) The income of residents relative to the State or area wide regional median incomes, including the number of individuals who are welfare recipients, unemployed, and in poverty; (c) The need for financing for housing or public or private facilities to upgrade the social and economic conditions of the distressed area; (d) The plans and financial commitment of the municipality or county to undertake improvements in the distressed area; and (e) Other standards and criteria considered relevant by the Secretary, including standards established for other relevant State or federal programs. (9) “Energy conservation project” means any undertaking or part of an undertaking without regard to the incomes of the occupants or owners of the buildings for the purpose of installing certain energy improvement items and establishing certain conservation services in residential and commercial buildings. (10) “Home improvement project” means an undertaking for any improvement, alteration, addition, or repair that substantially protects or improves the basic liveability of a residential building of more than four units that will be occupied in substantial part by families of limited incomes. (11) Household. (a) “Household” means one or more individuals who occupy the same residential dwelling unit as their permanent residence. (b) “Household” includes a family as defined in 24 CFR §5.403, as amended. (12) “Household of limited income” means a household whose total household annual income does not exceed the upper income limits established by the Secretary in accordance with Housing and Community Development Article, §4-212, Annotated Code of Maryland, and Regulation .04B of this chapter. (13) “Internal Revenue Code of 1986” means the Internal Revenue Code of 1986, as amended, and any applicable regulations and rulings. (14) “Internal Revenue Code of 1954” means the Internal Revenue Code of 1954, as amended (before amendment by the Internal Revenue Code of 1986), and the applicable regulations and rulings. (15) Nonprofit entity. (a) “Nonprofit entity” means any corporation, foundation, or other legal entity which has been declared exempt from taxation by the Internal Revenue Service under §501 of the Internal Revenue Code, or any other entity in which no part of the net earnings inures to the benefit of any private shareholder or individual holding an interest in the entity. (b) “Nonprofit entity” does not mean limited dividend corporations as defined in Housing and Community Development Article, §4-220, Annotated Code of Maryland. (16) “Permanent loan closing” means that time, after construction completion, when cost certification is complete, the amount of the permanent mortgage loan is determined, and all necessary documents are provided by the sponsor. (17) “Profit-motivated entity” means an individual, individuals, or legal entity which is not a nonprofit entity. (18) “Program Guide” means the Multifamily Rental Financing Program Guide adopted by the Department, as amended from time to time. (19) “Project” means a community development project, public purpose project, energy conservation project, or home improvement project. (20) “Public purpose project” means any undertaking or project which: (a) Is eligible, in whole or in part, for federal low-income housing credits; (b) Is located in a distressed area including land, buildings, and other improvements, real, mixed, and personal properties, or an interest in these properties, that is planned, acquired, owned, developed, constructed, reconstructed, rehabilitated, repaired, renovated, or improved with the financial assistance of the Administration or the assistance of federal low-income housing tax credits as may be authorized by the Internal Revenue Code; (c) May include improvements such as streets, roads, sewer and water lines, and other public or private facilities intended for commercial, educational, cultural, recreational, community, or other civic purposes; (d) Shall provide in substantial part for existing or new housing, unless it is determined by the Secretary that sound community development is promoted by including a greater proportion of public or private facilities; and (e) Provides that the housing portion of a public purpose project shall be occupied in whole or in part by families of limited incomes. (21) “Secretary” means the Secretary of Housing and Community Development of Maryland. (22) “Section 8” means Section 8 of the United States Housing Act of 1937, as amended. (23) “Solar energy project” means any addition, alteration, or improvement to a residential or commercial building that is designed to use wind energy, energy produced by a wood-burning appliance, or solar energy, either of the active type based on mechanically forced energy transfer or of the passive type based on convective, conductive, or radiant energy transfer (or some combination of these types), to reduce the energy requirements of the building. Solar energy project includes: (a) A solar process heat device, solar electric device, and any earth sheltered building in which the sheltering substantially reduces the consumption of energy by the building; and (b) Only those fireplaces that are integral parts of a system that is designed to use passive type solar energy. (24) “Sponsor” means: (a) A borrower on a loan made by the Administration to finance a project; (b) The person or entity principally responsible for the project and application for the loan before construction loan closing. (25) “Targeted area” means any: (a) Census tracts in which 70 percent or more of the families have income which is 80 percent or less of the Statewide median family income, based on the most recent decennial census for which data are available; or (b) Area of chronic economic distress designated by the State and approved by the United States Secretary of the Treasury and the United States Secretary of Housing and Urban Development. #### Regulation .03 Eligible Sponsors. *COMAR 05.05.02.03* A. Each sponsor shall meet all of the applicable requirements set forth in §§ B—I of this regulation. B. If the sponsor is a business