Approaches to Homeowner Rehabilitation
Approaches to Homeowner Rehabilitation
There are a wide variety of rehabilitation approaches that are possible under the HOME and CDBG programs, including:
- Minor rehabilitation, including minor repair programs and single purpose programs, such as emergency repair or handicapped accessibility programs;
- Moderate or substantial rehabilitation, including whole house rehabilitation;
- Historic preservation;
- Lead-based paint abatement;
- Code enforcement; and
- Home-based business rehabilitation.
Under the minor rehabilitation approach, the jurisdiction funds a minor level of repairs only. This might include working on specific work items—such as those items most in need of repair or those in imminent danger of failing.
This approach also includes specialty programs such as those designed specifically to address:
- Handicapped accessibility;
- Energy conservation;
- Utility hook-ups;
- Lead abatement work;
- Paint programs; or
- Emergency repairs.
HOME is not generally used for minor or specialty repair programs unless they are a part of bringing overall units up to applicable codes and standards. The HOME Program requirements stipulate that each unit rehabilitated with HOME funds must meet all applicable state and local housing codes, or other applicable codes. In addition, HOME has a minimum investment threshold of an average of $1,000 per HOME-assisted unit in a project. CDBG funds can be used to assist the full range of specialty and minor repair programs and it has no minimum investment requirement. In addition, CDBG has no requirement that units meet code upon completion of the rehabilitation, although this is sometimes required by grantees.
Example: Special Purpose Program
The City of Glen Allen has a large percentage of elderly persons in its community. Many of these elderly persons have aged in place in their existing homes. Yet, these homes have not been updated to accommodate the seniors’ needs— such as accessible bathrooms, kitchens and entryways.
While the City would like to be able to fully rehabilitate all substandard homes in its community, it does not have the resources. So, the City uses its CDBG funds to develop a handicapped accessibility rehabilitation program. Under this program, any low-income elderly or disabled household can apply for up to $5,000 of assistance to enhance the accessibility of their home.
When a unit requires moderate or substantial rehabilitation, significant repairs are made to the home. This may include simply rehabilitating all items that do not meet code or it may involve what is sometimes called “whole house rehabilitation,” meaning undertaking substantial repairs throughout the home in order to bring it up to code and to improve the overall livability and functionality of the unit.
HOME funds can be used to finance substantial rehabilitation activities. PJs must ensure that the HOME investment in the rehabilitation does not exceed the maximum per unit subsidy limits. As noted in Section 1 of this guide, these limits are set at the 221(d)(3) limits for the community and may be obtained by contacting the HUD Field Office or online on the HOME Program website at https://www.hud.gov/offices/cpd/affordablehousing/programs/home/limits/subsidylimits.cfm. Generally, these limits are fairly generous and it is highly unlikely that most rehabilitation projects will exceed these limits.
PJs must also ensure that the post-rehabilitation value of properties does not exceed the maximum value limit. The after-rehabilitation value may not exceed 95 percent of the median purchase price for the area. There are two methods for determining this cap:
- Using the 203(b) limits as published by HUD, or,
- As determined locally through market analysis.
The maximum purchase price/after-rehabilitation value limits are available online at: https://www.hud.gov/offices/cpd/affordablehousing/programs/home/limits/maxprice.cfm.
To establish HOME project eligibility, after-rehabilitation value must be established prior to any work being performed. Any one or more of the following methods may be used to establish the after-rehabilitation value:
- Estimates of value. The PJ or subrecipient can prepare estimates of value. Project files must contain the estimate of value and document the basis for the value estimates.
- Appraisals. A licensed fee appraiser or a staff appraiser of the PJ can prepare an appraisal. Project files must document the appraised value and the appraisal approach used.
- Tax assessments. Tax assessments for a comparable property located in the same neighborhood may be used to establish the after-rehabilitation value if the assessment is current and accurately reflects market value after rehabilitation.
The CDBG Program can also be used to conduct moderate and substantial rehabilitation. CDBG is not
subject to a maximum value or maximum per unit investment cap. However, all costs must be reasonable.
Reconstruction involves demolishing an existing residential unit and rebuilding another on the same site. Often, reconstruction occurs because the cost of rehabilitation is prohibitive or is more than the cost to build a new unit.