entity, the entity shall be in good standing and be qualified to do business in Maryland. C. The sponsor shall own the property in fee simple or under a ground lease acceptable to the Administration. D. The sponsor shall have all necessary legal and corporate authorizations to incur the obligations of the loan. E. The sponsor shall demonstrate creditworthiness and repayment ability acceptable to the Administration. F. For community development, public purpose, and home improvement projects, a sponsor shall agree in a recordable document that the percentage of the total dwelling units in the project to be occupied by families of limited incomes, as determined in accordance with Regulation .04B, below, shall be occupied for so long as the loan is outstanding or such longer period of time as the Administration may require. If a sponsor is subject to the occupancy requirements of §F or §G, the units restricted for those purposes may also be used to meet the occupancy requirements of this section. G. If the project is funded with proceeds that are subject to the occupancy requirements of the Internal Revenue Code of 1986, the sponsor shall agree in a recordable document that: (1) Not less than: (a) 20 percent of the dwelling units in the project will be occupied by households whose gross incomes do not exceed 50 percent of the area median gross income, adjusted for household size as published from time to time by the United States Department of Housing and Urban Development, or (b) 40 percent of the dwelling units in the project will be occupied by households whose gross incomes do not exceed 60 percent of the area median gross income, adjusted for household size as published from time to time by the United States Department of Housing and Urban Development; (2) The project will have the applicable percentage of occupied dwelling units actually occupied by individuals or families whose gross incomes do not exceed the applicable percentage of the area median gross income as soon as 10 percent of the dwelling units in the project are first occupied unless, in the case of a project occupied at closing, the Administration permits a reasonable period for compliance based on an opinion of bond counsel that this reasonable period is permitted under applicable federal tax law; (3) The applicable occupancy percentage will be maintained until the latest of the: (a) Date which is 15 years after the date on which 50 percent of the dwelling units in the project are occupied, (b) First day on which no tax-exempt bond, including any refunding bond in certain instances when a loan is made from the funds derived from payments or prepayment on loans made with the proceeds of revenue bonds, issued with respect to the project is outstanding, or (c) Date on which any assistance provided with respect to the project under Section 8 terminates. H. If the project is funded with proceeds that are subject to the occupancy requirements of the Internal Revenue Code of 1954, the sponsor shall agree in a recordable document that: (1) Not less than 20 percent of the dwelling units will be occupied by households whose gross incomes do not exceed 80 percent of area median gross income as published from time to time by the United States Department of Housing and Urban Development; or if the project is located in a targeted area, not less than 15 percent of the dwelling units will be occupied by households whose gross incomes do not exceed 80 percent of area median gross income, as published from time to time by the United States Department of Housing and Urban Development; (2) The project will have the applicable percent of occupied dwelling units actually occupied by individuals or families whose gross incomes do not exceed 80 percent of area median gross income as soon as 10 percent of the dwelling units in the project are first occupied; (3) The applicable occupancy percentage will be maintained until the latest of the: (a) Date which is 10 years after the date on which 50 percent of the dwelling units in the project are occupied, (b) Last day of a period starting with the date the first unit is occupied and continuing for half the life of the longest bond issued in connection with the project financing (for a refunding issue, in certain instances when a loan is made from the funds derived from payments or prepayment on loans made with the proceeds of revenue bonds, the life of the longest bond equals the sum of the period the prior issue was outstanding and the longest term of any of the refunding bonds), or (c) Date on which any assistance provided with respect to the project under Section 8 terminates. I. If a project is funded with proceeds that are subject to the requirements of either the Internal Revenue Code of 1986 or 1954, a sponsor shall agree to comply with the most restrictive requirement of the Internal Revenue Code which applies to the project or to the sponsor in connection with the financing and as determined by opinion of the bond counsel of the Administration. #### Regulation .04 Eligible Projects. *COMAR 05.05.02.04* A. To qualify as an eligible project for a loan, the project shall meet the following requirements: (1) The project shall provide rental units used primarily for year-round residential use; (2) If the project is a: (a) Community development or home improvement project, it shall be constructed or rehabilitated for use as rental housing, (b) Solar energy or energy conservation project, it shall be rental housing in need of property or energy conservation improvements to improve its habitability, liveability, and energy efficiency, or (c) Public purpose project, more than half of the project shall be constructed or rehabilitated for use as housing to be occupied in whole or part by families of limited income, unless the Secretary determines in writing that a smaller portion of housing and a greater proportion of public or private facilities such as streets, roads, sewer and water lines, and other public or private facilities intended for commercial, educational, cultural, recreational, community or other civic purpose will promote sound community development; (3) The project shall be owned by an eligible sponsor; (4) The Secretary shall have issued a determination that the improvements constitute a community development project, public purpose project, energy conservation project, solar energy project, or home improvement project within the meaning of the Act; (5) The project shall comply, if necessary, with the notice, public hearing, and public approval requirements of the applicable Internal Revenue Code; (6) The project shall conform to the statutory definitions and criteria for a community development project, public purpose project, home improvement project, solar energy project, or energy conservation project; (7) If the project is a public purpose project, it either shall be: (a) Qualified for federal low income housing tax credits, or (b) Located in a distressed area designated by the Secretary in accordance with Regulation .09 of this chapter; (8) The sponsor is capable of and can be expected to achieve successful completion of the project; (9) Other than construction financed by the proceeds of revenue bonds issued on behalf of a county, the project shall be eligible only if: (a) The Department has complied with COMAR 05.01.06.06, and (b) The Secretary has issued the written determination required under COMAR 05.01.06.07; (10) The project conforms or will conform to all applicable State and local laws, codes, and regulations, including zoning, building, and housing regulations; (11) The project is economically feasible so that the loan reasonably can be expected to be repaid in full on such terms and conditions as determined by the Administration; (12) The project has a useful life of a length satisfactory to the Administration with reasonable maintenance; (13) The project promotes the purposes of the Act and these regulations; and (14) The project is located within a priority funding area identified under State Finance and Procurement Article, §5-7B-02, Annotated Code of Maryland, unless, for existing construction, the Secretary determines in the Secretary's sole discretion that the project is necessary to: (a) Protect public safety or health; (b) Alleviate personal economic hardship in an emergency situation; (c) Promote economically integrated housing; (d) Avoid a conflict with federal law; or (e) Relieve an inequity or carry out the purposes of the Program, consistent with the purposes of State Finance and Procurement Article, Title 5, Subtitle 7B, Annotated Code of Maryland. B. Establishment of Limits. (1) The Secretary shall establish upper income limits for households of limited income taking into consideration factors including: (a) The amount of the total annual income of the households available for housing needs; (b) The size of the household; (c) The cost and condition of housing facilities available; (d) The ability of the households to compete successfully in the normal private housing market; and (e) Standards and definitions established for pertinent federal housing programs. (2) Limits may be established by household size. Limits also may be established from time to time on a regional basis. Income eligibility criteria, within limits lower than the regional limits, may be established for particular projects. C. The Secretary may determine, from time to time, the percentage of units in a project which are occupied by families of limited income in order to qualify as an eligible project. The Secretary shall take into consideration such factors as the Secretary may deem appropriate, which may include: (1) Housing needs in the region within which the project is to be located; (2) Availability and cost of alternative housing within that region; and (3) The economic feasibility of the project. D. Community development and home improvement projects shall be required to be occupied by families of limited income in not less than 51 percent of the total dwelling units in a project, unless the project is financed with taxable bonds, in which case at least 20 percent of the dwelling units shall be occupied by families of limited income. E. Public purpose projects which are eligible for federal low income housing tax credits shall be occupied and rented in accordance with all federal requirements governing the continuing qualifications for the tax credits. Public purpose projects located in distressed areas shall be occupied in whole or in part by families of limited income. The percentage of dwelling units to be regulated for each particular project shall be determined by the Secretary in writing. F. Solar energy and energy conservation projects are not subject to income or occupancy requirements unless otherwise determined by the Secretary. G. Project Selection. The Administration may, in its sole discretion, finance particular projects and decline to finance otherwise eligible projects, based on its assessment of the project's overall merit and its merit relative to competing alternatives. #### Regulation .05 Eligible Uses and Costs. *COMAR 05.05.02.05* A. The Administration may make loans as follows: (1) Construction loans; (2) Rehabilitation loans; (3) Acquisition and rehabilitation loans; (4) Home improvement project loans; and (5) Permanent or refinancing loans. B. The Administration may participate with other lenders in the making of loans to finance projects. C. The Administration may purchase securities issued by the Government National Mortgage Association which are backed by loans which comply with the requirements of: (1) Regulation .03B—D, F, and G; (2) Regulation .04; (3) Regulation .06B, E, F, and P(5); (4) Regulation .08E and F; and (5) Regulations .11—.14. D. The Administration may issue revenue bonds, on a pooled or stand-alone basis, which are secured only by a pledge of a housing authority's funding from the United States Department of Housing and Urban Development's Capital Fund Program as amended from time to time or other similar program of the United States Department of Housing and Urban Development. Loans made to housing authorities with the proceeds of revenue bonds shall comply with the requirements