A reconstructed HOME unit is essentially demolished and rebuilt. HOME may be used for reconstruction when:
- There is an existing building on the site that will not, as determined by the PJ, be rehabilitated. The existing housing must be standing at the time of project commitment; and
- The number of dwelling units will remain constant. Note that the number of bedrooms per unit may change; and
- The new unit will be located somewhere on the same lot. It is no longer required that the new unit be located on the same foundation footprint as the existing unit.
Reconstruction is a fairly new eligible activity for CDBG and although it is currently permitted by statute, it is not yet incorporated into the CDBG regulations. Grantees may refer to the HOME Program definition of reconstruction as a “safe harbor.”
- Reconstruction means rebuilding a housing unit on the same lot. Under CDBG, it is acceptable if the existing home is not standing at the time of CDBG project commitment but it must have been on the site within a reasonable timeframe from when the project was initiated.
- CDBG does not require that the grantee itself undertake the demolition of the existing unit. The homeowner can undertake this demolition, or it may be the result of accidental means (such as a fire).
- The number of housing units on the lot can not be decreased or increased as part of reconstruction, however, the number of rooms may be decreased or increased.
- Reconstruction includes replacing an existing substandard manufactured housing unit or stick-built home with a new or standard manufactured housing unit.
- Reconstruction does not include demolishing a non-residential structure and constructing residential units. This would be new construction and while the demolition would be eligible, the new construction would not, unless undertaken by a CBDO.
Under the State CDBG program regulations, states are given the ability to interpret the list of eligible activities in the Housing and Community Development Act (HCDA), providing their interpretations are not plainly inconsistent with the HCDA. The HCDA lists reconstruction of buildings as an eligible activity, but does not further define “reconstruction.” States may use the Entitlement program eligibility policy as interpretive guidance.
Note that reconstruction under either CDBG or HOME is treated as rehabilitation for the purposes of program compliance. However, reconstruction is treated as new construction for the purposes of conducting an environmental review.
The State of Lincoln has a number of owner-occupied homes that are significantly decayed. The state is concerned about the health and safety of the occupants.
It uses its HOME funds to set up a program where these low-income households can receive reconstruction assistance. The program is run by a state-wide, faith-based, nonprofit subrecipient. This subrecipient takes the applications and processes the HOME funding.
Households can receive assistance to demolish their existing unit. In order to keep costs low, the subrecipient works with the household to select a new factory-built and locally-installed manufactured home to be placed on the site. This approach is less expensive than new construction and the new units can be occupied more rapidly.
Historic preservation involves rehabilitating structures within the community that are determined to be “historic.” Often, people think of historic preservation as addressing commercial and public facilities. While this type of preservation is indeed eligible under CDBG, the activity can also include historic preservation of residential structures, including single family homes.
Both HOME and CDBG funds can be used to preserve residential buildings of an historic nature in the community, although there are some important differences in how funds from either program can be used.
HOME does not have a specific eligibility category entitled “historic preservation.” Historic preservation as a stand-alone activity does not constitute an eligible use of HOME funds unless the activity in question is for the express purpose of providing one or more units of affordable housing. In other words, since HOME funds must be used solely for the development of affordable housing, the preservation of any historic structure must be incidental to the rehabilitation of an affordable housing unit. These units would still be subject to all of the HOME rules regarding rehabilitation.
CDBG funds may be used for the rehabilitation, preservation, or restoration of historic properties, whether publicly- or privately-owned with the exception of buildings for the general conduct of government. CDBG can pay for some or all of the repairs related to the historic preservation or other rehabilitation of the unit.
Eligible historic properties for CDBG rehabilitation include:
- Properties listed or eligible to be listed in the National Register of Historic Places;
- Properties listed in a state or local inventory of historic places; or
- Properties designated as a state or local landmark or historic district by law or ordinance.
Jurisdictions that are considering undertaking historic preservation must work closely with their state or local historic preservation office. Often, these offices have rules and requirements related to the type of work that may be undertaken on an historic structure.
Lead-based Paint Hazard Evaluation and Reduction
Programs that are designed specifically to address lead-based paint in homes can be administered as a part of other rehabilitation activities or can stand alone as separate programs.
Both HOME and CDBG funds can be used to cover the costs of evaluating and treating lead-based paint. Removal or treatment of lead paint may be undertaken as a homeowner rehabilitation activity. Under HOME, however, rehabilitation of these units must still follow all of the rehabilitation requirements. Therefore, the unit must be brought up to code and the minimum/maximum subsidy and maximum property value limits must be applied.