of this chapter except: (1) Regulation .03F; (2) Regulation .06D, F, K, and L; (3) Regulation .08D; (4) Regulation .09D; and (5) Regulation .13. E. Before closing a construction loan where the Administration does not provide permanent financing, the sponsor shall provide a permanent loan commitment from a mortgagee approved by the Administration containing terms satisfactory to the Administration or cash or cash equivalent acceptable to the Administration in its sole discretion. F. Loans may finance the costs associated with undertaking construction or substantial rehabilitation of the project, including without limitation the following: (1) Costs of appraisals and market studies; (2) Architectural and engineering costs for design and supervision; (3) Costs of bonds, permits, and fees; (4) Carrying costs during construction, including construction interest, real estate taxes, and property insurance; (5) Financing fees and charges imposed by the Administration, the mortgage insurer, guarantor, letter of credit provider, or any entity servicing or providing credit enhancement with respect to the loan or the bonds financing the loan; and (6) Legal, processing, packaging, and marketing fees and charges. #### Regulation .06 Loan Terms and Requirements — General. *COMAR 05.05.02.06* A. Amount. The Administration may lend up to 100 percent of the approved replacement cost of any project. “Replacement cost” for this purpose means development costs including those costs of construction, carrying charges, financing costs, and professional fees approved by the Administration, plus the market value of the land on which the project was built or is to be constructed. B. Term. The terms of loans for financing of projects shall be established by the Administration based on underwriting and market conditions at the time of financing. C. Interest Rate. The Administration may charge interest at a rate in accordance with the underwriting factors for the project including the term of the loan and income and operating projections. D. Enhancement of Mortgage or Bonds. (1) After consideration of underwriting, market conditions, and the requirements of the bond issuance, the Administration shall determine and notify the sponsor whether the sponsor will be required to insure or guarantee the proposed loan, or otherwise insure or enhance the bonds financing the loan. (2) If required by the Administration, the sponsor shall engage a credit enhancer and secure a commitment to insure or guarantee the proposed loan, or otherwise insure or enhance the bonds financing the loan. This commitment shall be secured before any loan closing or at an earlier time as required by the Administration in its sole discretion. (3) The sponsor shall comply with any conditions of the insurance or guarantee commitment so that the insurance or guarantee will be in effect from the time of loan closing, with respect to loan insurance, or from the time of the issuance of the bonds, with respect to bond insurance. E. Local Governments. (1) For each project for which an application is received under this chapter, the Department shall provide written notice and reasonable opportunity to comment on the project to the chief executive officer or the equivalent officer and the head or president of the legislative body of the political subdivision in which the proposed project is located. (2) If a proposed project is in a municipal corporation, the notice required under §E(1) of this regulation shall be sent to the chief executive officer and the head or president of the legislative body of the municipal corporation, not the surrounding county. (3) The notice provided under §E(1) of this regulation shall contain the following information about the proposed project: (a) Date of application; (b) Name and description of project; (c) Address of project; (d) Sponsor of the project and sponsor’s contact information; (e) Amount of funding requested; (f) Amount type and provider of other sources of funding; (g) Total number of units; (h) Number of units reserved for households of limited income, including the income and rent limits; and (i) Such other information as the Department deems relevant. F. Lien Priority. Except for liens held in connection with public purpose projects, any lien held by the Administration on property shall be a lien superior to all other liens on the property except liens for taxes owed to the State or any subdivision of the State and earlier mortgage liens. The Administration, in its discretion, may require the release and repayment of any liens. G. Property, Liability, and Other Insurance (1) At or before closing of a loan, and at such other times as required by the Administration, the sponsor shall provide evidence that the sponsor, contractor and other parties, have obtained and maintained the following insurance: (a) Owner's liability; (b) Owner's property or hazard or contractor's builder's risk; (c) Contractor's liability; (d) Architect's errors and omissions; (e) Engineer's errors and omissions; and (f) Flood insurance, if the project is located in a flood hazard zone. (2) All insurance required under §G(1) of this regulation shall meet the following requirements: (a) Be written by a company registered with the Maryland Insurance Administration; (b) Be in force at the time of closing; (c) Not be terminable without prior notification to the Administration; and (d) Contain such other terms and coverage satisfactory to the Administration. (3) In addition to the requirements of §G(2) of this regulation, owner's liability insurance shall: (a) Name the Administration as an additional insured; and (b) Remain in force for the duration of the loan. (4) In addition to the requirements of §G(2) of this regulation, contractor's liability and contractor's builder's risk insurance shall: (a) Name the Administration as an additional insured; and (b) Remain in place through final closing or such later date as the Administration requires. (5) In addition to the requirements of §G(2) of this regulation, owner's property or hazard insurance shall: (a) Name the Administration as an additional insured, loss payee and mortgagee; and (b) Remain in force for the duration of the loan. H. Payment. Sponsors shall repay the loan in substantially equal monthly payments of interest and principal in order that the loan is fully amortized over its term or in amounts which ensure timely payments of interest and principal to the bondholders. In cases where loans are made from proceeds derived from payments or prepayments on loans made or purchased by the Administration with the proceeds of revenue bonds, the Administration may set repayment terms in accordance with the terms and conditions as determined by the Administration which will promote the economic feasibility of its project. I. Late Charges and Other Fees. Sponsors shall pay any servicing fees, loan insurance premiums, bond insurance premiums, or late charges that the Administration or the loan insurer may require and that are permitted by State law. J. Expense Escrows. The Administration may require the sponsor to deposit monthly with the Administration 1/6 of the annual amount of real estate taxes, insurance, mortgage insurance premiums, a reserve for replacements, and other expenses of the project. While the loan is outstanding, the Administration may require additional amounts to be deposited into the reserve for replacements. K. Title Insurance. The sponsor shall provide a standard American Land Title Association Loan policy or other form of title policy acceptable to the Administration and to the Office of the Attorney General, for an amount equal to the maximum principal amount of the loan, insuring the Administration that title to the building and the real property on which the building is located on the date of the construction loan closing is vested in the sponsor, and containing only standard exceptions and encumbrances approved by the Administration. L. Appraisal. Sponsors shall provide or pay for an appraisal performed by an appraiser acceptable to the Administration which shows the current value of the property and the expected value of the property after completion of the improvements. M. Security Requirements. The Administration may require the following instruments or guarantees to secure its loans: (1) Such sureties or guarantees of the loan as may be determined necessary by the Administration. (2) Cash or an unconditional, irrevocable letter of credit from a financial institution approved by the Administration to meet working capital, operating deficit, and off-site improvement completion requirements. (3) Payment and performance bonds for rental projects each in an amount equal to 100 percent of the contract price, or alternatively, cash or an irrevocable letter of credit equal to 25 percent of the contract price. For FHA-insured multi-family rental projects, compliance with FHA requirements for completion assurance normally will be accepted. (4) Guarantees of completion as may be deemed necessary or desirable by the Administration. (5) Escrows of syndication proceeds when appropriate. (6) An unconditional, irrevocable letter of credit from a financial institution approved by the Administration to secure any costs of negative arbitage. N. Disclosure. (1) All directors, officers, principals, members, general partners, and limited partners of the sponsor shall be identified, and the proportionate share of each in the proposed project so indicated in the application. Subsequent changes in either a general partner, a limited partner having more than a 25 percent interest in the sponsor, a managing member, or member owning more than a 25 percent interest in the sponsor shall be subject to the written approval of the Administration. (2) The sponsor is responsible for providing any disclosure required by the Administration or any credit enhancer relating to the project, the sponsor, the syndication, and the construction team. O. Financial Statements. The Administration shall require certified financial statements for all general partners or corporate sponsors acceptable to the Administration in its sole discretion. Furthermore, at the discretion of the Administration, financial statements may be required for all limited partners or any other individuals or entities having an interest in the project. P. Documentation. The Administration shall prescribe the form and content of all loan documents which may include a note, deed of trust, regulatory agreement, or other instruments that the Administration may, from time to time, require to evidence or secure the loan or enforce the requirements of the Act or this chapter. #### Regulation .07 Loan Terms — Restrictions on Ownership. *COMAR 05.05.02.07* A. Change of Ownership. The sponsor may not sell, cease to own, assign, transfer, or dispose of all or any part of the property, or the sponsor's interest in the property, except for leases of less than 3 years to tenants, during the loan term, without the prior express written consent of the Administration, as set forth in the loan documents. B. Assumption. A loan may not be assumed without the prior written approval of the Administration. C. Prepayment. If the prepayment operates to terminate the occupancy covenants for households of limited income, with the prior written approval of the Administration, a sponsor may prepay a loan subject to any prohibition on prepayment contained in the loan documents and if the sponsor complies with the following requirements: (1) Provide written notice to each tenant residing in the project, which describes the impact of the prepayment on the tenant, and, if applicable, any assistance to which the tenant is entitled; (2) Provide written notice of the prepayment to the Administration, the political subdivision in which the project is located, and any interested parties registered with the Administration; (3) Offer a right of first purchase to the Administration, the political subdivision in which the project is located, the local public housing authority, if any, and any interested parties registered with the Administration; (4) Provide a lease extension for at least 1 year following the notice of the prospective