Under CDBG, lead paint testing and abatement is a stand-alone rehabilitation activity and it can be undertaken as an activity or as a part of other rehabilitation work.
HUD’s consolidated lead-based paint regulations at 24 CFR Part 35 call for jurisdictions to adhere to specific actions when addressing lead-based paint in association with rehabilitation activities. Lead-based paint activity thresholds are based on the lesser of the per unit rehabilitation hard costs (excluding lead-based paint work) or the total amount of Federal assistance in a project.ix
- When this amount is less than $5,000 per unit, a jurisdiction must “do no harm.” That is, the jurisdiction must conduct mild lead hazard evaluation and lead hazard reduction.
- When this amount is between $5,000 and $25,000 per unit, jurisdictions must “identify and control lead hazards.” That is, the jurisdiction must conduct a moderate level of lead hazard evaluation and lead hazard reduction.
- When this amount is greater than $25,000 per unit, a jurisdiction must “identify and abate lead hazards.” That is, the jurisdiction must undertake the highest level of lead hazard evaluation and lead hazard reduction.
Notification and disclosure requirements apply to each level of lead hazard reduction. Ongoing maintenance of lead-based paint units is required only in the case of HOME-assisted multifamily units.
More information about HUD’s lead-based paint policies and requirements is available online at: https://www.hud.gov/offices/lead/.
Code enforcement programs are designed to inspect and evaluate housing quality within a jurisdiction. Often, communities have code enforcement divisions whose job is to assess and cite dilapidated structures.
Both HOME and CDBG funds can be used to inspect residential properties for property standard compliance. HOME funds cannot be used, however, to fund a stand-alone code enforcement program. HOME property inspections must be related to the provision of affordable housing. However, HOME can be used to rehabilitate homes that have been cited by code inspectors. If HOME is tied to the code enforcement process, the PJ needs to ensure that all rehabilitation meets the HOME requirements, including household income eligibility, rehabilitation standards, minimum/maximum per unit investment, maximum value, and all other applicable requirements.
CDBG can be used to fund a stand-alone code enforcement program. Eligible code enforcement costs under the CDBG Program include:
- Salaries and other expenses related to code enforcement activity; and
- Costs of legal proceedings related to code enforcement activity.
CDBG-funded code enforcement must be undertaken in deteriorated or deteriorating neighborhoods and cannot be undertaken on a city-wide basis unless the entire community qualifies as deteriorated. In addition, there must be public or private investment that is planned or ongoing in the code enforcement area that may be expected to arrest the decline of the neighborhood. CDBG need not be funding the improvements, rehabilitation, or services but they must clearly be occurring within the code enforcement area.
Example: Code Enforcement:
The Town of Devon has two neighborhoods that are significantly deteriorated. The Town has tried a range of voluntary programs, but as yet has been unable to see a substantial improvement. Both neighborhoods consist primarily of low-income owner-occupiedhomes. So, the Town undertakes a two -pronged initiative in the areas. First, the Town uses its CDBG funds to pay for code enforcement inspectors to evaluate and cite units within these neighborhoods. Then, the Town offers HOME rehabilitation funds to any low-income homeowner to assist them to bring their unit up to code. The result is a significant increase in the number of decent, safe, and sanitary units in these neighborhoods.
The CDBG rule prohibits the use of CDBG funds to correct property code violations as a code enforcement activity. However, these corrections can be done as a rehabilitation activity, including homeowner rehabilitation.
Home-based Business Rehabilitation
In many low-income neighborhoods, home-based businesses are common. Examples might include hair salons, tax or accounting services, or day care. In many of these businesses, the business is run out of the same rooms of the home that are used by the family. For example, the basement may serve as the day care center’s indoor play room during the day and the family’s TV area at night.
Under the CDBG rule, program funds can be used to make improvements to single family residential properties that also serve as places of business. Even if the rehabilitation work is necessary in order to operate the business, the activity need not be considered to be rehabilitation of a commercial or industrial building if the improvements also provide general benefit to the residential occupants of the building.
The standard under the HOME rule is different, however. Homeowner rehabilitation assistance can be provided to an income-eligible homeowner whose business is also located in the housing unit if the primary purpose of the activity is to rehabilitate the residence and bring it up to code. Improvements that accrue to the business located in the home are allowable under HOME only so long as the improvements are incidental to the rehabilitation of the residence. Home-based business rehabilitation is not an eligible stand-alone activity under the HOME Program.
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