prepayment to each tenant residing in an assisted unit; (5) Make relocation assistance to each tenant in an amount determined by the Administration; (6) Provide 3-year lease extensions or 3 months rent equivalent payments to 20 percent of the tenants who live in assisted units and qualify as elderly, disabled, or households with minors; and (7) Comply with any procedural requirements of the Administration with respect to the right of first purchase, relocation payments, and lease extensions. D. Continuing Occupancy Income Limits. If after initial occupancy the annual income of a family of limited income exceeds the income limits set by the Secretary, and thereby causes the project to not meet the requirements of the Internal Revenue Code and regulations promulgated under the Internal Revenue Code, as amended from time to time (considering any limited increases permitted by this chapter or applicable federal tax law), the sponsor shall notify the Administration upon the Administration's next subsequent income certification request and shall rent the next available unrestricted rental housing unit to a family of limited income. #### Regulation .08 Application Processing Procedures. *COMAR 05.05.02.08* A. Application. Applications for loans are to be made on forms prescribed by the Administration, and shall include all supporting documentation required by the Administration. B. Review of Applications. Each application shall be subject to an initial review to make a preliminary assessment of the eligibility of the sponsor and the project in accordance with Regulations .03 and .04 and in accordance with the Program Guide. The Administration shall notify the sponsor in writing upon completion of its assessment of eligibility. C. Rejection of Applications. If the Administration determines that a project or sponsor is not eligible for a loan, the Administration shall issue a written notice of the determination of ineligibility. D. Commitment for Insurance. Before issuing a commitment for a loan, the Administration shall receive a commitment from the appropriate mortgage insurer for approval for mortgage insurance, as may be required by Regulation .06D of this chapter. E. Commitment. (1) Upon satisfaction of all the requirements and receipt of an approval or commitment from a credit enhancer, if required, the Administration may undertake a commitment analysis of each loan as to final loan amount, structure, and terms. (2) Except in the case of an emergency when urgent action is required, the Director of the Administration shall submit all loans above a minimum amount, determined by the Housing Finance Review Committee established under Housing and Community Development Article, §4-208, Annotated Code of Maryland, to the Committee for review and recommendation to the Secretary for approval or disapproval of the loan and the terms of the loan. At the discretion of the Administration, loans in an amount below the minimum amount established by the Housing Finance Review Committee need not be submitted to the Committee for review and recommendation. The Secretary, in accordance with Regulation.16E of this chapter, may delegate the review and approval of these loans. (3) After receipt of a recommendation of the Housing Finance Review Committee, the Secretary may approve or disapprove the loan and the terms of the loan. In an emergency, when urgent action is required or for loans below the minimum amount established by the Housing Finance Review Committee, the Secretary may approve a loan without the recommendation of the Committee. (4) The Secretary shall execute a written determination that each loan is for a community development project, energy conservation project, solar energy project, public purpose project, or home improvement project authorized by the Act, before the issuance of a commitment to make, purchase, or finance a loan or purchase a security backed by a loan. (5) Upon approval of a loan and execution of a determination, the Administration shall issue a commitment letter setting forth: (a) The interest rate on the loan; (b) The repayment provisions; and (c) Other terms and conditions that the Administration considers appropriate for the loan or the project. (6) The Administration will specify a time limit within which the initial closing of the loan shall occur, which time limit may be extended in the Administration's sole discretion. If initial closing does not occur within the time limit specified by the Administration, the Administration may use the monies committed for the loan for any other loan or purpose authorized by the Act. F. Reconsideration. Sponsors may request reconsideration of a rejection in accordance with the procedures contained in the Program Guide. 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. #### Regulation .09 Loan Procedures. *COMAR 05.05.02.09* A. Early Start. In certain circumstances and upon the request of a sponsor who has applied for a loan which has been recommended for approval by the Housing Finance Review Committee and approved by the Secretary, the Administration may approve the beginning of construction of a project before the initial loan closing. All construction undertaken by the sponsor before initial loan closing is at the risk of the sponsor, and does not bind or obligate the Administration to make the loan. The early start approval letter sets forth various conditions, such as receipt by the Administration of acceptable plans and specifications and delivery of payment and performance bonds, which shall be complied with before beginning construction. If the conditions are complied with and the loan is closed, the loan reimburses the sponsor, as specified in the loan closing documents, for a portion of the costs incurred in the construction undertaken before initial loan closing. B. Construction Loan Closing. (1) The sponsor shall furnish or cause to be furnished to the Administration and its counsel satisfactory evidence of compliance with the terms and conditions of the loan before the closing of the loan. (2) The Administration shall request the sponsor to have its attorney review the required legal documents for closing in the form prescribed by the Administration, and to submit comments for the Administration's and its counsel's review. When all procedures and requirements are completed, initial loan closing shall be arranged by counsel to the Administration. (3) The sponsor shall tender an off-site bond, cash, or an unconditional, irrevocable letter of credit to the Administration at the time of construction loan closing to assure completion of any off-site improvements. C. Construction Period Disbursements. The Administration may: (1) Conduct regular on-site inspections of construction; (2) Make construction loan disbursements on the basis of work-in-place plus materials acceptably stored on site, less 10 percent retention; and (3) Make disbursement for materials acceptably stored off-site, if the materials are: (a) In a bonded warehouse, (b) Set aside and labeled with the project's name, (c) Inspected by the Administration's inspector, (d) Insured, with the Administration as a named insured, and (e) Documented by evidence of payment for the materials. D. Permanent Loan Closing. Permanent loan closing shall be arranged after construction completion and cost certification according to such procedures and documentation as may be required by the Administration. #### Regulation .10 Distressed Area Designation. *COMAR 05.05.02.10* A. Request for Designation. A municipality or county may request in writing at any time that a geographically defined area of the municipality or county be designated by the Secretary as a distressed area. The request may be made before or in conjunction with the request of a sponsor for financing for a public purpose project. B. Application. The request for designation shall include information with respect to the following: (1) The availability, cost, and condition of housing and neighborhood facilities, including the age and number of abandoned and substandard structures; (2) The income of residents relative to State or area median incomes, including the number of persons who are welfare recipients, unemployed, and in poverty; (3) The need for financing for housing or public or private facilities to upgrade the social and economic conditions of the distressed area; (4) The plans and financial commitment of the municipality or county to undertake improvements in the distressed area; and (5) Such other information as may be requested by the Secretary, including standards established for other relevant State or federal programs. C. Consideration. The Secretary, after considering the information supplied in accordance with §B, above, and other information and criteria deemed relevant by the Secretary, may, upon the basis of the information, issue a written determination designating any specific geographically defined area as a distressed area for purposes of these regulations and the Act. #### Regulation .11 Fees; Program Guide. *COMAR 05.05.02.11* A. Amounts and time of payment of application fees, construction financing fees, permanent loan commitment fees, nonusage bond issuance fees, and other fees as may be required by the Administration shall be as provided in a fee schedule set forth in the Program Guide. B. The Administration shall establish underwriting standards, loan processing requirements, and other requirements or matters relating to the financing of mortgage loans or to the program in the Program Guide. C. Copies of the fee schedule and Program Guide shall be available for examination at the Administration’s principal office. The Administration shall make copies available to the public upon request. #### Regulation .12 Books and Accounts. *COMAR 05.05.02.12* Sponsors, contractors, and subcontractors shall: A. Maintain such books, accounts, and records and file with the Administration such financial and other reports as the Administration may from time to time require; B. Ensure all of these books, accounts, and records are open to the inspection of representatives of the Administration or other agencies of the State during reasonable working hours; C. Maintain and make available for inspection for 7 years past the date of termination of the contractual relationship between: (1) The sponsor and the Administration, all books, accounts, and records of the sponsor, (2) The contractors, the subcontractors, and the sponsor, all books, accounts, and records of contractors and subcontractors. #### Regulation .13 Certification of Income. *COMAR 05.05.02.13* A. The sponsor shall obtain signed certificates of annual income from all persons who apply to occupy a project unit, on a form furnished or approved by the Administration. For projects where existing tenants will continue in occupancy during rehabilitation, the sponsor shall obtain signed income certifications from the required percentage of eligible tenants prior to the initial loan closing. Upon the consent of the person applying, the sponsor shall verify with the employer the information contained in the certificate of income. The sponsor shall file with the Administration, at least annually, a report disclosing the annual income of all persons in occupancy or selected for occupancy. In the case of a project which receives federal assistance, the procedures for the certification of income prescribed by the federal agency may be employed to the extent the procedures are consistent with the applicable income limitations of the Internal Revenue Code. B. Annual recertifications of income, semi-annual market rate tenant data reports, as well as periodic occupancy reports shall be submitted to the Administration, containing information as may be required by the Administration. The sponsor shall retain all certificates of income and documents verifying the information contained in them for a period of at least 3 years from the date on which the application to occupy a project unit is submitted to the sponsor. C. The purpose of the certification of annual income and the reports is to assure compliance with both the upper income limits required by Housing and Community Development Article, §4-212, Annotated Code of Maryland, and any upper income limits and occupancy requirements imposed by federal tax law in order to maintain the tax-exempt status of the bonds or notes, the proceeds of which financed the loan for the project. The requirements of this section are in addition to any other requirements imposed under federal tax law, including, without limitation, §142(d)(7) of the Internal Revenue Code of 1986 as amended. D. Sections A—C of this regulation do not apply to a project occupied by juveniles, placed in the project by court order or by any federal, State, or local agencies, and not occupied by other persons, provided that the projects are funded with the proceeds of taxable bonds and do not receive an allocation of low income housing tax credits. #### Regulation .14 Nondiscrimination; Drug Free and Alcohol Free Workplace. *COMAR 05.05.02.14* A. A sponsor or contractor 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 leasing or otherwise providing dwelling accommodations or in any other aspect of the development, administration, or operation of any project or undertaking financed or assisted under the program, or in any aspect of employment by any sponsor, developer, or contractor in the construction, repair, or maintenance of any property financed or assisted under the program. B. A sponsor or contractor shall comply with all applicable federal, State, and local laws and Department policies and programs regarding discrimination, equal opportunity in employment, housing, and credit practices, and drug and alcohol free workplaces, including: (1) Titles VI and VII of the Civil Rights Act of 1964, as amended; (2) Title VIII of the Civil Rights Act of 1968, as amended; (3) The Fair Housing Amendments Act of 1988, as amended; (4) State Government Article, Title 20, Annotated Code of Maryland, as amended; (5) The Department’s Minority Business Enterprise Program, as amended; (6) The Americans with Disabilities Act of 1990, as amended; and (7) 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. C. Covenants implementing these requirements, including affirmative action measures, shall be included in appropriate agreements between the Administration and the sponsor or other appropriate parties. #### Regulation .15 Signs. *COMAR 05.05.02.15* If required by the Administration, each sponsor shall install a sign identifying the Administration as a lender on the project. The sign, at the discretion of the Administration, may be supplied by the Administration, but in any case shall comply with the design specifications of the Administration. The sponsor shall bear all costs of acquisition, delivery, and installation of a conforming sign, which costs may be included in the loan. #### Regulation .16 General Provisions. *COMAR 05.05.02.16* A. Issuance of Bonds and Notes. (1) Timing. The Administration may obtain funds for loans to finance projects from any source authorized by law, particularly by issuing bonds or notes to be repaid from revenues of the project, federal subsidies made in connection with the project, or payments made by an insurer, guarantor, or credit enhancer of the loans or the bonds. The timing of any bond or note sale and the acceptability of the interest rate to be paid by the Administration are solely within the discretion of the Secretary. (2) Letter of Intent. The Administration generally requires a sponsor whose loan will be funded out of the proceeds of tax-exempt bonds or notes to execute a letter of intent to use a minimum amount of bond or note proceeds for an acquisition or construction loan to undertake a project at a specified location. The letters shall be accompanied by any required nonusage fee. If the sponsor fails to close a loan with the proceeds of bonds issued in whole or in part on behalf of the sponsor or the bonds or notes are not issued, the Administration will retain the fee. (3) Rights of Bond and Note Holders. In the event of any conflict, whether expressly as stated, the rights of sponsors or borrowers under any agreement with the Administration, which loan is financed by notes or bonds issued pursuant to a certificate of authorization or bond resolution, are subject to the rights of holders and owners of the Administration's bonds or notes issued under that authorizing certificate or resolution. B. Waiver. The Secretary may waive or vary particular provisions of these regulations to the extent that the waiver is not inconsistent with the Act or the Internal Revenue Code, or contrary to the provisions of any applicable bond certificate or resolution: (1) To conform to the requirements of any federal agency in connection with any project with respect to which federal assistance is sought; or (2) In exceptional circumstances, if, in the written determination of the Secretary, the application of these regulations in a specific case, or in an emergency situation, would be inequitable or contrary to the purposes of the Act. C. Severability Clause. If any clause, sentence, paragraph, section, or part of these regulations is adjudged invalid, the judgment does not affect, impair, or invalidate the remainder of them, but shall be confined in its operation to the clause, sentence, paragraph, section, or part of it directly involved in the controversy in which the judgment is rendered. D. False Statements. A sponsor 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's action, shall be subject to immediate acceleration of the loan, in addition to the criminal penalties authorized by the Act. E. Delegation. The Secretary may delegate to the Director of the Administration or to any other official or employee of the Department or Administration the authority to execute or approve any program documents or loan documents, including commitments and letters of intent. #### Regulation .17 Affirmative Fair Housing Marketing Plan. *COMAR 05.05.02.17* Each project shall submit for review and approval by the Administration an affirmative fair housing marketing plan in accordance with the requirements of the Program Guide. The Administration shall monitor the project’s compliance with the approved plan.